INDIA seeks to sell itself to investors worried about the risks of sinking yet more money in China, and the “fastest-growing democracy” theme that it pushed at this year’s Davos judged the pitch nicely. The message is simple. The contrast is, or should be, obvious.
Look, the Indians are saying, we are doing things about the reasons you stayed away so long — a permits-mad, protectionist state, mass illiteracy and ghastly roads. More than that, we have assets you shouldn’t overlook — our freedoms, our rule of law and even our passion for argument. We can offer the “people power” that the knowledge economy needs, technicians, scientists and managers who can think for themselves (and speak a language the world understands). We have dozens of world-class companies; and, with only a tenth of the foreign investment China attracts, our economy is now growing nearly as fast. India may be a touch chaotic, but — without naming names — our democratic safety valves make India more stable, and even a bit less corrupt, than dictatorships can ever be.
Does it cut the mustard? Not really, not yet — though investors who have taken the plunge are doing very nicely. India still has plenty wrong, not least a huge public sector deficit and incomplete reforms. Above all, the China myth, and those famously elusive “billion customers”, continue to exert a pull so strong that companies are prepared to tolerate miserable profit margins and, encouraged by upbeat interpretations of the country’s notoriously undependable statistics, ignore bulging overcapacity in sectors such as automobiles and steel.
China gave optimists a Christmas present on December 20. Citing new census data revealing that the services sector is much bigger than had been thought, the Government lifted by 16.8 per cent the official figure for China’s gross domestic product in 2004 — a gain of $280 billion that pushed growth for that year above 10 per cent.
The revised figures did something else. At a stroke, they brought the investment/GDP ratio in 2004 down from an undeniably “bubbly” 45.6 per cent to about 40 per cent. This is charmingly described by Goldman Sachs as “well within the comfort zone” for China. The continuing feeding frenzy is, however, definitely not within the comfort zone for Li Deshui, China’s chief statistician. Pointing out last month that, after a year of efforts to hold it down, 48.8 per cent of China’s 9.8 per cent growth last year was still attributable to fixed-asset investment, he insisted that excess capacity is still a “prominent and serious” problem. Unless bankers and investors do a better job of risk-and-profit analysis, he foresees “huge waste and bad bank loans” — and rising unemployment, with attendant social tensions.
Mr Li’s concerns may be dismissed by outsiders who maintain that China’s “fundamentals” are, if anything, not weaker but stronger than statistics suggest. Of course, if you were to count the myriad ways China’s rural dispossessed and insecure urban migrants find to scrape a marginal living, you would find more “hidden” growth in the economy. But you would also discover a few rather unpleasant “fundamentals”.
They include: income disparities so gross that an aperitif in a slick Beijing bar costs a month’s farm pay; low or non-existent pensions and social security; healthcare and education costs beyond the reach of millions; ruthless evictions that, according to the UN Development Programme, have thrown 50 million farmers off their land with little or no compensation; health-wrecking pollution and environmental degradation, whose side-effects may already be costing China up to 8 per cent of GDP; and a tide of public wrath that is proving harder and harder to contain.
In speeches of clear urgency, a grim picture of inefficiencies and official iniquities is painted by China’s leadership. Wen Jiabao, the Prime Minister, told scientists last month to be “soberly aware” of such “conspicuous problems” as “irrational economic structure and low quality and returns”, shortages of “top-notch proficient personnel” so acute that China should openly seek to recruit academics overseas, and strains on the environment and resources. His verdict: “The old, existing path that depends on high inputs and that consumes huge amounts of resources without regard to the outcome of serious pollutions is unsustainable and we absolutely must stop following this path.”
Amid rising revolt over punitive local levies and land confiscations, President Hu Jintao has ended direct agricultural taxes and read the riot act to local officials about rural impoverishment; yet, as these officials well know, the people who protest against their malefactions are still more likely than they are to land up in court.
“Contradictions within the people”, a Maoist euphemism covering anything from small, peaceable protests to riots involving thousands, are admitted to have totalled 87,000 last year, up from an already remarkable 74,000 in 2004. Beyond efforts to stop the news travelling by tightening internet censorship and clamping down on the more outspoken publications, the leadership cannot work out how to contain them.
Promised bureaucratic and rural reforms will take effect only slowly, not least because corruption is endemic. The question is what to do right now. Mr Hu emphasises better crowd-control “training” of the million-strong People’s Armed Police (PAP); but the hardline riposte of Wu Shungzhan, the PAP’s commander, was to call for a “strike hard” campaign against “democracy forces”. The PAP, he said, must “fully play the role as a tool of state dictatorship in resolutely striking at sabotage activities carried by hostile forces”. Repression may, locally, just about work, but at a cost of fuelling public disgust.
There is thus a striking discrepancy between the optimism of outsiders and these open Chinese admissions of the tensions afflicting China’s “socialist spiritual civilisation”. It is intriguing that signals that analysts would take seriously in other countries seem to figure so small in discussions of China’s brilliant prospects. In the long term, those prospects must materialise, but in the short term, I’d be inclined to hedge my bets; perhaps by paying more attention to India’s claims about the beauties of an open society.
