China vs. India
Johan Norberg, everyone's favourite Swedish libertarian, is just back from the Asian giants and writes:
India's hidden strength is that the country is already extremely entrepreneurial - but in the informal sector. An Indian friend mentions that most of the cars we see on the roads, and many computers in the offices, are assembled in small, informal factories, outside the law, to avoid the many regulations and taxes that still curbs the Indian economy.
Imagine what the Indians could do if all that energy was legalised. In that case the Chinese have good reasons to see them as serious competitors.
What are the barriers to doing business in India and China? Actually, they are still high in both countries. The Doing Business database ranks China a modest 91st on the overall ease of doing business, with India worse but not dramatically so at 116th. Looking in a little more detail, in China it's quicker to start a business, get goods from factory floor on board a container ship, and register property. But Indians - perhaps surprisingly - seem to have more flexible labour laws and fewer hassles with licences.
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On a very related topic, Sebastian Mallaby discussed India's growing car industry and how it compares to the industry in China in yesterday's Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/04/AR2005120401094.html
Posted by: Diego Luna | Dec 7, 2005 10:51:28 AM
Similar to the comment above, and kind of related to your post, Amy Waldman has a fascinating set of articles on the new roads being built in India and their impact. And the rising car culture. NY Times search for India and Amy Waldman should turn up the links. Or follow them via http://blog.homer.co.in/2005/12/car-sales-in-india.html and http://blog.homer.co.in/2005/12/golden-quadrilateral.html
Posted by: AA | Dec 7, 2005 1:32:11 PM
Tim, I don't know much about China, but I'm slightly puzzled by your statement that "Indians - perhaps surprisingly - seem to have more flexible labour laws and fewer hassles with licences." The license raj is more oppressive is some sectors than others -- as my co-blogger Ravikiran Rao wrote in this post, we've reformed some sectors much more than others, and we've grown accordingly. Thus, if you open a BPO company, you'll find far fewer impediments than in the manufacturing sector or that even a street hawker in Delhi would face. Could you elaborate a bit on the basis for that statement?
Posted by: amit varma | Dec 7, 2005 3:00:58 PM
Oops, sorry, the link didn't come through in my comment, though I now note you've linked to it in an earlier post: http://indianeconomy.org/2005/12/06/why-we-reformed-what-we-did/
Posted by: amit varma | Dec 7, 2005 3:20:20 PM
The ease of doing business index does not consider foreign investment
in the industry and hence i believe,is expected to serve limited purpose.As compared to India,China has been successful in attracting foreign direct investment
Posted by: aak | Dec 8, 2005 2:54:21 AM
The Doing Business indicators use specific, representative cases with the aim of producing indicators that can guide reform. Rather than concluding 'licensing is bad' you can point to specific regulations that need improving.
The price of this is that you have to choose some case to represent everything. In the case of licenses, Doing Business measures the difficulty of getting permits for a construction company to build a standard warehouse.
The methodology is supposed to be fully transparent and it's here: http://www.doingbusiness.org/Methodology/Licenses.aspx
Posted by: Tim Harford | Dec 8, 2005 10:46:55 AM
can i know the role of foreign direct investment in eliminating the midddlemen
Posted by: N.B.VIJAYASREE | Jan 4, 2006 12:07:01 PM
this article is written by a chinese professor
have a look to find why India's progress is better than that of chinese
http://yaleglobal.yale.edu/display.article?id=6887
Posted by: rahul jain | Aug 25, 2006 6:08:29 PM
I have been doing Business in China for years, and sourcing all types of products there. For China, the most competitive advantage is manufacturing, this is not some other countries can be competed with. China is now building Great transportation network in mainland to improve effiency of transport goods from one place to another.
Posted by: purifier | Feb 9, 2007 9:50:11 PM
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