While it is clear India's leaders must do more to convince international investors of their commitment to reform, China apparently gets more credit than it deserves. A reality check on these two economies is in order to find out why Beijing has been effective in creating a positive image for itself.
It is true that China has gone further with market-based reforms that began earlier than India's. However, neither country has gone as far as it might and promises from Beijing and New Delhi go unfilled. For reasons that are not totally justified, Beijing is given the benefit of the doubt.
Consider that Beijing's official statistics always promote a rosy outlook. Many investors seem to accept these numbers despite strong evidence that much of it is seriously inaccurate. This is not to imply that the accuracy of India's data is anything to crow about, but Chinese officials tend to offer numbers to make the central authorities happy instead of offering accurate data, still trapped in the mindset established under central planning.
This is evident in a report by China's National Bureau of Statistics that it uncovered over 62,000 violations of regulations on collecting and compiling economic figures in 2000. Even the most fundamental of measures like GDP growth and unemployment figures are dubious. The official unemployment rate is wildly understated by counting only registered unemployed in cities. The entire rural population and many blue-collar workers like those put on temporary leave because of poor performance of their enterprises are left uncounted.
Data on GDP is scarcely closer to the mark. Although China has a less advanced system of national income accounting, it quickly released final numbers on 2001 growth that indicate growth of 7.3 percent which went against the logic of the current global slowdown. Despite this haste, corrections in official figures are seldom made.
Since foreign investors rely heavily upon market data recorded by local statisticians concerning market conditions, it begs the question whether billions of dollars were wisely invested. A partial answer is that many foreign investors are either (still) losing money or far behind in their projections. When asked about the condition of their investments in China, those that have found themselves upside-down in their placements offer the euphemistic reply that they are in it for the "long run." Without reliable and independent corroboration of official data, a useful rule of thumb should be applied to authoritarian regimes: Double the numbers relating to bad news while halving those that report something good.
Under this rule, China's actual urban unemployment is closer to 15 or even 20 percent, and its actual economic growth might be closer to 4 percent. It also means that the gap between the Chinese and Indian economies may not be as large as indicated by official data.
Perhaps most obvious is the drag on China's economy imposed by widespread and unrestrained graft and corruption, a problem it shares with India. Estimates by Chinese economists indicate that officials diverted about 20 percent of the revenues of the central government for 1999 for their private use. A related problem is the unsupervised mismanagement or misuse of funds for expenditures on infrastructure. However, international investors have different perceptions about corruption in the two countries. In China, it is widely believed that graft can be used to the advantage of savvy market players. By contrast, it is widely understood that in India that there is no advantage in engaging in graft because other officials at other levels can eventually derail a project.
One of India's perception problems is that the large number of beggars provides a ready reminder of widespread and perhaps irreducible poverty. This does little to convince multinationals that India is a good place to search for large numbers of new consumers.
However, foreign investors who believe that China has fewer poor people would do well to inspect the matter more closely.
First, the authoritarian nature of the regime in Beijing allows it to issue orders to round up beggars and loafers from urban centers and send them to the countryside where they are less visible. This often happens before international meetings or conferences and when foreign dignitaries visit.
Second, India will always have numerous beggars even when it achieves a high per capita level of income. This is because the two major religions, Hinduism and Islam, encourage the giving of alms to the needy. In effect, beggars are providing a service to Muslims and Hindus who seek dispensation to gain merit. As members of these religions grow richer, their increased ability to offer more alms will encourage more people to provide a service to them as beggars.
As it is, India tends to have a mostly open political arena with vestiges of a closed economy, whereas China has a closed political arena with a relatively open economy. China wins on this comparison since from the view of an outside investor, the issue of an open economy is more important.
Therefore, Beijing's most effective ploy was using spokespersons like Chinese Premier Zhu Rongji (朱鎔基) to project an image, albeit misleading, that China is open for business. Delhi's one-step forward, two-steps-back approach to economic reform gives the opposite impression.
In all events, the effectiveness of China's leaders to employ a certain amount deception about their economy is less open to India's leaders. An open, deliberative media in India scrutinizes policy pronouncements and failings of the various branches of government.
Given Beijing's success at offering an exaggerated sense of economic opportunities, it would appear that dishonesty is the best policy. Yet in the long run, India will have the advantage since open discourse should make it more likely for complex problems to be solved.
Beijing has reversed nearly 50 years of misleading propaganda that denigrated markets and denounced profits, while Delhi seems stuck in a time warp. India needs a leader who, like Deng Xiaoping (鄧小平), would declare, "to be rich is glorious" and unashamedly open the economy to trade and capital inflows. Then India could get on with serious economic reform which would reduce its shameful track record of poverty and slow economic growth.
Christopher Lingle is professor of economics at Universidad Francisco Marroquin in Guatemala and strategist for eConoLytics.com.
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