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India: Focus on China, Not Pakistan

Why should India concentrate on the threat of China rather than Pakistan?

July 30, 2002

Why should India concentrate on the threat of China rather than Pakistan?

A few years ago, the respected head of a multinational company observed the unreal quality of the public debate in India. He said that he had read our newspapers voraciously for two weeks — and for every report on China, he had counted eight on Pakistan. "To the world at large, only China and India matter in Asia," he said.

"When people say that the 21st century will belong to Asia, they have China in mind — and then India. Japan doesn't count, because its demographics are wrong.

"Pakistan doesn't even exist in the big picture. Although China is currently ahead, India is the only country that could counter-balance it. I realize Pakistan is your neighbor, but so is China."

We Indians are obsessed with Pakistan and, because of our obsession, we run the risk of becoming like Pakistan — a failed economic and political state.

Instead, we should engage with China, the most dynamic economy in the world for two decades. Pakistan is a distraction and pulls us down. China will push us up.

What can China teach us? The first lesson is to have clear national objectives. For 20 years, China has had only one objective — to become an economic superpower and lift its people out of poverty. And it is pursuing that goal single-mindedly.

Nations, like individuals, perform best when they are determined. The Chinese have learned that law and order, speedy justice, political stability — all good in themselves — also promote growth by creating a sound climate for investment.

Chinese leaders wake up in the morning and they think only one thought: What they can do to enhance the prosperity of their people. I wonder: What do our leaders think about?

Just consider the many Chinese delegations visiting Bangalore in order to understand India's success in software.
"They have beaten us in everything. Now, they also want to defeat us in software," said the CEO of an Indian company who refused the Chinese entry into his premises.

Indians are the ones who fear foreign investment. Our concerns in this regard reflect our inferiority complex — and our lack of confidence in our ability to compete in the global marketplace.

How did the notoriously insular Chinese manage to change their attitude to foreign capital? This is a second lesson China can teach us: how to get more foreign investment.

A key reason why China is growing so fast is the result of a phenomenal rise in labor productivity, according to a study by Zulin Hu and Mohsin Khan of the IMF.

They trace this not only to foreign enterprises, but also to Chinese town and village enterprises, "which have drawn more than 100 million people from low productivity agriculture into higher value added manufacturing."

Started initially as simple agricultural processing factories, many are now world-class exporters. China's reforms started from below — unlike ours. Hence, the third lesson we can learn is to shift the focus of our reforms onto agriculture and the village.

Another secret of Chinese productivity is flexible labor laws. The Chinese are able to hire and fire workers based on customer demand.

Chinese workers in state enterprises are also routinely punished for indiscipline. This is not possible in India. Hence, a fourth lesson is to reform our labor laws.

There are many more lessons. But first of all, let's learn to ignore Pakistan — and heed China. Every Indian leader should scrawl "China" in big letters in his office to remind him everyday who is our real competitor.

While China is currently ahead — it has a 12-year head start in economic reforms — our Indian economy has performed well in the past two decades.

And if we accelerate our reforms, especially in agriculture and education, we will gain ground. If we don't, then China is going to push us around — and humiliate us in the 21st century.