INDIA & CHINA

China and India are the largest, agrarian economies in the world, accounting for a substantial share of the world poorest people.

INTRODUCTION

The rate at which China and India have been growing since the early 1990s has been a major topic of discussion around the world. Both countries are home to nearly a billion people and they experience tremendous GDP growth each year. One of the main factors that make India and China an interesting comparison is the fact that although they are similar in many ways, their differences have led each of the take different paths towards economic development.

INDIA AND CHINA COMPARISON OF KEY INDICATORS

Indicators Size of Population Type of Government GDP Growth (2007) Manufacturing as a % of GDP Services as a % of GDP FDI Inflows (2006 2007) India 1.1 Billion Democracy 9.3% 16% 51.5% $67.72 Billion (predicted) China 1.3 Billion Communist State

11.4%
53.3%1 41.2% $699.5 Billion

Indias growth has been spurred by the service sector as opposed to its manufacturing sector. Indias service sector comprises approximately 52% of its GDP while Chinas is significantly lower, at 41%.

INDIA OPENS ITS ECONOMY

India is viewed as a rising economic superpower today, but as recently as 1991, it was in dire financial straits. Economic liberalization opened Indias doors to foreign investors. Before India began welcoming foreign trade and investors, its economic growth rate hovered around 3%. Three years after the 1991 reforms, the rate of growth jumped to 7% and since then, the country has experienced an overall 6 - 7% growth rate. India had only $1 billion in foreign currency at the time of the reforms; today, it has an astounding $239.4 billion. (31 December 2007 est.). India is playing an increasingly important role in information technology innovation. Motorola, Hewlett-Packard, Cisco Systems,Microsoft and other technology giants rely on their Indian employees to design software platforms and futuristic multimedia features for next-generation devices.

CHINA OPENS ITS ECONOMY

To get rich is glorious, declared Chinas leader in 1977, signifying the opening of the worlds most populous country to international trade. In China today, there is no question that communist ideology takes a backseat to capitalism for economic growth.
For the past two decades, Chinas average annual economic growth has been an incredible rate of 9.5%. If this rate continues, Chinas economy could be 75% bigger than the U.S. economy by 2050. China is the worlds largest manufacturer of consumer electronics. China impacts our lives in some fashion every day, as consumers, sellers, employees, employers, manufacturers, etc. China leads the world in the number of clothes made and toys assembled. China makes more than 40% of all the furniture sold in the United States.

SERVICE INDUSTRY

INDIA

OVERVIEW OF SERVICES

The Indian information technology (IT) industry has been the source of much discussion on the successful growth of a knowledge industry in a largely poor, developing country. IT in India is spread across four key sectors- IT services; IT enabled services (ITES), software, and e-business. These sectors combine for a 2008 annual revenue forecast of $87B, (NASSCOM) with numerous analysts suggesting higher revenue. The rapid growth of IT in India, software was a small $150MM industry in 1991, but grew to $5.7B in 2000.An annual growth rate of 50% . (NASSCOM).

FACTORS LEADING TO GROWTH IN SERVICES

Passive Role of Government

Indias IT industry has flourished with minimal intervention or support from the central government. The Indian IT industry did not face a rigorous process for starting new companies. IT also faced limited labour restrictions on hours and overtime, while having the opportunity early in its development to receive foreign direct investment

English
At least 70MM individuals (Torreblanca) speak English at a professional level in India. Indias IT industry has matured from software to business process off shoring (BPO), English has again been a comparative advantage as the sheer number of employable English speakers has made India a key FDI destination.

Education
India
has only 4% engineers, while Germany and China have 20% and 33% respectively.

IT required large numbers of technical graduates, especially relatively inexpensive, English speaking ones, which has been a major advantage for India, despite overall shortcomings in the education system.

Entrepreneurship
While the heavily regulated post-Independence economy in India was not conducive to entrepreneurship, IT beginning in 1980s was an exception. Starting a software company was comparatively easy to manufacturing or other capital intensive industries. As multinationals began using India for IT services Clusters of high tech areas formed in cities like Bangalore and Hyderabad, essentially creating natural high tech zones that pulled in greater amounts of investment.

OVERVIEW OF SERVICES

One of Chinas fastest growing service industries is the software industry. The Chinese software industry is inherently different than Indias and will likely take different paths. The majority of Chinese software services producers are domestic companies with domestic consumers.

Chinese firms comprise about a third of the domestic software market, with the government pushing for a 60% domination by 2010. China is also experiencing growth in other knowledge based service sectors.
China is racing India in the IT enabled services/ Back Office Operations industry.

FACTORS LEADING TO GROWTH IN SERVICES

English
The recent emergence of English education in China is likely attributed to the growth of the service sector. Because the government understands the importance of English-language knowledge to success in the Knowledge based service sector.

Education
To take advantage of the large technically educated labour pool, many American educated and trained Chinese entrepreneurs are moving back to China to develop ITES/BPO companies. Salaries amongst IT professionals in China are less than a sixth of those in the United States. China, spent 2.3% of GDP on education, compared to 5.1 % by the United States in the same year.

OBSTACLES TO GROWTH IN

SERVICES IN CHINA

IPR violations

Despite the efforts in education and infrastructure that China has started, one of the largest drawbacks is the constant threat of intellectual property rights violations in China.

RECOMMENDATIONS FOR CHINAS SOFTWARE INDUSTRY/ITES GIVEN INDIAS SUCCESSES

Recommendation 1: Become More Export Oriented

The first recommendation that China should adopt to improve its software sector is to develop a more export oriented growth strategy. Being domestically focused could leave the industry susceptible to internal shocks.

The high tech development zones should provide technical assistance on exporting guidelines and globalization to help companies export abroad.

Recommendation 2: Create A Better IPR Regulatory Environment

China needs to focus on improving its protection of IPR and target pirating. A first step towards this goal is through the creation of an IT/Off shoring Trade Association similar to Indias NASSCOM.
The creation of this type of organization would allow companies to share best practices to increase efficiency and, apply more pressure to increase compliance with international IPR standards

INFRASTRUCTURE WITH FOCUS ON THE POWER SECTOR

INDIA & CHINA

INTRODUCTION

The East Asian region including China and India is projected to experience stronger growth in electricity consumption than any other region of the world. Total electricity consumption is projected to grow by more than 3 trillion-kilowatt hours between 1995 and 2015, a growth rate above 5 percent per year, with China alone accounting for more than half the growth. China and India are more heavily dependent on coal for electricity generation than are the other developing Asian nations. The relative shares for oil and nuclear power are expected to decline

INTRODUCTION

At the time of Indias independence, India and China were at par with respect to overall infrastructure development. Now Chinas per capita consumption of steel is five times that of India and that of energy if three times. The success of reforms in the power sector in China paves the way for India in understanding the formulation and implementation issues relating to the same. China is a very relevant case study for India because of various similarities viz. population, size, demographics.

THE CHINESE POWER SECTOR

China has the world's fastest growing electric power. Per capita consumption in China is currently only 6% that of the United States.

THE DEMAND SUPPLY SITUATION

Strong projected growth in electricity demand in China results from two factors.

Increased need for rural electrification. Although nearly 90 percent of the rural households in China had access to electric power at the end of 1993, some 120 million people were still without electric power. The Chinese government plans to increase electrification to 95 percent by 2000. The Chinese government is working to keep electric power growth in line with economic growth. China's annual average ratio accounted for only 1.24 percent of GDP from 1980 to 1999. Hence, China is heavily investing in power projects. Growth in electricity generation averaged 8% per annum during the last 15 years.

ENERGY SUPPLY PTIONS

Chinas installed power generating capacity was 250 GW in 1997 of which 77% was thermal and 23% was hydro. Nuclear capacity occupied only a fractional share of the total power generated. 1.) Thermal Power, 2.) Hydroelectric Power, 3.) Nuclear Power.

THERMAL POWER

Coal-fired power plants provide more than 90% of thermal generation, with oil based generation accounting for most of the balance. The share of natural gas-based power generation is negligible and is expected to remain so even if the country succeeds in implementing its challenging gas import projects. The power sectors use of coal amounted to 370 million tons, which is more than one-third of the total coal consumption in the country.

THERMAL POWER

Although government policy emphasizes the addition of larger, more efficient units of 300 MW and 600 MW, over half of the existing capacity is still in units below 200 MW. Only 15% of installed capacity are in units of larger than 300 MW, compared to 60-80% in industrialized countries.
New plants being built by the local governments are in unit sizes of 50 MW or less. The main reason is that these small units are easier to finance. At the same time, these units consume 60% more coal per unit of electricity produced compared to units of 300 to 600 MW.

HYDROELECTRIC POWER

Hydropower is the least-cost generation source in China. It serves, and will serve, a major role in meeting the base-load power generation needs of the country. The generation cost is about $0.03 / kWh. The country has a hydroelectric potential of 670 GW, of which 380 GW is considered suitable for exploitation. This capacity may generate up to 1900TWh per year. By the end of 1996, 56 GW of installed hydro capacity were in operation, reflecting approximately 14.7 percent of the exploitable resource. The installed capacity is expected to increase to 100 GW by 2010. The Three Gorges project on the Yangtze River involves construction of the world's largest dam, with its 26 hydropower generating units (700 megawatts each) slated to provide a total of 18 gig watts generating capacity by 2009.

NUCLEAR POWER

Nuclear power represents a relatively minor, but growing, share of Chinas electric generating capacity, with two plants currently in operation: Qinshan at Hangzhou Bay in Zhejiang province (288 megawatts) and a plant at Daya Bay in Guangdong province (1812 megawatts). China has plans for 9 additional units, totalling 8 gig watts. By 2015, output from nuclear plants is projected to increase 9-fold over 1996 levels, accounting for about 4.5 percent of China's electric power generation. Under construction are two 600megawatt units at the Qinshan plant and two 1,000-megawatt units at a new plant, Lingao, near Hong Kong.

ENERGY CONSUMPTION
PROJECTIONS

FOR CHINA

If electricity demand grows, as expected, at 8 to 9% per annum, China would need to add about 18-20 GW of capacity per year. Even with a growth rate of 7% (low-case scenario), the growth in Chinas power generating capacity will be about 16 GW per year. This still accounts for more than 20% of the worlds new capacity.

The projected huge increase in overall energy usage by 2020 (162 percent), a massive investment in energy infrastructure for natural gas, nuclear, hydroelectric (e.g., Three Gorges Dam project), and other renewable is a must. The large annual increases in energy demand in Asia will most likely be met by rapid increases in coal and oil imports. In 1992, China was a net oil exporter, but it is expected that by 2010, China will become the second largest importer of oil in Asia.

THE INDIAN POWER SECTOR

Indias power sector has grown many fold in size and capacity. India consumes two-thirds more energy per dollar of gross domestic product (GDP) as the world average. India consumes only about 18 percent of the energy per person as the world average.

THE DEMAND SUPPLY SITUATION

The power sector has been characterized by shortage in supply vis--vis demand. From 1998, there has been peaking shortage of 18% and energy shortage of 12%. The transmission and distribution losses in India are among the highest in the world. Against the normal world average of 8-10%, the figures have been about 23%, which is alarmingly high.

ENERGY SUPPLY OPTIONS

Coal currently accounts for 78% of fuel use at Indias electric power stations. As in China, Indias high coal use is a reflection of its ample coal reserves. Renewable energy (almost entirely hydropower) is the next largest source of electricity supply in India. Renewable energy (almost entirely hydropower) is the next largest source of electricity supply in India. In1995, renewable accounted for 14% of Indias electricity generation. Natural gas (at about 5%), oil (at 2%), and nuclear energy (at just under 2%) provided the remaining fuels to Indias electricity industry. A wind-energy rush began in 1994 as the government opened up the power grid to independent developers and offered tax incentives for renewable energy development. Indeed, India is now second only to Germany in the number of annual wind-power installations.

ENERGY CONSUMPTION
PROJECTIONS

FOR INDIA

Electricity demand in India is projected to grow dramatically over the next 20 years. With about 6 percent of total world coal reserves, India, like China, relies on coal for much of its energy supply. Although coal's share of India's electricity generation is projected to drop slightly, from 77 percent in 1995 to 64 percent in 2015. The contribution of natural gas in electricity generation is projected to rise from only 4 percent in 1995 to 12 percent by 2015.

WORLD ENERGY CONS. FOR ELECTRICITY GENERATION BY REGION AND FUEL

LEADING ELECTRIC POWER COMPANIES IN ASIA

PETROLEUM

INDIA & CHINA

PETROLEUM CONSUMPTION IN CHINA

From 1993 China began to become a net importer of energy resources, with yearly petroleum import increasing around 10m tons and the amount tending to grow on an annual basis. China will still be short of 8 percent energy by 2010 and about 24 percent by 2040, of which petroleum shortage may reach several hundred million tons. Dependence on imports had jumped from 6.6 percent in 1995 to 25 percent in 2000. The figure is expected to rise to 30 percent by 2010 and further to top 50 percent by 2020. The country plans to increase its proven oil reserve by four billion tons and crude oil production by 10 million tons in the next five years, mainly by stepping up exploration and exploitation efforts in the western regions and its offshore areas

PETROLEUM CONSUMPTION INDIA

India's oil import bill has swelled 52 per cent to $44.64 billion in 2005-06 on the back of high global oil prices. India imported 99.4 million tones of crude oil for $38.77 billion and 11.67 million tones of petroleum products for $5.86 billion in 2005-06. In 2006- 2007 the import bill of PETROLEUM, CRUDE & PRODUCTS was $52.11 billion according to latest Petroleum Ministry data.

LPG demand was up 0.6 per cent to 10.3 million tones and petrol consumption rose 4.8 per cent to 8.64 million tones

INDIA & CHINA

Quick Facts In Figures

ECONOMY
INDIA
GDP (purchasing power $2.965 trillion (2007 est.) parity): GDP (official exchange $894.1 billion (2007 est.) rate): GDP - real growth rate: 8.5% (2007 est.) GDP - per capita (PPP):

CHINA
$7.043 trillion (2007 est.) $2.879 trillion (2007 est.)

11.4% (official data) (2007 est.)

$5,300 (2007 est.) agriculture: 11% industry: 49.5% services: 39.5% note: industry includes construction (2007 est.) 803.3 million (2007 est.) agriculture: 43% industry: 25% services: 32% (2006 est.) 6.1% unemployment in urban areas;
substantial unemployment and underemployment in rural areas (2006 est.)

$2,700 (2007 est.) GDP - composition by agriculture: 16.6% sector: industry: 28.4% services: 55% (2007 est.)

Labour force: 516.4 million (2007 est.) Labour force - by agriculture: 60% occupation: industry: 12% Unemployment rate:

services: 28% (2003) 7.2% (2007 est.)

ECONOMY
INDIA
Population below poverty line: 25% (2002 est.)

CHINA
8% note: 21.5 million rural
population live below the official "absolute poverty" line (approximately $90 per year); and an additional 35.5 million rural population above that but below the official "low income" line (approximately $125 per year) (2006 est.)

Household income or lowest 10%: 3.6% lowest 10%: 1.6% consumption by highest 10%: 31.1% (2004) highest 10%: 34.9% percentage share: (2004) Distribution of family 36.8 (2004) 46.9 (2004) income - Gini index: Inflation rate (consumer 5.9% (2007 est.) 4.7% (2007 est.) prices): Investment (gross fixed): 31.8% of GDP (2007 est.) 42.2% of GDP (2007 est.)

ECONOMY
INDIA CHINA
58.8% of GDP (federal and Public debt: state debt combined) (2007 18.9% of GDP (2007 est.) est.) rice, wheat, oilseed, cotton, Agriculture - jute, tea, sugarcane, rice, wheat, potatoes, corn, peanuts, tea, millet, products: potatoes; cattle, water barley, apples, cotton, oilseed; pork; fish buffalo, sheep, goats, poultry; fish mining and ore processing, iron, steel, textiles, chemicals, food aluminium, and other metals, coal; machine Industries: processing, steel, building; armaments; textiles and apparel; transportation equipment, petroleum; cement; chemicals; fertilizers; cement, mining, petroleum, consumer products, including footwear, toys, and machinery, software electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites

ECONOMY
INDIA
Industrial production growth 10% (2007 est.) rate: Electricity - production: 661.6 billion kWh (2005) Electricity - production by fossil fuel: 81.7% source: hydro: 14.5%

CHINA
12.9% (2007 est.) 2.866 trillion kWh (2006) fossil fuel: 80.2% hydro: 18.5% nuclear: 1.2% other: 0.1% (2001) 2.859 trillion kWh (2006) 11.27 billion kWh (2006) 5.39 billion kWh (2006) 3.71 million bbl/day (2006) 7 million bbl/day (2006) 375,800 bbl/day (2006) 3.646 million bbl/day (2006) 16.3 billion bbl (1 January 2006 est.)

nuclear: 3.4% other: 0.3% (2001) Electricity - consumption: 488.5 billion kWh (2005)
Electricity - exports: 67 million kWh (2005) Electricity - imports: 1.764 billion kWh (2005) Oil - production: 834,600 bbl/day (2005 est.) Oil - consumption: 2.438 million bbl/day (2005 est.) Oil - exports: 350,000 bbl/day (2005 est.) Oil - imports: 2.098 million bbl/day (2004 est.) Oil - proved reserves: 5.848 billion bbl (1 January 2006

est.)

ECONOMY
INDIA
Natural gas - production: 28.68 billion cu m (2005 est.) Natural gas - consumption: 34.47 billion cu m (2005 est.) Natural gas - exports: 0 cu m (2005 est.) Natural gas - imports: 5.793 billion cu m (2005) Natural gas - proved 1.056 trillion cu m (1 January reserves: 2006 est.) Current account balance: -$18.53 billion (2007 est.) Exports: $140.8 billion f.o.b. (2007 est.) Exports - commodities: petroleum products, textile goods, gems and jewellery, engineering goods, chemicals, leather manufactures

CHINA
58.6 billion cu m (2006 est.) 55.6 billion cu m (2006 est.) 2.874 billion cu m (2006) 976 million cu m (2006) 2.45 trillion cu m (2006 est.) $363.3 billion (2007 est.) $1.221 trillion f.o.b. (2007 est.) machinery, electrical products, data processing equipment, apparel, textile, steel, mobile phones

ECONOMY
INDIA
Exports - partners: US 17%, UAE 8.3%, 7.8%, 4.3% (2006)

CHINA

US 21%, Hong Kong 16%, Japan 9.5%, South Korea 4.6%, Germany 4.2% (2006) Imports: $224.1 billion f.o.b. (2007 $917.4 billion f.o.b. (2007 est.) est.) Imports - crude oil, machinery, machinery and equipment, oil commodities: gems, fertilizer, chemicals and mineral fuels, plastics, LED screens, data processing equipment, optical and medical equipment, organic chemicals, steel, copper Japan 14.6%, South Korea 11.3%, Taiwan 10.9%, US 7.5%, Germany 4.8% (2006)

Imports - partners: China 8.7%, US 6%, Germany 4.6%, Singapore 4.6%, Australia 4% (2006)

ECONOMY
INDIA
Economic aid - recipient: $1.724 billion (2005) Reserves of foreign exchange $239.4 billion (31 December and gold: 2007 est.)

CHINA

$1.757 billion (2005) $1.493 trillion (31 December 2007 est.) Debt - external: $165.4 billion (30 June 2007) $363 billion (31 December 2007 est.) Stock of direct foreign $67.72 billion (2006 est.) $699.5 billion (2006 est.)
$75 billion (2006 est.) $2.426 trillion (2006) Renminbi (RMB); note - also referred to by the unit yuan (CNY) CNY yuan per US dollar - 7.61 (2007), 7.97 (2006), 8.1943 (2005), 8.2768 (2004), 8.277 (2003) calendar year

investment - at home: Stock of direct foreign $21.11 billion (2006 est.) investment - abroad: Market value of publicly $818.9 billion (2006) traded shares: Currency (code): Indian rupee (INR) Currency code: INR Exchange rates: Indian rupees per US dollar -

41.487 (2007), 45.3 (2006), 44.101 (2005), 45.317 (2004), 46.583 (2003) Fiscal year: 1 April - 31 March

THANK YOU