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China, India and the Future
China or India? China, India and the Future Ian Marcouse 2008
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A few facts Since 2005, Volkswagen has been selling more cars in China than in Germany In the past five years, car sales in China have risen by 300%; in India by 60%, and in the UK by 0.2% Britain is the world’s 5th largest economy; it has 5% of world trade, but only 0.9% of imports to China are from Britain
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Why is China growing so fast?
China or India? Why is China growing so fast? Huge investment levels (an investment rate of 40%); Chinese investment in fixed assets is nearly 5 times higher than India’s Spending on construction is nearly 8 times higher in China Literacy level is much higher: 42% illiterate in India; 9% in China … so the huge rural workforce can find jobs Ian Marcouse 2008
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What changed in China in 1990/91?
A freeing up of market access and the private sector; a major policy change to welcome FDI The policy change to hugely increased capital spending, especially on infrastructure Probably influenced by the political pressure for change after 1989
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Can China outstrip America?
($trillions) UK $2.34 $ $ $4.91 India $0.80 $ $ $6.08 America $13.22 $ $ $34.00 China $2.51 $ $ $33.36 Assumed average GDP growth: UK 2.5% US 3.2% China 9% India 7%
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How fast is India growing?
In 2007 India was growing at nearly 10% And although its longer-term growth has been rooted in services, firms such as Tata (with its £1,250 car) are pushing ahead in manufacturing The big question is whether it can be sustained
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Hitting the buffers? (2006 figs)
India China Inflation % 2.3% Interest rates % 4.5% Unemployment 7.8% 4.2% Current account ($) -26.4bn 179.1bn
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Struggle in India? Man. Growth Inflation May/June 2004 6.6% 3.6%
February % % February % % February % % Source: Indian Government data April 2007
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What does it mean for business
Top firms should move into China: following VW, BMW, L’Oreal, Honda and McDonalds From the UK, the main movers into China are Kingfisher (B&Q), Tesco and BP, but we are far behind Germany, the US and Japan Britain has 5% of world trade, but less than 1% of all imports to China …. and .. success in China takes time and influence
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Implications and Issues
Can our firms think in a sufficiently long-term way? (When Sony started up in Britain in 1978, it said it would take 15 years to break even) Can our firms cope with major risk-taking? (Tesco dips toe in China; misses out on India – so far) What has held our Boardrooms back?
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Constraints on British Boards
The grip of the stock market may be a factor; much more significant than in Germany or Japan Low levels of manufacturing in Britain (only 15% of GDP) may mean the British opportunity is to come (when China develops services) May have lacked government support
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Longer-term issues China will be the golden business opportunity of the next 20+ years … so clever students will learn Mandarin… … and clever firms will devise a China strategy (produce there? Buy there? Move there? Sell there?)
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And India? Less exciting in general, though with far better opportunities for Britain … many English speakers, and a common link from the days of Empire Firms such as Unilever are major employers in India UK has a 5.5% share of Indian imports (but this figure is falling)
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A classic strategic decision…
China or India? A classic strategic decision… Address a weakness by playing catch-up in fast-growing China (shareholders will probably applaud) Or build on a UK strength by getting in early in India … … perhaps India will experience the take-off enjoyed by China after 1990 – and growth will accelerate Ian Marcouse 2008
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What about the casualties?
2006 Data from the ILO China India Fatalities , ,176 Workforce m 418.6m Fatal per 10, Source: Chinese and Indian Government data and other sources
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And the environment? Tonnes of CO2 Total CO2 per cap. p.a. M tonnes
India ,100 China ,700 UK US ,800 Russia ,500 World ,000 Source: Energy Information International (The Guardian March )
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Conclusions China is set fair for many more years of sustained growth at 8-11%p.a. India will continue to grow rapidly, but in a more cyclical way – it needs vast investment in education and transport – it isn’t clear that it can be afforded China is the right horse – but it has already left Britain behind
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