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ver the last few years my firm, Dezan Shira & Associates, has been involved in China and India and we have commented many times on the relationship between them. I personally have been involved in the bilateral trade space through the mutually beneficial development of the firm into both markets since 2005 we now possess, between the two countries, some fifteen offices and a team of several hundred staff. As the relationship starts to look at maturing to a more trade based focus, the announcement by Chinese Premier Wen Jiabao in December of an expected increase in bilateral trade to US$100 billion in volume by 2015 has begun to concentrate minds on how these two giants of Asia are to manage their development. Indeed, the China-India issue is not just a regional matter, it is one that will affect global trade balances and security. If China and India succeed,
global growth is almost assured for the remainder of the century. Hundreds of millions will be lifted out of poverty. Fail, and the fallout may spark serious conflict, possibly even nuclear. The stakes may never have been higher in ensuring that a dependable, secure and mutually beneficial relationship emerges. In this comparison I try and examine the differences between the two nations, what I see as the sticking points, and provide clues as to why some of these may be about to be removed to clear the path for a more pragmatic, and commercial minded relationship between the two countries. That the relationship is highly politicized is beyond doubt; matters concerning especially the position of the Dalai Lama and the Tibetan Government in Exile, currently resident in India, provide a case in point. China regards the regime as subversive, and consequently uses this to push India towards its point of view by making claims on Indian territory and making border incursions
along disputed areas on a regular basis. Indias military responds by requesting budget increases along its territory with China, delaying the construction of crossborder highways that they suspect would provide China with the opportunity to just march in, and both use up resources in addition to inhibiting development. For a nation requiring massive infrastructure development, such expense and deliberate regional suppression comes at a huge opportunity price. Chinas relationship with Pakistan too, can be a thorn in Indias side a failed state, responsible for attacks in Indias major cities, with a habit of antagonizing Indias huge Muslim population causes both a continuation of mistrust, but also deflects Indian attention, finance, military and resources towards its western border and again prevents India from economic growth that could potentially challenge Chinas bid for regional supremacy. Its hardly any wonder that the two sides view each other from polar opposites.
However, against this backdrop is the increasing need to develop bi-lateral trade ties. China needs a huge, export consumer market to sell too, India provides this. So does China for Indian businesses. What is happening therefore is a rebalancing of the relationship, to try and move it away from border disputes to a more settled and reliable trade platform. Depending upon the future plans of the Dalai Lama, who one suspects, is well aware of the problems caused to the Indian government in hosting him, it is possible the next Dalai Lama and by this I mean the Dharamsala appointed figure, not the possible Beijing incarnation may be found born externally from India. Such a scenario would provide India with a get-out clause in its relations with China, and lead the government in exile to establish its operations elsewhere. There are precedents the fourth Dalai Lama was born in Mongolia. It is not beyond the bounds of imagination to perceive the next incarnation being found there the Mongolians relationship with China is tetchy at the best of times, and Mongolia is largely interdependent from Chinese trade. That scenario mentioned, it is also possible that the current Dalai Lama could find a way to agree with Beijing to assume a reincarnation found in Tibet, or China. Such issues require dialogue, and are naturally highly sensitive. One hopes such discussions are taking place, at least informally. It would appear in Beijings best interests not to preside over a situation where two Dalai Lamas are announced. That would only prolong the conflict for much of the remainder of the century. China-India trade developments for the time being then are very much interwoven with the future of the Dalai Lama. If his government leaves India, Indian relations with China will massively improve. Both sides understand each other on this point, and both are mature enough to determine border dispute reminders not withstanding that time will tell. Beyond this also lies a strong desire to reconnect old trade routes and border regions. Bangladesh and Myanmar lie between China and India, it is in the interests of both to see these nations become better equipped, more able to participate in global trade, and open up their lands to the exploiting of valuable resources. That will take a regime change in Myanmar, however China is also
becoming frustrated with the lack of progress made in the country. It too wants access to resources and an increase in trade. Continuing to support the generals indefinitely while the potential for the Burmese market in buying Chinese goods remains in poverty is not a scenario particularly appealing to Beijing. The same can be said for Delhi. Bangladesh meanwhile offers a port on the Bay of Bengal for China, and access to Indian markets as well as towards the Middle East. Chittagong is already being redeveloped with billions of dollars of Chinese investment. Better relations with India and Bangladesh also can reconnect the Jute industry, and potentially revitalize Calcutta. The city is already home to the largest overseas diaspora of Tibetans, and links back to Lhasa, if re-established, could once again remake Lhasa into a regional Himalayan trading hub. The purists may scoff, but Lhasa traditionally had such a role. Reclaiming trade routes from Calcutta and Dhaka to Lhasa would also revitalize the Himalayan region. If China and India are unencumbered in political issues over the Himalayas, better cooperation concerning water resources and management may also result. It is pertinent to note that while the Dalai Lama calls for more focus on climate change in Tibet, its his own removal that is more likely to provide a platform for increased regional cooperation of a resource that needs to be properly managed, tensions dispersed, and developed along multilateral considerations. Pakistan remains awkward, but again, Chinese patience is wearing thin. The export of terrorism to West China alarms Beijing, as does another potential market for Chinese goods remaining in poverty. Peace is required, not just for the redemption of Pakistan but to also assist with the redevelopment of Central Asia. What was once a cosy relationship built in part to frustrate India is now looking increasingly difficult to maintain in its current form. China wants markets in Pakistan, and Pakistan needs infrastructure. The same is true of Central Asia, and the huge markets to the west in Iran. Securing such a vast territory to allow Chinese businesses to operate in them is becoming more of a pressing concern than using Pakistan as a needle to prickle Indian sensitivities and keep its military occupied along its Western front. I predict longer term changes in Chinas
expectations from Pakistan, although this will undoubtedly take time in what remains a fragile country. While the current status between China and India remains built upon political differences, there are moves to reconstruct this towards trade based foundations. Sino-India trade during 2010 reached US$60 billion, the same level it was at before the global financial crisis. US$60 billion is incidentally, the same trade volume that China currently has with Russia. Premier Wen, recently stated in Delhi it should increase to US$100 billion by 2015. Clearly, trade is developing and becoming more important. Chinese businesses are starting to move to India, and Indian businesses are increasingly moving to China. We know, as our practice is positioned right in the middle of that trade and we handle FDI into both countries from either side. My belief is that although the old disputes and mistrust in relations is undoubtedly there, both nations see a need to move beyond this stalemate and recalibrate their understandings. It is curious that an elderly monk and a government of Generals provide two of the keys that will enable the rusty lock to bilateral trade development be broken open. As and when it is, that US$100 billion will begin to look like small change. The opportunities between the two are enormous. Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates, w h o s p e c i a l i z e i n f o re i g n d i re c t investment, legal and tax advice in China and India. The firm maintains 10 China offices (Beijing, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Guangzhou, Zhongshang, Shenzhen and Hong Kong) and five in India (Delhi, Calcutta, Mumbai, Bangalore and Chennai). The practice may be reached at chinaindia@dezshira.com. Chris also contributes to our business web sites India Briefing and the ChinaIndia platform 2point6billion.
Note: The articles in this comparison have previously appeared in our 2point6billion, China Briefing and India Briefing websites and publications, and may have been amended from their original content.
Trading Partners
Bilateral trade between India and China has grown significantly since 2005. Due to the global economic downturn, trade between the two countries declined in 2009. Interestingly, Chinese imports of Indian goods fell 26.6 percent more than Indian imports of Chinese goods. In fact, this speaks to a broader problem with the relationship between the two countries. In many ways, China seems to benefit
Item Size of economy in global terms Global position in purchasing power parity Global ranking among fastest growing economies Per capita income (US$) World per capita income ranking Number of workers (millions) Population growth rate Total population in global terms Percentage of global trade Global trade (US$bn, 2008) Length of coastline (km) Amount of arable land (sq. km in millions) Available fresh water area (sq. km) Total rail track (km) Total highway length (km in millions) Total number of English speakers (millions)
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China/India Imports
China Imports US$100 million 350 300 250 200 150 100 50 0 India Imports China Imports Percent Change India Percent Change China 2005 89.35 97.68 50.80% 27.20% 2006 145.82 102.78 62.13% 5.22% 2007 240.16 146.31 64.70% 42.30% 2008 315 202.81 31.20% 38.70% 2009 296.67 137.14 -5.80% -32.40% India Imports Percent Change China Percent Change India 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00%
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Development Bank, support Indias claims of sovereignty. Political tensions frequently affect economic trade. India has successfully appealed to the WTO on several occasions to block the export of Chinese products. While it seems that for the time being trade will continue to increase, a major dispute could severely disrupt their economic relationship.
India imports Jan-09 2.06 billion Feb-09 1.75 billion Mar-09 2.22 billion Apr-09 2.39 billion May-09 2.35 billion Jun-09 2.26 billion Jul-09 2.78 billion Aug-09 2.69 billion Sep-09 2.67 billion Oct-09 2.44 billion Nov-09 2.78 billion Dec-09 3.29 billion Jan-10 2.81 billion Source: PRC Ministry of Commerce
Aluminum Electrical machinery Fertilizers Impregnated text fabrics Inorganic chemicals and rare earth Iron and steel Iron and steel products Machinery Manmade filament, fabric Minerals Optic and medical instruments Organic chemicals Plastic Silk; silk yarn and fabric Vehicles
Asia imports 2005 271.45 billion 2006 318.8 billion 2007 378.54 billion 2008 702.66 billion 2009 603.45 billion Source: PRC Ministry of Commerce
Asia exports 199.67 billion 244.69 billion 307.56 billion 663.3 billion 568.6 billion
World imports 2005 660.12 billion 2006 791.61 billion 2007 955.82 billion 2008 1.13 trillion 2009 1.01 trillion Source: PRC Ministry of Commerce
World exports 761.99 billion 969.07 billion 1.21 trillion 1.43 trillion 1.2 trillion
India imports 2005 8.94 billion 2006 14.58 billion 2007 24.02 billion 2008 31.5 billion 2009 29.67 billion Source: PRC Ministry of Commerce
China imports 9.77 billion 10.28 billion 14.63 billion 20.28 billion 13.71 billion
Establishing project offices (POs) in a country is useful as they permit foreign investment and participation in a specific project, usually linked to a high value contract that may take two or three years to complete. They negate the need for the foreign participant to establish a more permanent presence, as the PO is linked to the contract completion terms, yet provide flexibility of hiring labor, funding the project, and remitting profits overseas. As China developed and required specific skill sets to complete specific, usually construction based projects, the China PO enjoyed a relatively successful period of popularity in the late 1990s and early 2000s. Recently they have fallen out of favor, mainly as Chinese contractors are now able to take the lions share of construction work and do not need foreign short term sub-contractors to assist, and also because the Chinese themselves are restricting their use. When discussing the matter with authorities in Beijing, it appeared no PO licenses have been granted for a number of years, and that applications would probably no longer be approved.
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Requirement Limited liability company Minimum capital investment Industry restrictions Income tax VAT Average gross hourly pay Employee welfare (% of salary)
There are some fundamental legal structural differences between Chinas foreign-invested commercial enterprises and Indias branch offices (BO), not least amongst them being that Indian BOs are not independent legal entities, whereas China FICEs are. However, in terms of use, both fulfill pretty much the same criteria for foreign investors: they permit the import and export of goods, can buy and sell goods, can trade or offer consulting services, and can remit profits back overseas. Branch offices differ in that they are still considered part of a foreign entity based overseas, and are not limited liability companies. Foreign-invested commercial enterprises are independent, limited liability companies. Accordingly, BOs do not require capitalization whereas FICEs do. A downside of the India BO is the high level of income tax 41.86 percent against Indias norm of 33.99 percent and the standard income tax rate of 25 percent in China. Other differences exist in terms of FICEs and BOs engaged in the service industries. Branch offices do not attract turnover tax, which China does levy on FICEs involved in the service industry at a monthly rate of 5 percent. Service industry BOs are subject to service tax against invoice value at a rate of 10.3 percent. For trading however, the applicable tax burden is VAT, which in China is 17 percent and
Chinas wholly foreign-owned enterprise (WFOE) has become the investment vehicle of choice for the international investor wanting to manufacture, service or trade in China. In addition to the WFOEs expansive business scope, its unrivaled popularity arises from multiple other factors, including 100 percent foreign ownership and control, security of technology and intellectual property rights, a self-developed internal structure, the insertion of existing company culture, and ability to sell to Chinas domestic market, and the ability to repatriate profits. In this regard, Indias private limited companies (IPLC) are the same animal, with the exception that whereas China has a specific set of regulatory considerations for Sino-foreign joint ventures, an IPLC can also be an Indo-foreign JV, and both 100 percent foreign-owned IPLCs and IPLC JVs are governed by the same regulations. For the purposes of this analysis, we shall concentrate on the 100 percent foreign-owned IPLC. The need for such a company to have either 100 percent foreign ownership or whether it requires an Indian investor is dependent, in a similar fashion to China, upon the
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Requirement Limited liability Minimum capital investment Regulatory status Income tax VAT Profits repatriation tax
China India 17% 12.5% Nil 16% 10-40% depending 0-45% if permanent depending establishment is on service, in India or not average 20% Note: While every effort has been made to ensure accuracy of tax data, readers are asked to bear in mind that in both cases, regional variations occur and that the tax regimes in both countries are evolving rapidly. The figures above are as a general guideline only, and may be subject to change. Accurate and industry specific tax data should be obtained directly from professional advisers.
Both China and India have fairly well developed tax structures, both with the authority to levy taxes divided between the central and regional governments. Both countries are going through an extended period of tax reform at present, and India especially as it seeks to pass legislation to update its tax base for the first time in 50 years. Top amongst these changes is likely to be the introduction of a goods and services tax (GST) at varying rates amongst internal purchase and sales, although 100 percent refund upon export is expected. The GST is expected to amount to 16 percent of invoice value. This system is expected to partially replace VAT is some states, although in others it will be a new introduction. VAT is not uniformly applied by all states in India. For certain sin goods, such as tobacco and petrol, VAT may be applied on top of GST. This system is expected to be rolled out during 2011, however may be subject to further delay. India however does score better in the application of VAT (and future GST) refunds against exports. China levies a tiered system of VAT refunds against exports, and in some sectors, such as garments, does not permit refunds at all. India however permits VAT refunds against all categories of goods and services upon export. It should be noted that China does not currently levy VAT on services, while India does. In terms of corporate taxes, applicable rates are as follows:
Tax incentives
With China unifying its tax base in 2008, it did away with preferential tax incentives largely available to foreign investors, and especially those in free trade zones and special economic zones. China now tends to levy or provide refunds against a variety of taxes depending upon industry. In doing so the Chinese central government tries to manage balances between domestic sales of certain products and exports of certain products, and varies these from time to time or as circumstances dictate. China is still very much a centrally planned economy. Specific tax incentives therefore are usually applicable in certain industries only, occasionally regionally based, and typically involve a manipulation of business tax, profits tax or VAT. India on the other hand wishes to develop its special economic zones and free trade zones, and accordingly provides highly attractive tax incentives to do so. These can include 100 percent corporate income tax breaks for up to 10 years. These can be applicable to certain development projects to be carried out in India, mainly within infrastructure. Incentives also exist for businesses involved in 100 percent export of products manufactured in an Indian SEZ or FTZ. These are typically 100 percent for the first five years of profitability, and 50 percent for an additional five years, although there are regional and eligibility variations. Nevertheless, the boom in manufacturing that China enjoyed with the tax incentives it used to offer in its development zones are now being recreated in India, and this should spur foreign investors familiar with the China model to consider India
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Summary
For the purposes of this study, we used New York as a benchmark to help compare China with India. Apartment rentals were based on buildings built no earlier than 1980 which an apartment seeker would expect to pay in each of these cities. We have identified only the medium range level in this inclusion.
Apartment rents: Furnished four bed, medium range (US$ per month) New York 8,330 Shanghai 1,430 Mumbai 1,070 Beijing 1,050 Delhi 930
From the global manufacturing perspective, China and India now offer similar, yet also differing opportunities. Chinas main thrust of its development is now creating equality of wealth within its borders, and to do this it needs to both improve upon some of the infrastructure, education and housing options and facilities that are currently available in its rural areas. Chinas growth will come increasingly from the rural population a total of some 600 million people and it is this sector that the government wishes to develop into becoming a consumer class. Todays opportunities for China are largely about being able to service this sector. China is also moving up the value chain and wants to move away from its traditional low cost, export driven manufacturing base. In doing so, opportunities exist in adding value research and development, innovation and design are all going to be developing services that China increasingly needs. China is changing towards more sophistication in adding value, together with increased opportunities in the sale of goods and services to its domestic market. For India, this is also partially true. Indians are receptive to international brands and a wealthy middle class, with English widely spoken, has huge and yet still untapped potential for global manufacturers looking for sales overseas. This is true of everything from auto components to fashion, and in this aspect the two countries share similarities in their major urban markets. India has also taken up the mantle, recently discarded by China, of offering cheap manufacturing. As China has wound down its free trade zones and special economic zones for the purposes of export manufacturing, India has ramped its up. China has become too dependent upon export manufacturing to
the detriment of its overall economy, while India does not have enough manufacturing capability and is too dependent upon services. It is these realignments that are creating the opportunities. Indias provision of tax breaks of 10 years are an opportunity for growth and profitability in overseas markets that should not be wasted. Accordingly, India may now be considered as a viable and serious destination for export driven manufacturing to markets abroad. While the world recovers from the global financial crisis and Western demand remains weak, that may seem somewhat optimistic. Businesses still need to achieve growth, and as Asia starts to post impressive results in earnings and the ability for its population to become consumers, so manufacturing in India to service these markets becomes more realistic. In truth, the China vs. India debate is a no-brainer. Its neither one, nor the other, and although some cross over in capabilities will undoubtedly emerge, it is quite apparent to the author at least, that global strategy, in terms of getting growth onto balance sheets of parent companies elsewhere, must now embrace China and India as two unique, but complimentary destinations to achieve dynamism and profit capabilities for the next two decades. India is now more competitive than China overall for labor intensive industries, a reduction of income tax to 30 percent (China: 25 percent) during 2011 will trigger a spurt of foreign investment. Also of note are Indias lower mandatory welfare payments to employees - an average of 10 percent against Chinas 50 percent. These developments will increase Indian competitiveness over China in certain industries.
There is not a huge difference between China and India, although the China property market is more speculative, somewhat erratic in movement and prone to regular bubbles. Rentals in Mumbai are increasing and are expected to do so significantly while demand outstrips supply for the next three to five years.
Apartment rents: Unfurnished three bed, medium range (US$ per month) New York 5,200 Shanghai 1,230 Beijing 760 Mumbai 720 Delhi 470 Apartment rents: Normal, local rent, medium range (US$ per month) New York 3,100 Shanghai 770 Beijing 600 Mumbai 480 Delhi 370
China Briefing
India Briefing
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h i n a s r a p i d l y a g i n g population is set to dramatically shrink its workforce and effectively pass the baton to India as the worlds manufacturing hub, according to analysis from Morgan Stanley and the Global Times. Chinas one child policy, which has seen it manage its population over the past three decades, is now finally kicking into the work pool and reducing the number of Chinese workers. The Global Times says, 2015 will mark the beginning of the end of Chinas demographic dividend. The World Bank also echoes those sentiments, predicting that Chinas GDP growth will fall to 7.7 percent in 2015 and to 6.7 percent by 2020. Morgan Stanley expects Indias growth to head in the opposite direction and to surpass Chinas growth two years from now. Personally, I suspect that when speculation and manipulation is stripped out of Chinas current GDP growth rates, Indias economy is already growing at a faster pace than Chinas. Chinas aging workforce is already having an impact on the nature of conducting business in the country. It was in recognition of this that China strengthened its labor laws two years ago, making it more difficult for employers to lay off aging staff without having to pay significant compensation, based on years of service, for loss of employment. That move effectively made employers financially responsible for at least part of the nations pension requirements. China will possess 200 million people above 60 years in 2015, and workers coming to retirement age are expected to add an unprecedented 10 million retirees per annum to that figure. That loss of workforce is already starting to make China more expensive, and this trend will continue. India, however, is poised to provide the vast bulk of the global labor
pool. By 2020, the average Indian will be 29, while the average Chinese will be 37. The data has interesting repercussions.
China is becoming a consumer market to sell Indias infrastructure to rather than a global woes have become its opportunity manufacturing hub
well-known globally will have to adapt marketing, positioning and even recipes to fit the Chinese model. As I pointed out two months ago, white goods need to become red.
This is often quoted as the dynamic that will maintain China as a major destination for foreign direct investment. While this is true, the nature of selling to China is still wrapped in many problems, especially for overseas investors. The China market is prone to protectionist measures, and with the Chinese government itself still a major shareholder in many Chinese state-owned enterprises, foreign investors will have an increasingly tough time competing with them. Additionally, selling to China requires a profound knowledge of Chinese culture and tastes. Then theres the stranglehold that China has on much of its domestic logistics industry. Selling to China is fine, but it is a path fraught with difficulties. The successful foreign investor will have deep pockets and a sound Chinese joint venture partner to help them. The domestic expertise and finesse to assist sales of products to the Chinese consumer will invariably require Chinese local expertise. Brands
The most common complaint about India is its infrastructure, which coupled with a generally moribund economy for 40 years after independence, and some quite extreme weather conditions, has meant a lack of investment in virtually everything. That is already changing, as airports are fixed, bridges spanning oceans are built, and city subway networks are opened. For contractors, architects and engineers who made good in China, India is the new opportunity. A staggering US$500 billion is being spent in the next three years in India, and foreign businesses involved in any aspect of infrastructure development are scrambling to get into the market.
China will still maintain various sectors for sourcing in which it has specific expertise, and of course there is still its domestic market to service. But the sheer weight of economics makes India the future tiger of global procurement. Wages are significantly lower than in China, and our recent Asian Comparator survey of wage levels and related costs in China, India and other Asian countries consistently showed India as excellent value for money in the labor pool. Sure there are comments about quality and that infrastructure bugbear again, but China went through the same issues twenty years ago. Made in China was a poor brand in the 1980s. Indias infrastructure is not as bad as is made out either, and the cost savings are there to be had. Relocating
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ts always nice when a subject you have firsthand and long standing involvement in finally makes the mainstream media, and so it proved in November with The Economists cover story stipulating how Indias growth will outpace that of China. Weve been pointing this out for some time and regularly over the past few years on our 2point6billion.com and India Briefing sites. The Economists articles essentially state what weve already said, that India will soon start to outpace China thanks to a young and growing workforce. It also goes on to point out that Indias much-derided democracy is finally proving fruitful rather than a hindrance, and attributes Indias surprising economic miracle as largely due to its private sector.
The countrys state may be weak, but its private companies are strong, the magazine said. Thats very true, and is a major part of where China and India, and the quality of senior management and innovation, differ. While the vast majority of Chinas largest companies are state-owned and subsidized, a matter that is leading to calls of unfair competition from the EU in particular, the vast majority of Indias businesses are private sector run and managed and have to generate their own income to survive and prosper. That is leading to a growing difference in decision making and executive talent within the two countries, and while Chinese executives are hitting a glass ceiling due to political considerations and government involvement, Indian executives are not.
In short, Chinese executives are being denied the right to develop talents as entrepreneurs within Chinas largest companies. I do not believe that to be a healthy system of management training and development. But why does this matter to China-based businesses? Why are we discussing this on China Briefing? Well first, lets go back to what The Economist had to say and had observed. They said that, despite the poor headlines generated in the run up to the Commonwealth Games, India is doing rather well, and its economy is expected to expand by 8.5 percent this year. It has a long way to go before it is as rich as China (the Chinese economy is four times bigger), but its growth rate could overtake
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Picking China is an issue that is related to a familiarity with the country and also the fact that in international news, the country is main stream in ways that India is not. It wasnt so long ago when I was just starting Dezan Shira & Associates that I was advised by a successful Australian businessman, who had been educated at Peking University in the late 1980s, not to go to China. The reasons: Its horrible, dirty, and communist. Another highly prominent Hong Kong businessman told me bluntly that the Chinese will steal your money. Yet that didnt stop me, and the more I learned the more I grew to adapt, belong, and begin to make progress. I hear similar stories about India today: Its dirty, Its bureaucratic, Theres no infrastructure. They are all partially true, but as I write I am having to devote a considerable additional amount of my time and financial investment in
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nterest in the China-India comparison has begun in earnest, and its not something that is going to disappear. While eyes have been on China for much of this year over currency issues, we finish 2010 with a U.S. presidential visit but to India, where Barack Obama visited in November 2010. Inevitable China-India distinctions are going to be made, and you can bet that of these, a greater understanding of India, rather than China will follow. I recognized the issues between the two countries several years ago, and am regularly asked why Id decided to develop my practice out of China and into India. The reasons were as follows:
Hedging
I also felt that continuously investing in China, effectively putting all of our eggs in one basket, could prove to be a strategic mistake if anything drastic went wrong in China. If, for whatever reason, investment into China slows, then I need to have an alternative market to take up the strain and even protect us if things get really bad.
Opportunity
Personal development
At the time we already had seven offices in China (now increased to 10) and, as head of the business, it alarmed me that I wasnt personally finding the opening of a new office in China so much of a thrill. Thats bad news for a COO, and indicative that I needed to go find a new challenge to keep me occupied or leave the business.
Compatibility
I had a look at smaller regional markets such as Singapore, Mongolia, and even North Korea. However, when it came down to it, I figured that we really knew the following: 1. We werent intimidated by huge countries 2. We understood the implications and demographics behind a huge population 3. We understand and make a living from emerging economies and countries with rapidly evolving investment laws, taxes and regulatory environments. When we understood what we were and what we knew, the only compatible choice for us to expand into out of China was India.
I researched the India market for two years before we decided to incorporate. Operating originally from virtual offices in five locations, and with a very skeleton staff, I traveled the country all over trying to feel India and to get the pulse. Commuting between China and India is hard work, and I still had China issues to look after in the running of the business. But the more I was there, the more it made sense. We incorporated fully in 2007, and upgraded virtual offices to fully staffed facilities that year when we decided to make the investment permanent. It was made on the basis of government reforms, the size of the market, the changing demographics in China, and that gut feeling that it was the right thing to do. Now, we are set to initiate another tranche of investment into India and have recently expanded our operations in both Mumbai and Delhi and recruited several more staff. From 2011, our India operations are expected to be self funding and are expected to provide dividends from 2012. I have successfully divested energies from China and into India with profitable results. And at the end of the day, thats what business is all about. That doesnt mean that we are not bullish on China. We also opened a new office in Qingdao in mid 2010. However, China is changing, as is India, and it is the latter changes that will be faster and require more attention than the China ones for the next three years. China is set on its course. India is about to see massive winds of investment blow through. Why? The size of the consumer market, which is larger
than Chinas, arguably more wealthy, and certainly more committed to spending, and its regulatory reforms (two examples, India is reducing its corporate income tax rate from 45 percent to 30 percent early next year, while the top rate for individual income tax will be lowered to 30 percent as against Chinas top rate of 45 percent). So there Ive covered the whys and wherefores and the processes. But what are Indian cities really like when compared with China? Lets make some comparisons:
The main issue with Shanghai is that it gets referred to a great deal as Chinas financial center. If so, it seriously lags behind Mumbai, and has for 20 years. Just during the past decade, 2000-2010, Mumbais Sensex has climbed 545.2 percent against the Shanghai Composites 151.3 percent. Put simply, for every dollar youd have earned in Shanghai, youd have earned 3.6 in Mumbai. Mumbai is streets ahead of Shanghai in its financial maturity, profitability, and ability to deliver dividends to shareholders. J.P. Morgan, among others, also think so. Fortunately for Shanghai, its bluster over being a financial center is in fact overrun by more practical considerations. It is the second largest port in terms of TEUs shipped in the world, behind Singapore, while Mumbai lies in 24th place. Mumbai is also being upgraded significantly, so expect to see that as a top 10 highest volume seaport within the next 10 years. Its also true to say that the service markets
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Both capital cities, both recently having hosted major sporting events we compared the Beijing Olympics with the Delhi Commonwealth Games here. Surprisingly, its New Delhi that is the prettier of the two cities. Built by Edward Lutyens to show off the imperial grandeur of the empire, he really went to town. It would be possible to contrast Old Delhi, that medieval maze of back alleys and rickshaws and bustle and hustle with
Shenzhen epitomizes new China, built from scratch and now a city of 8 million, and the fourth largest port by TEU globally. Supported by Hong Kong and Taiwanese investors, its grown from just being where their local manufacturing industries moved to, to being a port servicing global supply. Chennai, however, is catching up. With a similar, slightly larger population of 8.5 million, it is located on Indias southeast coast, and has a slightly different demographic (its basically just across the ocean from Thailand). Its ability to also service the United States and Southeast Asia will make it a competitor over time with Shenzhen. Currently the 91st
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hina has taken most of the headlines as a result of its sensational growth over the past two decades, leaving India somewhat in the shade. Yet surprisingly, it is India that has provided better profitability over the past decade. Indeed, Michael Cembalest, chief investment officer at J.P. Morgan Private Banking, has placed his clients trust firmly on Indian equities and not Chinese. In his well-read Eye on the Market newsletter, sent to the banks high net worth individuals, he noted that since China began its market reforms, India has in fact well outperformed China. During 2010, Indias equity market has provided investors with a return of 22 percent while Shenzhen, South Chinas bourse in the booming city next to Hong Kong, has actually shrunk by 3 percent. Over the past 10 years, Indias Mumbai Sensex has risen 545.2 percent compared to a rise of just 151.3 percent on Chinas Shanghai Composite. Of the 13 managers on Cembalests platform who invest in emerging or Asian equities, 10 are overweight on India, a winning strategy for 2010, he says, given Indias out performance versus most developed and developing equity markets. In his newsletter, Cembalest outlines the reasons:
market issuance, with three times the number of public companies as China. There is greater exposure to the private sector as 75 percent of the investable market cap in India are private companies, compared to 18 percent in China. In short, Cembalest is saying that Chinese companies are protected by the state and that the implied lack of market forces create a situation where both state interference and a lack of competition are in fact making Chinese companies less profitable and entrepreneurial than Indian ones. There is also a difference in funding 90 percent of available bank funding in China goes to state-owned enterprises, while in India that 90 percent goes to privately held businesses. It makes it far harder for Chinese companies to compete at an executive level with their Indian counterparts, even with the benefit of state funding and involvement. Simply put, Indian businessmen are more capable than Chinese businessmen in making money, and being able to share that through dividends. While it remains harder to operate in India than China at present, the country is very much on an upward trajectory, and the results speak for themselves. Chinas massive state involvement in its own stock markets is hindering the development and profitability of their businesses. When India really starts to kick in with its tax reforms next year, the gap between Indian profitability and Chinas in their respective stock market performances and funds may grow even wider.
Stock Exchanges main index in terms of growth in the past decade. The Bombay Stock Exchange (BSE) Sensex grew by 249 percent over the last 10 years, while the Shanghai Stock Exchange (SSE) Composite Index managed 140 percent growth. This is more remarkable given the Shanghai market has the advantage of a fixed population access; Chinese nationals can only invest in the Shanghai or Shenzhen exchanges and require special permission to acquire stocks from overseas. Indians meanwhile are free to invest where they choose, however increasing amounts of foreign capital and returning Indian investment are now flowing back to India (the Shanghai Stock Exchange places limitations on foreign investment with a only 79 foreign institutions currently able to buy and sell A (locally priced) shares). Another influence to the Chinese market has been increases often caused by government liquidity due to the stimulus plan. Speculations on bubbles are rampant when it comes to Chinas indexes, again a feature Indias exchange does not tend to have. Government interference in the Mumbai market is far more limited. The BSE traces its roots back to 1830, with its primary trading index, the Sensex, being first compiled in 1986 with a base level of 100. The BSE is now the largest exchange in South Asia and the 12th largest globally with an estimated market capitalization of US$1.03 trillion in June 2009. There are over 4,o00 listed companies on the exchange. In contrast, the SSE was only reformed in 1990 and lists some 900 companies. It is the sixth largest exchange in the world with a market capitalization of US$2.07 trillion, but is dominated by government-owned companies and is not fully open to foreign investors. Shanghais primary index, the SSE Composite IX was formed in 1991 with a base value of 100.
Profit margins compare favorably with other developed and developing countries. Companies in India are more exposed to market forces than in China, which may explain the superior margin results.
Mumbai may be on the way to overtaking Shanghai as a financial hub in the coming years based on data which shows that the Bombay Stock Exchanges main index significantly outperformed the Shanghai
Hong Kong-based Li & Fung, the worlds largest sourcing and trade processing business, now sources and processes an increasing volume of its garments from elsewhere in Asia as it seeks to depend less on China for such activities. Matters to be aware of in trade processing are the costs:
Labor
China is committed to doubling the national minimum wage within the next five years, meaning an average 20 percent increase per annum on a national basis until 2015.
Commodities prices
These remain volatile and, in the case of cotton, subject to price spikes. However markets such as India are able to actively compete with China in terms of volume, delivery timescales, quality and finishing.
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Problems, including the notorious infrastructure issues, need to be worked with and solutions found. Innovation and an ability to think outside the box are needed in India, whereas in China theyve tended to make the administration far easier. However, there are signs that China is not what is was increases in labor unrest, strikes (previously unheard of), and especially protectionism are growing in China. As was mentioned to me in Mumbai recently Im paid to sort these problems out, and thats what my MBA program was for. Is India more big project awkward than China? Yes. Is it solvable? Also yes.
such as throwing stones at the U.S. and British embassies over the NATO incident in Belgrade. China is more antagonistic, is quite prepared to occasionally indulge in harassment of foreign nationals, while Indians tend to argue among themselves rather than with foreigners.
Senior management
India isnt up to China standards when it comes to the development and execution of large-scale projects. Administrative delays, worker discipline and, above all, the interference of local politics can interfere with planning and execution.
While China is a generally friendly and welcoming place to be, for the small infrastructure it falls down when dealing with foreigners, and there are still barriers. Getting tickets, going out to Chinese events, finding out whats happening online, reading international news, social networking, keeping in touch internationally with family and friends over the internet these are all awkward or have infrastructure banned in China. While one can get used to not having Facebook in China, if youre used to it overseas its a major hassle. India has both free media and social networking, and its usage of the English language just makes the social element of being in India that much more pleasant. Plus, if youre Japanese, Indians dont have endless spats over wartime related events and territorial disputes over 60 years old that frequently mar the Japanese population in China. Neither, apart from Pakistan and China, does India have territorial disputes with anyone else. China is currently in disputes with India, Vietnam, Japan, Taiwan, and several other nations over the Spratly Islands, is threatening potential economic sanctions with Norway after the Nobel Peace prize was awarded to a Chinese reformist, and has a history of encouraging its nationals to harass citizens of other nations when things go wrong
In China over the past 20 years, local management has had to be educated and developed to international standards to fulfill to the exacting standards of running an international business. Items such as FCPA, SOX and other regulatory aspects creep in, and to many Chinese managers, these are still a bridge too far when added in to corporate culture and language issues. Twenty years ago, there were very few Chinese managers with any global experience, and today the number is still relatively small. Even the Chinese government has had to embark on a program of sending its top officials overseas on university courses. The upshot is that international management operating a business in China in most cases still has to take an active role in the daily operations of the business. In India, graduates and executives have long been educated overseas and are highly familiar with international standards. Indeed, many non-resident Indians are highly sought after by Indian companies back home as they seek to upgrade their domestic enterprises. With a profound knowledge of Indian culture, language capabilities, an overseas education and managerial experience, Indian executives tend to be far more advanced globally than their Chinese counterparts who tend to hit a glass ceiling. It means that an Indian manager running your Indian operations is usually a safer bet, more culturally intoned, and better able to adapt than Caucasian executives in the same role. In our case, Indianizing our company meant handing the country over to a returning Indian national to run, and for our western executives to step aside. The senior Indian executive is often more entrepreneurial than his Chinese counterpart and more
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Government officials
Dealing with government officials in China and India does require the standard protocols, but there are differences. Indian politicians are democratically elected and can be pressured or lobbied via independent think tanks. China bans such bodies and does not permit any external criticism other than the Communist Party. Increasingly, Chinese officials can be aloof and uncooperative at times unless it is in their vested interest to assist you. Demonstrations of annoyance or criticism of the media as happens in China when politicians are challenged does not occur in India, where a free media helps in part to keep politicians under the microscope. That would not be tolerated in China. The difference is in the concept of being answerable to the people, which both governments profess but exercise in different ways.
Banking
Corruption
The styles of corruption are different between China and India. In China, it tends to be disguised as favors and connections, and can be for serious amounts of money. However it may not raise its head on a daily basis. In India, apart from the highend level of corruption, it exists in the form of baksheesh nearly everywhere, almost as a form of giving a tip. The amounts are small, but will need to be catered for in miscellaneous expenses. If not, your paperwork may just sit around until the tip is paid. That is what is meant when people describe corruption in India as endemic. In China it is not, but the amounts and the inconveniences can be far more serious, and tend to be more insidious in nature.
Power
Just as China has experienced, power supply can be erratic in India. While special economic zones offer more protection and reliability, the more extreme weather conditions and monsoon can create problems. Businesses need to invest in generator back up supply just as they used to do in the Yangtze River Delta a few years back and as would be expected in any emerging market.
In a similar manner to Chinas State Administration of Foreign Exchange, India monitors the flow of inbound and outbound capital via the Reserve Bank of India (RBI). The RBI also designates tier one banks in India to fulfill some of its duties, a situation that actually makes Indian bureaucracy at this level easier than in China, which employs capital controls. RBI approval is required for a variety of transactions, however this is relatively easy to arrange. India has about 100,000 ATMs against Chinas 200,000. Generally speaking though, access to cash points is not problematic. Cash and foreign currency may also be freely exchanged at hotels or licensed foreign exchange brokers. In terms of international banks, Standard Chartered are the market leader (historically they have always had a strong India presence in much the same way HSBC is more associated with China) and most international banks maintain branches in all major cities.
U n f o r t u n a t e l y, a l t h o u g h C h i n e s e businesses are starting to migrate overseas, unlike their Indian counterparts, Chinese businesses can be tardy to the extreme when being asked to meet the final payment for goods and especially services. Our experience shows that the majority of Indian businesses will meet
their financial and contractual obligations. A higher proportion of Chinese businesses will renege on the final payment, often in what can appear to be a calculated mechanism designed to exploit the fact that the cost of recovery to your business is likely to be more than the amount due. We believe this is a sign of immaturity on the evolution of Chinese businesses and will improve, however the problem does exist. For services contracts in particular, we recommend structuring payments so that as much as possible is paid prior to the end of the service and final settlement. Our experience dictates that unless this is done, an average of 50 percent of Chinese businesses fail to make final settlements or be highly tardy in doing so. If known, this then becomes a structuring issue over payment terms. In these instances, our advice is to be aware of a potential need to mitigate against this unfortunate habit or be prepared to have to deal with potentially unrecoverable receivables and debt. Contractual terms should be solid and supported by good business practice concerning payment terms. Indian clients on the other hand may be price sensitive, and negotiations take longer, but once the deal is done they tend to pay up. The acquisition of a receivables problem is more likely when dealing with Chinese customers than Indian unless your business model has already deflected this issue.
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IIT
India, like China, has a sliding scale for individual income tax payments, but the top threshold for tax payment is lower in India than in China. India also has in place a rather complicated system of additional surcharges and expense rebates, the latter of which are more generous that those currently available in China. Also, unlike China, India does not charge individual income tax on dividend payments from companies. This can be an important factor especially for expatriates with bonuses or stock options. India is currently undergoing tax reform, which as a general rule of thumb, will mean the expatriate is rather better off in India than China, with a basic level of 30 percent IIT in India at the highest tax bracket as opposed to 45 percent in China. As always, each case can be specific and it is best to ask for clarification on these matters beforehand as other factors such as housing allowances and so on can complicate matters and they need to be structured properly. Please contact Dezan Shira & Associates India at india@ dezshira.com for advice on individual income tax in India.
International communications
In every way, India is far superior to China in this regard. While much of Chinas problems in this area are selfinflicted issues over a lack of press freedom, language issues and its notorious Great Firewall, India by comparison is a paradise. There are numerous English language daily newspapers available (I read about five of them: Times of India, The Economic Times, Hindustan Times, DNA and the Asian Age, while the International Herald Tribune, Wall Street Journal, Financial Times and USA Today are all published in same-day Indian editions). Imported newspapers are also
freely available, typically 24 hours behind. Keeping up with the news then is not a problem, especially if like me you like to browse the morning newspapers over a cup of coffee. Cities such as Mumbai also provide a second daily, evening newspaper, something Chinas media censorship cannot cope with. Indias domestic TV is in a plethora of languages including English language channels, and can get a bit vociferous, especially over issues concerning Pakistan or China, but respected global networks like CNN, BBC and Al Jazeera all maintain Delhi-based bureaus and programming. Meanwhile, Facebook, YouTube and total access to surf the internet is a given right in India. Also, unlike China, where calls are relatively expensive, Indias call charges are amongst the lowest in the world, and this dynamic will also lift the interconnectivity of the country as well as help bring its rural population out of poverty. India is very much hardwired into the international community and international communications, phone, internet and wireless are all world class. There is also less espionage in India, whereas China has a reputation for spying on commercial activities that affect its state owned enterprises. About 90 percent of Chinas largest businesses are completely or partly state-owned and are consequently prone to government involvement or interference, while in India, about 90 percent are in the private sector. It makes business communications far simpler, and less likely to be subject to commercial espionage. From a practical time zone perspective, the time difference between Delhi/Mumbai and New York is currently 10.5 hours and Chicago is currently 11.5 hours. London is just 5.5 hours.
foreign media is routinely banned, both in print, TV and internet. Consequently, Chinas media is rather bland and follows an organized framework. Exciting it is not. Indias media is open and is largely driven by sensationalism that can come as a bit of a shock to the newly initiated. It is sometimes difficult to determine which is the lesser of the two evils: Chinas censors or Indias sensationalists. India TV media especially is very loud and driven by ramping up the shock horror headlines for maximum effect. Favorite subjects for Indian media do include China issues, and China is often portrayed as being a threat to India. While the TV may blare unsavory stories, usually they remain taken with a pinch of salt. Far better balanced are newspapers such as the Times of India, the Economic Times, and The Hindu. All major international newspapers are commonly found, with many also being produced in India. International TV channels are routinely available.
Chambers of commerce
Media
Chinas media is censored and largely controlled by the state, and much incoming
These vary considerably in quality (as they do in China), some being excuses for a monthly beer drinking session, others taking a more active role in the business community. The American Chamber and European Chamber in India are particularly active, while other chambers such as the British Business Group (not called a chamber as India is part of the Commonwealth) host regular social events and feature a variety of corporate speakers. Other Asian, European, Oceanic, African, and South American nations have their own versions. Many of these organizations also have representations in other major Indian cities. The current chairman of the BBG in Mumbai, Jim James, is himself a former China expatriate, whose business in Shanghai was so awkward from the regulatory perspective that his employers moved him to Mumbai. They are now thriving in India, something that proved mission impossible in China. Interestingly, that is not an uncommon experience among expatriates living in India who have relocated from China. Also of note are the various India-country chambers, such as the India-China Chamber of Commerce, which provides a solid link between their respective governments and businesses. Google searches will reveal the chambers, groups and organizations pertinent to you.
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Defining territory
For China, it is well known that Taiwan should never be omitted from any published maps of China, including those on your China website or brochures. It breaches the One-China policy and can have criminal repercussions. The same applies in India. The official map of India is different to the map provided by the United Nations, redrafting certain sections of Kashmir. It is a criminal offense to publish inaccurate non-Indian official maps omitting this. It may mean, for the India market, using official Indian maps of the territory and not relying on common international versions.
India Hindi in the Devanagari script is the official first language of India, though the constitution also recognizes English. Indian states are additionally free to further recognize regional languages, leaving each state free to, via its legislature, adopt Hindi or any language used in its territory as its official language or languages. Examples include include Kokborok in Tripura; Mizo in Mizoram; Khasi, Garo, and Jaintia in Meghalaya; and French in Pondicherry. Altogether, close to 50 official languages are in common usage on a regional basis across the country. The Romanization of Devanagari has also been erratic, with certain cities especially being interchangeable in names: Calcutta (Kolkata), Bengalaru (Bangalore), Puducherry (Pondicherry) and Bombay (Mumbai). A striking example of the script differences can be seen in this Dezan Shira & Associates advert promoting the firms India practice from a China-India cross border perspective. The use of English, Chinese and Devanagari get the message across but required three nationalities of staff in both China and India to create.
Religion
Language
China China possesses two types of written characters, simplified and traditional. Simplified is used in Mainland China, traditional in Hong Kong, Taiwan, and by most of the overseas Chinese diaspora. The difference derives from when Mao Zedong revolutionized the Chinese language on the mainland in 1954 to improve literacy levels. Other territories at the time not under mainland control or with large Chinese diasporas resisted the use of the simpler version. China also has several officially recognized regional languages there are seven distinct languages on a standard Chinese banknote for example many regional dialects, and even historical differences in the Romanization of the Chinese language (Beijing vs. Peking for example). Care needs to be paid to which market segment is to be addressed.
Mao famously declared, Religion is poison! to the Dalai Lama, and still today the country is officially atheist. While Buddhism is making a (well monitored) comeback, the pragmatism of the Chinese sees them pray more to gods of money and wealth than for wisdom and spiritual enlightenment. India, meanwhile, is multi-religious, with Hinduism dominating, although most Indian cities have substantial Muslim populations also. Muslims also predominate in several business sectors, and it is common to be in meetings with Muslim businessmen. As in all religions, some are more devout than others, and Indians with a permanent bruise on their foreheads mark a devout follower of the faith. Business meetings with Muslims may be interrupted at certain times of the day to pray (usually a small room set aside for the purpose) and your meeting may be delayed for 15 minutes while the rituals take place, only to restart at exactly the conversational point they were temporarily postponed. Sikhs are found to the North-West; resplendent in their turbans and moustaches, Sikhism is a blend of Hinduism and Muslim, and do not practice the nationwide ingrained caste system, which still pervades in
roughout Asia
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Food
There is an old saying about Guangdong Province in China: The people will eat everything with legs except a table, and anything with wings except an aircraft. Chinese cuisine is famous for its diversity and wide range of ingredients used. Some may be off-putting to the uninitiated steamed silkworms for example but generally, the Chinese have very liberal palates and are experimental. If it tastes good, its eaten. But then again, large parts of China are strongly Muslim, and pork, so much a national staple, will not be found in many central or western provinces. Buddhism too has had an impact, and many Chinese are essentially vegetarian as a result. However, that can be vegetarian with a twist many vegetarian dishes are prepared using animal fat. The term is rather loosely applied in China. Like China, Indian cuisine is one of the great cuisines of the world; however Indian religious sensibilities dictate a far more serious approach to the preparation and consuming of food than that in China. Food prepared with animal fat or even prepared in the same kitchen as non-appropriate items can be a serious matter, and the Jain population who are prevalent in the business community will not eat any food that may have disturbed a non-vegetarian life form, including root vegetables as picking them from the ground may kill small insects. I recall a packed Air China 757 flight from Delhi to Beijing where 75 percent of the passengers refused all food (seven hours) because Air China had not considered the mass needs of a vegetarian manifest. Such considerations need to be taken into account when entertaining Indian clients or businessmen. It is a sensible
matter of courtesy to ask beforehand. Additionally, the 5,000 years of Ayurvedic medicinal culture, coupled with religion, has ingrained a strict sense of proprietary into what is means to be really vegetarian. Chinese restaurants in India are quite common, a legacy of the coolies often brought over by the British in the colonial days. Most of these restaurants therefore tend to be based on southern Chinese cuisine, being Hakka or Fukien in origin. Indian restaurants in China are more uncommon, but are increasing in numbers, especially in the larger cities. Generally speaking, Indian curries get hotter the further north you go, while to the southeast and in cities such as Chennai, the food becomes not dissimilar to Thai cuisine with the use of coconuts predominating.
Indian food is as diverse as the nation is large, and although the ubiquitous curry remains king, there is such a variety that you could spend a lifetime here and not try the same thing twice. Generally speaking, the further north, the hotter the curries, while in the south coconut prevails and creaminess comes into the palate. China also has a place in Indian cuisine, a large number of coolies were sent over during the days of the British Raj to work on railways and road construction (the Chinese ability to build infrastructure better than their Indian counterparts has been noted for centuries) and their descendants, many from Fujian, now run very successful and often long established Chinese restaurants across the country. Cities such as Delhi, and especially Mumbai, have an even greater selection of cosmopolitan cuisine and restaurants than Shanghai. Favorites? Try Indigo in Mumbai, recent winner of the worlds best bar, while La Piazza in Delhi is home to Michelin Star chef
Alcohol consumption
Unlike China, India has dry states, in which the sale and consumption of alcohol is prohibited, for example the states of Gujarat and Mizoram. Certain national holidays such as Independence Day and Gandhi Jayanti (the birth date of Mahatma Gandhi) are dry nationally. Dry
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Hotel concierges
Hotels
In Sri Lanka, every full moon is a dry day, as are a variety of holy days. In Pakistan, only members of non-Muslim minorities such as Hindus, Christians and Zoroastrians are allowed to apply for permits for alcohol. The monthly quota depends on their income but is usually about five bottles of liquor or 100 bottles of beer. In a country of 140 million, only about 60 outlets are allowed to sell alcohol and there used to be only one major legal brewery, Murree Brewery in Rawalpindi. Enforced by the countrys Islamic Ideology Council, the ban on alcohol is strictly policed. Members of religious minorities often sell their liquor permits to Muslims and a black market trade in alcohol continues. In Bangladesh, foreign passport holders of non-Muslim nations can drink in some licensed restaurants and bars (and expatriate clubs) and can purchase imported alcohol from diplomatic bonded warehouses at a hefty rate of sales duty (at 300 percent). Holders of diplomatic passports and some other specially privileged persons (such as U.N. employees) have passbooks which entitle them to buy imported alcohol from the same bonded warehouses duty free. Often duty free and duty paid prices are shown alongside one another. Bangladesh nationals of any religion may purchase alcohol from special outlets with a medical certificate. Illegal homemade liquor (known as Mod or Bangla) is widely consumed in rural areas. The (mostly Christian) Garo tribal folk also brew a strong rice beer called Choo. Christians are permitted to use wine for
Indias hotels at the top end are legendary and are among the best in the world. They are also among some of the most expensive a night at the Taj Mumbai is going to be a minimum of US$750. There are some bargains to be had, such as the Gordon House Hotel, close to the Taj; however the boutique hotels often require more local knowledge that we dont have space to reproduce here. Opulence and luxury aside (we also recommend the Imperial Hotel Delhi as best in class its one of the top 20 hotels in Asia, let alone India), most of the major chains are here. Again, they are an oasis of calm and tranquility among the heat and dust of India. Hilton does a far better job in India than they do in the United States, while brands such as the Oberoi, who specialize in Asia and the Middle East, are well worth checking out and offer comfort, service and quality that are hard to match either in China or the United States. Hotels in India really should be to five star standard for the traveling executive (lower stars get progressively worse), and they literally make your trip happen for you. A five star hotel in India provides the added value service that is essential in an emerging country like this. Your accounting department may not like it, or the extra costs when compared with China, but in India its not worth scrimping on this aspect. Youll need them as a business base, as a home, and as a sanctuary. And yes, you can drink the water, while concerning the service and helpfulness aspect, English is widely spoken, and overall service is far better than that in Chinas hesitant or reluctant assistance, where the proletariat can and do still demonstrate their political superiority over the bourgeoisie, and unknown or unproven capitalists in particular. There is a very good reason the new Fairmont Peace Hotel in Shanghai spent a fortune on hiring Western trained service personnel. In India, its long been a normal standard and hospitality reigns supreme.
The service in Indian hotels is generally superb, and unlike Chinese concierges, who are often limited in their ability to help or be interested, Indian concierges are generally excellent sources of local information and will always know someone who can help with your request. They are also not so obviously on the make and treat guests respectfully as clients of the hotel. A tip however is appreciated Rs.500 (US$10) goes a long way for good advice. It is always a good idea in Indian hotels to make friends with the concierge. These are professionals employed for their knowledge and many will have been within the hotels service for decades. They are an excellent source of local assistance and for getting things done. In this respect, the average Chinese concierge service has a long way to go.
Housing
It is more expensive in India, although not outrageously so. A decent family sized furnished apartment will be priced between US$4,000 and US$5,000 a month. Of course the sky is the limit if you wish. The difference is not the quality of the building in fact Indian top end apartments are generally better than Chinese its the rubble and state of the roads outside that makes the difference. Plus the odd wandering sacred cow. But thats part of life in India, and it adds character at the very least. Finding a house is as always, a bit of a battle, but making contacts with chambers of commerce or your embassy will help reveal the details of reputable agents that will know the quality and area youll be interested in. However, be prepared for a steep bill from the landlord unlike Chinas 2 + 1 month deposit system, many landlords in India will ask for a 9 or 12 month deposit upfront, and thats generally the norm. Ouch.
Chai wallahs
The tea boy is an integral part of every Indian office and is there to run errands and fetch the tea, cold drinks, lunch curries, a takeout Maharaja Mac, whatever. He wont speak English, will be from the poorer areas of India, and may work for you directly or be part of a locally run service. Hell be thrilled to have exposure to international executives. Treat them well, they are good guys, and will revere
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The heat
India is hot. And in the summer, really hot. Our Delhi office records temperatures of 45 degrees Celsius in August. Beijing by comparison is 32. India therefore is sweaty, roasting, and on the coast in cities such as Mumbai, very humid. Its important to dress appropriately, and in India during such times it is not necessary to wear a jacket and tie. A formal shirt and trousers will suffice. The monsoon kicks in during June and brings rains, and plenty of them, but although it may pour, itll usually be just for a few hours. The rains are gone come September, when the country begins to cool down. Winter time can be balmy in Mumbai, and positively chilly in Delhi, where it can get down to just above freezing. India very definitely is a country that needs to be examined for its weather conditions. China too is the same. Summer brings heat, especially in the south where Hong Kong, Shenzhen and Guangzhou can become oppressively humid. Beijings winters, and the rest of northern China, can become very cold, as fronts from Siberia can and do turn south and bring freezing temperatures. But to cope with Indias heat, its wise to pack a bottle of chilled water, especially if youre walking outside. Its unwise to buy cold prepared drinks from street vendors unless they are canned or bottled you need to be sure the contents are good.
Schools
Indias schooling system at the top end is generally excellent the country possesses some of the most prestigious pre-university public schools in Asia. The Indian government has also recently liberalized the education sector at the university end and is for the first time permitting prestigious academic institutions to establish joint ventures and schools in India. The web site International Schools in India provides a national search function and details. However, in common with China, international schools in India are expensive. Youll need to allow about US$20,000 per annum per child, however there is a wide and generally well established selection to choose from with many based on the proven British standard model of education. Your embassy will also be able to advice on pertinent educational facilities in India.
Company cars
City traffic
Its an infrastructure problem, and the rise of vehicle ownership compared to the development of roads is surging ahead. While in Beijing our executives can manage if necessary four meetings a day, diaries in India regularly get screwed up. Two appointments outside the office is the maximum at most that can be realistically targeted for without busting a gut. Plan meetings well, and dont over attempt to arrange multiple meetings each day in India. You simply wont be able to fulfill them.
Its a standard piece of kit for the busy executive. Together with drivers, some of whom have been professional for years. My driver in Mumbai used to be employed by Sir Richard Attenborough during the filming of the epic Gandhi and still receives birthday cards from him. The choices of vehicle are many, but Indians are generally not as keen as the Chinese on displaying wealth. Also, coupled with the appalling state of traffic, its highly likely youll receive dents and bangs. One day I had three minor accidents all of which messed up the paint work. A wooden cart spun out of control and scratched a three foot long mark along the cars side, someone sideswiped me along the motorway, and then 10 minutes later I got rammed in the rear at traffic lights so much for the expensive bespoke paint job. Better then to keep the car modest, be prepared for the odd scrape, and sit in the back. My choice, the ubiquitous Hindustan Motors Ambassador; classic, fun to be in, roomy, plenty of luggage space, inexpensive and easy to maintain.
Taxis
Indias doctors have been exported all over the world and are highly trained both at home and at overseas hospitals and universities. India also has a wide network of international standard clinics and hospitals, as well as being home to some of the worlds top surgeons. There
A must. Indian city traffic is improving (but still problematic during rush hours), while Chinas traffic problems are worsening. A decent car and driver is needed for you to read the newspapers, catch up on the laptop, and generally use your car bound time efficiently. Best to get a high wheel base vehicle though, especially in Mumbai those summer monsoon rains dictate you need something to get through the waters.
Given the temperatures that can be reached in India, taxis come in two varieties, air conditioned and non-air conditioned. It is wise to choose the former, and the additional surcharge is small. Upon arrival, it is also sensible to head for the pre-paid taxi kiosk as touts frequent international airports looking for gullible travelers. Pre-paid taxis are a reasonable fare, usually larger vehicles and are used to dealing with foreign travelers. Beware
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Relocation
Private clubs
China isnt really big on private member clubs, and those that do exist tend to be both really expensive and cater for Chinese tastes only, although there are notable exceptions in Beijing, such as the Capital Club. But generally China is not so developed for club facilities for expatriate families and business duties. India, though, follows more the Singapore model, where clubs have long existed that cater for the expatriate community. Of particular worthy mention are the Breach Candy Club (Mumbai), close to the U.S. Consulate and home to Asias largest outdoor swimming pool. The Bombay Gymkhana Club offers a great range of sports activities, such as the inevitable cricket, but also hosts the rugby teams, soccer, hockey and many other activities, while in Delhi the Indian International Center is the place to hang out and is funded by the Rockefeller Center. Private clubs in India are a source of comfort and a home away from home for many expatriates in a manner that China tends to distrust lest foreigners connive together to plot a subversive overthrow of the regime, but clubs in India are a welcome respite from the heat and daily hassles of Indian expatriate life, often have a fascinating history, a vibrant business community and provide superb facilities for the family and to make friends. Every executive expatriate package in India should include such a membership, especially if a family is involved. Other cities too, have their equivalents.
I am often asked the differences between Beijing and Shanghai, or Shanghai and Hong Kong, and which I prefer, and the same is true of Delhi versus Mumbai. I always strive to be diplomatic and say that Im always happiest where I am at that particular moment. Increasingly though, Ive noticed that in the ChinaIndia space I have occupied now for the past five years, there are more expatriates who are traveling to work in India, many of them from China. Its to be expected, many successful foreign invested China businesses have either been well established and are now localizing in terms of operational management, or businesses previously only in China are now expanding into India and are sending over their trusted Asia hand to do it. There is no doubt that the membership of chambers of commerce in India is expanding, and that progressively greater numbers of expatriate managers are seeking work and employment in the country. China will have been the previous posting for many of them. Indias infrastructure is the opportunity and many experienced project managers will be making the transition sooner or later. India represents a logical extension to a professional expatriates career, and the relocation from one to the other is not as extreme nor as awkward as many would think. India is the new land of opportunity, and while China commences its long descent into normal growth and suburban normality, India is where the action is. Overseas expatriates need to start preparing to expect that call and with a significantly lower individual income tax burden even positively looking forward to it as a solid career move. Relocating from China to India is fast becoming normal executive career practice.
consumer market for foreign investors to sell to, but at the same time will mean foreign investors will increasingly have to compete with Chinese domestic companies. This will create new stresses as the domestic Chinese environment is tilted towards favoring local businesses rather than foreign. Disputes and issues of protectionism and favoritism will rise. Foreign investors therefore will need to upgrade their market intelligence and take full advantage of all available benefits in order to compete. This includes the improving and strengthening of financial and administration systems, and making full use of technical benefits such as double tax treaties. Financial structures and appropriate business structuring will become more important than ever. India meanwhile will continue to grow I personally feel its GDP growth is already higher than Chinas the Chinese state figures often tend to be exaggerated. That growth the opportunity that exists in redeveloping the entire national infrastructure will in turn lift millions out of poverty and add to an already buoyant consumer market. The key then in understanding what is happening is to realize the fundamental evolution that China is experiencing and adjust business models to take advantage of the huge domestic market in China. Low end, export driven manufacturing will move elsewhere in Asia potentially India or will face financial difficulties as operating costs eat into already tight margins. The rise of India is not a threat to China based businesses, but rather more presents a new opportunity and almost on the same scale as the China phenomenon. The answer, when looking at China and India is simple. The next two decades represent a unique opportunity to invest in both. Chris Devonshire-Ellis can be contacted at chinaindia@dezshira.com. Dezan Shira & Assocoiates: www.dezshira.com China Briefing: www.china-briefing.com India Briefing: www.india-briefing.com Emerging Asia: www.2point6billion.com
Executive Summary
As is clear, the China business and investment environment is changing fast and foreign investors used to the market conditions of the past twenty years will need to adapt. The low end manufacturing supply chain is moving out of China and into South-East Asia. India will be a major beneficiary of this change. China meanwhile will concentrate on developing its wealth the minimum salary level is set to double as a state policy within the next five years. This will create a massive
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