Advantage India

Why foreign companies should invest

in India and not China

Mangesh Sawant
1

Introduction
The world economy is slowing down as parts of Europe struggles with an ongoing debt and a
migrant crisis and the U.S. economy has grown at an average of about 1.6% over the past 10
years. The Euro Zone is likely to clock muted growth till 2017 as the migrant crisis takes a toll
on the economy. With China slowing down, Japan struggling and the commodity exporters
reeling under a commodity crash, the global economy is likely to witness growth scarcity in the
next four years. The two ongoing global crises Greece debt woes and the Chinas market
meltdown will affect China, Europe and the US.
In the backdrop of the economic crisis India is now viewed as a rising global powerhouse with
growth rates of 7 % or higher. Governments and Businesses from US and Europe are eager to tap
into the booming Indian market. India will be more attractive for foreign investors wary of
investing money into declining advanced industrial economies and China. Even with slower
growth at 6.5%, India's economy looks far better than much of the developed world and China.
As the economy grows FDI and FII investments will continue to flow into India. On the contrary,
India has witnessed capital inflows and analysts are expecting a rise in significant inflows of
fund allocation in the wake of the Chinese market crash. India's economic growth is projected to
surpass that of China's with the GDP expected to zoom by 7.7 % in 2016. Whatever be the case,
the next three years are going to be highly significant from the point of view of opening a new
chapter in the economic history of India, which even as per the IMF Report is at a cusp of
upward economic trajectory and will overtake China in its projected growth.

As the developed world and international organizations are focused on the EU migrant crisis and
Greece, another crisis is happening on other side of the world. Chinese markets are in the middle
of a crisis. Chinas economy has slowed down to its lowest level since 2009 after years of
explosive expansion. The economy may be in a worst state of affairs as Beijing has been fudging
official statistics depicting higher growth rates. China is the worlds second largest stock market
in terms of market capitalisation, after USA. It has plunged by more than 20 % and more than 3
trillion dollars of paper wealth has evaporated. The value of this enormous crash in the stock
market is more than the GDP of Brazil and 23 times the Greece debt. The government
implemented a number of extraordinary measures to halt the market's fall but to little effect.
Throughout China has been an export economy and now its export engine is struggling. It has
been unsuccessful in shifting its emphasis to domestic consumption led growth. China's overall
business environment and market turmoil will destabilize the real economy which is now
looming as a bigger risk than the euro zone crisis.

Problems of Doing Business in China

Nepotism in China has affected the public and the private sector as the communist
party has to be appeased by foreign businesses by appointing the relatives or their
friends at key position at their China offices.

Economic and finance statistics are fabricated by the communist party and due to the
closed and opaque system independent foreign agencies are unable to conduct due
diligence on the quarterly and yearly statistical figures.

The Protection of Intellectual Property, Trademark and Patents is abysmally low as

the local and national Chinese laws favor the Chinese investor/partner.

Archaic legal system which is not in consonance with the international legal system
adds to the cost of doing business.

Few judges in China understand and have significant experience in handling

commercial disputes especially if it involves international corporations.

The regulatory environment remains unclear and opaque. The regulatory risks are
high as compared to any other economy in Asia as the foreign partner will be
penalized for regulatory violations.

Lawmakers and officials interpret and implement laws according to their own political
interests. Central and local government regulations and laws often conflict with each
other and local officials may lack knowledge of national laws. If MNCs do not confirm
to the lopsided laws then there is the threat of retaliatory protectionist policies that
would favor Chinese companies at the expense of foreign ones

Information technology theft is a potential risk

Foreign companies have to transfer technology while doing business in China. But
later the Chinese partner manufactures the same product illegally under a Chinese
name through reverse engineering. Thus there is a lack of protection of the
technology after it is transferred to the Chinese company

Economic disparities in rural regions and provinces is leading to social upheaval

Military owns substantial shares in key strategic industries and sectors

Copyright law and computer software protection is an issue

Due to the lack of labor qualification it is difficult to hire competent managers and
workers.

Labor intensive industries are leading to labor unrest in provinces such as

Guangdong. The unrest is seen in the key sectors of the Chinese economy
4

Low Quality products are widely manufactured by Chinese companies

Lack of corporate governance

Domestic political unrest due to the lack of democracy

Lack of audits and compliance in Chinese companies

Lax protection of IP rights (indeed in some sectors it seems as if official government

policy is to encourage co-option of foreign technology)

Commercial law still a work in progress

Lack of quality control

Commercial Fraud.

Breaches of Contract.

Intellectual property infringement and theft

Bullying, intimidation and threats to physical safety of expats.

Criminal charges for engaging in activities that may not constitute crimes under
international law.

High intellectual property protection costs.

Risks to your brand.

Long start-up times.

Increased management overheads - for example communication difficulties, the need

for stringent quality controls and the need to redesign operations.

Long supply chains.

Energy shortages and other operational problems.

Inflexible manufacturing schedules.

Longer lead times.

High staff turnover, especially engineers and senior management.

The danger of production overruns by contract manufacturers and leakage of

products onto the Chinese domestic and overseas markets.

With rising corruption, instability in Xinjiang and other provinces, labor unrest, civil
disturbances, growing gap between the rich and the poor, gap between urban and rural areas and
restricted freedoms have led to the criticism of the communist partys work style and policies by
the common man, intellectuals and even by senior party officials. China may face an internal
challenge to its system as it did during the Tiananmen Square and the communist party may
divert attention by nationalistic overtures in defense and foreign policy. There is a possibility
that it is building a framework so during an internal challenge to the communist it can garner the
support of the population by creating an external threat thus diverting attention. If the partys
legitimacy is challenged China may resort to military strikes on one of its neighbors.
Cronyism and Nepotism are widespread in the so called private sector. The Military owns
substantial shares in key strategic industries and sectors. Party and military officers serve are a
part of the higher management and sit on the board of various corporations. Coalition of military,
some chosen members of the bureaucracy, judiciary, industrialists and the landed gentry have
ruled China.
Several issues are a matter of concern that might lead to civil unrest in China. Inspite of a decade
old growth exports are slowing due to a recession in US and Europe which are its primary
markets, agriculture remains a drag on growth, there is a possibility of a banking crisis due to
NPAs, the housing bubble may burst in the near future, GDP growth rate is slowing down and
there is nepotism and cronyism in the state owned enterprises and the local government.
Slowing growth is fueling labor unrest in the worlds second largest economy. China is in a
period of economic and social transition and labor relations have become increasingly pluralistic,
labor problems have increased and become more prominent and the frequency and the incidence
of labor disputes remains high. Labor unrest has worsened over the past year as the countrys
economic growth decelerated to 7.4% in 2014 which is the slowest pace in more than two
decades. Labor unrest in China has increased especially in the coastal provinces that manufacture
goods for export. The dramatic effects of three decades of startling growth have led to a wave of
labor unrest, including strikes and partial shutdowns of factories. The endless supply of cheap
labor is drying up and workers are no longer willing to endure sweatshop like conditions.
Various foreign companies in Chinas coastal areas have experienced a string of labor related
protests and strikes, downsizing, closure, relocation and sale or merger of businesses. The
publicized conflicts between laborers and the management signals the end of an era of low cost
labor and the beginning of a more challenging labor environment for foreign companies. The
vast majority of disputes involved demands for wage increases, new benefits or compensation for
restructuring, overtime and layoffs.
The most publicized strikes occurred at Honda Motor Co. factories in several Guangdong cities.
Honda workers in Foshan walked out, demanding higher wages and better working conditions.
Honda responded with a 24 percent general pay increase. Because of repercussions from the
labor unrest, Hondas sales in China fell 2.7 percent in June, lagging behind Chinas overall auto
industry sales, which increased 23.5 percent from a year earlier

The Japanese carmaker had to shut its four assembly plants in China. US companies are leaving
China and heading to other parts of the world, including back home. One of the reasons of course
is rising wage costs in China as compared to other nations in the region.
Big companies like General Motors have recently moved their international or Asia headquarters
from Shanghai to Singapore as they expand further into India as an alternative to China.

Why foreign companies should invest in India

The advantages of doing business and investing in India include a federal government system
with clear powers established between the central government and state governments, a liberal
and friendly investment climate and liberal and clear policies on foreign direct investment from
major economies of the world. The benefits of doing business in India are overwhelming as
compared to drawbacks
Advantages

Constitution
Rule of law
Opposition parties
Vigilant media
Vibrant Democracy
Independent Judiciary, Central Vigilance Commission,
Comptroller and Auditor General
Growing economy
Competent private sector
Economic and business reforms are here to stay
Democratic military power
7

Election

Commission,

Soft power
Investment protection
Regulatory framework
Education system
World class IT industry
Legal framework for companies
Stable capital and money markets
Huge network of technical and management institutions

There is an effective independent institutional framework like judiciary, regulatory bodies and a
free media. India has an established system of commercial laws based on British common law
(same as U.S.). A diverse industrial base contributes to Indias rise in the world economy. New
companies are leading to internal competitiveness in various sectors. Indian companies are
managed and run according to international laws and regulations leading to financial stability.
There are well established recognition and protection of intellectual property rights.
The Ownership of stocks In India is significantly different as compared to China. In China,
individual investors apparently own 80 % of stocks. In India, individual stock ownership is low
and foreign and domestic institutional ownership is very high. This makes the wealth effect of a
loss in stock values less important in India. In China, a stock market crash will dent purchasing
power significantly as individual investors will bear the brunt of this loss. A stock crash has
implications for consumption in China
An economic downturn in China means increased investments coming into India, provided India
utilises the opportunity well and implements the economic and systemic reforms being promised
to the investors in double time. Due to the fall in global commodities Indian steel and ore
companies will suffer. But India is gaining hugely from oil prices since last September. India
imports 80 % of its oil thus making it one of Indias biggest imports. A drop in oil prices also
improves Indias public finances.
One difference is visible between the Indian and Chinese economy. While India exports services
China on the other hand exports manufactured goods. Also China is an export oriented economy
as compared to the domestic consumption economy of India. India can continue to pursue
economic reforms and boost infrastructure investment, it has the potential to grow at 7% to 8%
per year for a sustained period. Meanwhile, the Chinese economy is transitioning from a high
growth economy to a slower economy whose growth rate is gradually coming down below 7%
per year. Thus India is poised to be the fastest growing BRICS economy over the medium to
long term, making it a very attractive destination for investment in new factories by
multinationals eager to tap the fast growing Indian consumer market.
Indias growth is likely to improve from 7.2% in 2014 to 7.5% both in 2015 and 2016 (up 1.2%
and 1% from the January WEO forecast), Chinas growth is projected to slip from 7.4% in 2014
to 6.8% this year and further down to 6.3% next year. However, IMF has suggested an important
structural reform agenda for India to reap productivity gains. This includes removing
infrastructure bottlenecks as well as reforms to education, labor, and product markets for raising
labor force participation and productivity. The numbers, along with estimates by both World
8

Bank and the International Monetary Fund (IMF) that the Indian economy will soon outpace the
Chinese one, could see a continuation of the bull run in the Indian stock markets

New Policies
The NDA government is addressing the various problems of the UPA regime such as land
reforms, lack of infrastructure, power shortages in industrial areas, outdated and stringent labor
laws, taxation issues, lack of governance and transparency and a bureaucratic approval
processes. Reforms in the infrastructure and power sector are taking place. The number of days
to procure the licenses has been reduced at the National and State level. The government has
come up with National Manufacturing Policy and National Investment and Manufacturing Zones
(NIMZ). Meanwhile several states are moving ahead with labor law reforms although labor
reforms are struck at the central Level by an intransigent opposition. A new trade policy has been
implemented whereby export and import taxes on small volumes of goods have been abolished
and incentives have been introduced for export oriented units and export processing zones. The
NDA manufacturing strategy focuses on import substitution, increasing exports and meeting
domestic consumption. The Indian Government announced an increase of infrastructure
investment by US$12bn and has taken several other steps to relaunch investment in the sector.
These include setting up a National Investment and Infrastructure Fund (NIIF) with US$3bn.
Single Window Clearance
Single window clearance systems are being implemented by many state governments. The
framework includes online submission to process and approve all investment proposals. The
government is also introducing a coordinated clearance systems e.g. for environmental
clearances, to facilitate information exchange between various ministry departments, regulators
and industry. The Government launched an e-biz portal that integrates 14 regulatory
permissions in one place to facilitate easy approvals The Ebiz program provides a secure one
stop shop for all investment, regulatory, compliance and business related information and
services 24x7 on a single portal. This will assist the government in eliminating multiple
processes. Indias new e-Nivesh web portal allows investors to apply for some 80 government
permits online. Of the 134,870 applications filed digitally so far, about 74 percent have been
approved and 1.5 percent are pending past deadline.
Laws
The government is also addressing the inconsistencies that exist between the central and state
government laws. Synchronized inspections are taking place to avoid multiple inspections by the
Department of Labor, Inspectorate of Factories and Boilers and State Pollution Board. Labor
laws are being amended and made more business friendly and flexible. The amended labor law
will provides greater flexibility in the hiring and terminating employees which was a problem in
the manufacturing sectors as the unions protests led to a strike thus hampering business. Several
archaic British era laws are also being overhauled.

Tax Reforms
The government has embarked on the structural, operational and administrative reforms of the
tax system. The government has already passed the Goods and Services Tax (GST) in the Lok
Sabha but the opposition parties have stymied its further progress in the Rajya Sabha. It may be
taken up by the government in a special session of the parliament or may be passed through the
ordinance route. The introduction of a countrywide GST, in place of myriad existing levies
(including excise duty, custom duty and luxury taxes) will facilitate business and reduce high
administrative costs.
The present government has laid out plans to connect its big cities with freight corridors. At
present, the planning of distribution networks is not very efficient, which creates risk. For
example, when an item moves from one state to another, there is value added tax to pay. As a
result the location is not necessarily optimal based on logistics; it is often based on how you
move goods and avoid the value added tax. The government is in the process of implementing
tax reforms. The central alongwith the state governments has launched the Delhi Mumbai
Industrial Corridor (DMIC) project which will expand India's manufacturing and services base
and develop DMIC as a Global Manufacturing and Trading Hub. The government is
implementing various reforms which will do away with bureaucratic delays thus leading to the
implementation of comprehensive supply chain management practises
Projects
India saw the slowest economic growth during the UPA regime. Various factors such as
regulatory hurdles, lack of transparency and policy paralysis added to the slowdown and this was
deterrence to foreign investors. During the UPA regime of the 569 central sector projects, delays
in implementation were reported for about half (227) of the projects, resulting in cost overruns of
about 18.8 %. Time overruns have been high in road transport (90 projects), power (51 projects)
and railways (35 projects).
The climate for projects clearance has improved. Many Coal mines, power stations, SEZs
projects are cleared by the present government. Several coal mines were also auctioned thus
raking in money for the exchequer. The government has cleared 42 stalled projects worth Rs $
1.7 bn since it presented the Budget for 2015-16. Ten power generation and transmission projects
with investments over $ 1.1 bn have also got the green signal. A total of 155 projects worth $ 8.4
bn were cleared in its first 16 months. Since the NDA came to power in May last year, 91
projects worth $ 4 bn have been put back on track. Most issues which were delaying coal based
power projects to totaling about 65,000 MW and gas based projects with a capacity of 24,000
MW have been resolved.

10

Analysis
Looking long term, India's economy is too hard for the biggest companies to ignore. Investments
to India will come on merit. India will face only a limited impact from the global woes as the
countrys macro policies are good. The Indian economy is picking up. There is a continuing
need, which the government is trying to address, of putting some of the stalled projects back on
track. With its exports to China being small, the potential negative effect is negligible.
High intellectual property protection burdens, quality control issues, rising labor costs,
management overheads, logistics overheads and other hidden costs mean manufacturing in China
isn't as cheap as it first looks. China is the front running candidate for a potential major crash.
Novice investors, many of whom have limited education and financial savvy, may be perplexed
and angry if their savings get wiped out. This could create a broad grassroots backlash against
the authorities and may result in social unrest and could even lead to a revolution or a coup.
China has made progress toward a market oriented economy but the communist party still
protects local firms and the state owned enterprises from competing foreign companies. It retains
the framework of a planned economy with five year plans setting economic goals, strategies and
targets. The State and the Communist Party directly manage and control the only legal labor
union.
China lacks predictability in its business environment. Chinas current legal and regulatory
system is opaque, inconsistent and often arbitrary. Implementation of the law is inconsistent.
Lack of effective protection of intellectual property rights is a particularly damaging issue for
many foreign companies. Both those that already operate in China and those that have not yet
entered the market have had their product IP stolen by Chinese companies.
The investments made into speculative real estate projects or business ventures, has invariably
created an artificial bubble in those spaces also. The bursting of bubble in these spheres would
further compound the losses of the investors.
Mid Term to Long Term Implications

In the mid-term and long term scenario, the crashing of the stock market may herald a
Chinese economic collapse in 2017 and the early indicators of the same are given below

Slump in the Industrial Production

Industry has been the major driving force behind the Chinese economic growth. In
February, industrial production growth has receded to just 6.8%. It was 18.5% during the
pre-global recession era in February 2007.
Fixed asset investment (the purchase of any physical asset) is a leading indicator of future
manufacturing activity, is also down by 4% from last year.
11

Consumer Spending Fallen Drastically

In order to give an impetus to the industrial growth, the domestic consumer spending
needs to be high, so that reliance on foreign export can be reduced.
However, due to the market uncertainties, the retails sales in the present times in China
are at its slowest pace in the last nine years.

Housing Market in China is Collapsing

The housing market in China makes up about 25% of the economy. Due to the above
mentions reasons, as also, when investors will default on what they have borrowed, as
scrutiny in the housing market grows, the real estate prices will tumble.
A latest survey regarding real estate trends in Chinas largest cities shows that 61 out of
the 70 major city centres have experienced a price declines.

Problems for foreign businesses in China

Economic Slowdown
The Chinese economy expanded at its slowest
pace in 24 years at 7.4% in 2014, signaling an
end to its scorching pace of growth for over
three decades, which could have significant
implications on its internal politics, economy
and global growth. The annual growth of 7.4%
in 2014 is the slowest since 1990, when China
faced international sanctions in the wake of the
1989 Tiananmen Square massacre. Until 2010,
China had maintained an average growth rate of
more than 10% for over 30 years. Its economy
slowed to grow 7.7% in 2012 and 2013.
IMF has pared the Chinas growth rate by 30
and 50 basis points for 2015 and 2016 to 6.8%
and 6.3% respectively. The fund reduced growth
projections for emerging market economies by
60 and 50 basis points in 2015 and 2016 to 4.3%
and 4.7%, respectively. World Bank estimates suggest that a 5% decline in Chinas real fixed
asset investment growth would adversely affect demand for metals, and hence weaken activity in
trading partners in Latin America and Africa by some 0.30.6%. World output could also fall by
0.30.5% relative to the baseline.

12

A continuous slide in Chinese stocks weighed on an already ravaged global commodity sector,
with prices of copper, coal, natural gas and iron ore falling. Australia economy will also be hit as
its commodities industry like iron ore was depended on China manufacturing sector which is
slowing down. Consumption of goods and services will decline in China as a result of the
indirect impact of economic slowdown which would also adversely affect developed economies
like the US and Europe.
Theft of IPRs
Lack of IPR protection is a major issue which ranks at the top of the list of problems of doing
business in China. Many foreign companies are affected by it. Legally and illegally intellectual
property fall into the hands of a rivals or the local partner both of whom could appropriate the
intellectual property and set up a rival business. Many companies manufacturing consumer
goods report that on average 30% of their products in the Chinese market are counterfeit.
Compounding the problems is the rampant illegal use of companys names, trademarks, design
patents and theft of trade secrets. The infringed products are illegally exported with the backing
of government officials. Chinese origin infringing goods can be found throughout the world.
Many Chinese judges, prosecutors, and police officers lack adequate legal training, resulting in
reduced effectiveness of criminal prosecutions. Laws governing foreign investment contain
provisions requiring transfer of intellectual property as part of the equity contribution of foreign
invested enterprises.
Many U.S. companies are able to profitably enter and operate in the Chinese market, but each
year a large number of firms face serious difficulties that frequently result in costly and
disruptive local business disputes. A large number of these disputes might have been
successfully avoided through due diligence. The primary causes of commercial disputes between
Chinese and American companies include breach of contractual payment obligations,
irregularities in accounting practices, financial mismanagement, undisclosed debt, and the
struggle for control within joint ventures. These problems can be minimized by investigating the
financial standing and reputation of local companies before signing contracts or entering into a
partnership agreement.
Transfer of Technology
Beijing is involved in spying operations through cyberspace to procure secrets of other nations
and industrial technologies of MNCs. By stealing the secrets Beijing is procuring the advanced
technologies which makes the United States a high tech industrial and military power.
Companies are losing proprietary technologies due to the China's policy of mandatory
technology sharing by foreign businesses. Foreign technology has to be transferred to the local
partner under Chinas market for technology strategy which is a part of its foreign investment
regulations. Chinese institutes and industries have produced marine engines and equipment based
on original designs from Germany, Denmark, Switzerland, Austria and Norway. The rate at
which the US and European companies are transferring technology to China for short term gains
is dangerous. In a matter of decades they will be out of business as China will use the same
technology to manufacture low cost products to sell in the international market. US and
European companies spends billions of dollars on R&D and then for doing business in China
13

they transfer the technology thus saving China the billions of dollars on R&D. Foreign
companies face significant risks when they transfer technology to China like increasing
competition between indigenous and foreign companies.
Commercial Espionage
Chinas intelligence and security
agencies seek to gain access to
information and assets which
will help to deliver on its
commercial and other aims.
Monitoring
of
business
executives and foreign visitors is
common practice in China. This
will include remote attack on ITmobile phones, laptops and other
computer
equipment
and
potentially efforts to compromise
personal security (for example by honey trapping aimed at blackmail or with the intent to
coerce). Internet Service Providers (ISPs) cooperate with the Chinese Government to monitor
emails and browsing. It is also possible that foreign company staff, suppliers and contacts may
be placed under some pressure to provide information or cooperate in some way. They may have
developed sloppy password control or use the Internet in a way that increases the risk of remote
attack. The risk of compromise and the potential exploitation of information and assets could
harm the commercial interests of foreign companies
Social Unrest
Since the past few years China has been experiencing rising social unrest which includes
protests, demonstrations, picketing and group petitioning. Many a times the legal channels for
resolving grievances in China are absent. China has been reforming its economy. Due to the
social media employees from state owned enterprises and SEZs alongwith farmers and city
residents have engaged in demonstrations and mass protests as their land is taken away for
development projects. These protests have turned violent on many occasions. Growing
disparities of income, official corruption and the lack of democratic institutions are likely to
continue to fuel social unrest. Since the past decade Chinas economy has been booming thus
raising the living standards for many of the citizens. Large economic differences exist between
rural and urban areas and between interior and coastal provinces. Unlike in the past the growth of
social media has given its citizens with various means to express their grievances. Thus they
organize larger, more and better coordinated protests. Citizens are also exposed to the required
information due to the social media in a country where the information flow in controlled by the
government agencies. Social unrest is rising in China as the administrative, legal and political
institutions are unable to resolve disputes peacefully.

14

Low Quality Products

Chinese equipment is cheap but the low cost compromises quality. Many Chinese firms have
very poor quality control framework and these include the products used on major government
projects. Companies in China don't have a long established background of quality
manufacturing. Chinese products visually appear to be of good quality but the quality is abysmal,
products are shoddy and they lack after sales service. The King Long busses which were
purchased by BEST from 2007 to 2009 in Mumbai have turned out to be defective. In Pakistan
75 Chinese locomotives are not operating since the spare parts cannot be procured because the
companies supplying them have disappeared.
Chinese manufacturers that engage in quality fade unfortunately subscribe to the view that
business is about increasing ones share of the pie rather than growing the pie over time. They
often focus on extracting profit through short term maneuvers that inevitably militate against
long term development. This approach, it should be noted, contrasts sharply with the success
strategies of such economies as Japan and Korea, which focus on building market share and
developing strategic relationships.
Labor Problems

15

Chinas massive manufacturing base near the Eastern coast has been driven by cheap migrant
labor from the western part of China. The shortage of skilled labor, navigating many new and
often ill defined labor and social safety laws and restrictions on the mobility of workers has led
to the creation of a challenging environment for foreign companies.
Due to the growth of the social media the communist party is worried about the growing labor
unrest as it could soon lead to social instability and weaken the partys grip on power. The
development of social media has increased the ability of workers to organize strikes and protests.
Workers have begun using social media to become better organized and recognize their own
power to damage a companys reputation by attracting media attention and regulatory scrutiny.
Labor costs in China are competitive as compared to countries like Vietnam, Cambodia and
Thailand but isnt cheap. In sophisticated cities like Shanghai the cost of labor is increasing quite
dramatically. Chinas investigations of multinationals, persistent tensions with neighboring
countries and surging blue collar wages have prompted many companies to start looking
elsewhere for large labor forces. China will face a more challenging labor environment and
increasing costs.
While democracies emerge gradually it is difficult to see China becoming one. Liberal political
systems are lot more than voting as it includes participatory democracy whereby people are
governed rather than ruled. Democracy is most likely to survive in countries which are governed
by a civilian government and not a one where the military plays a crucial role through
manipulation of the democratic process as seen from Pakistan. China lacks Participatory
democracy and a responsive, responsible and accountable government. It doesnt even have the
basic democratic commons like an independent constitution, rule of law, opposition parties,
independent Media, independent judiciary, multi party democracy, constitutional bodies like the
Central Vigilance Commission, Election Commission, Comptroller and Auditor General and a
competent private sector.
US and EU constitute Chinas export markets. The US economy is not growing. Greece and
Spain are in financial crisis and overall the EU economy is stagnant. This will be worsened by
the present migrant crisis. Thus the Chinese economic growth will decline as its exports fall and
due to the internal economic problems domestic demand will decrease.

16

Conclusion
India should take advantage of the slowdown in China and to invite US and European companies
to set up manufacturing facilities in the country. It is becoming increasingly difficult to do
business in China. This is where there is an opportunity for India. US companies are willing to
move a lot of investment in India...either manufacturing or setting up other plants for local
environment. The red tape of Indian bureaucracy is becoming greener now. From policy
perspective, there is a very strong support from the government and bureaucracy for economic
reforms
India is insulated from global volatility as compared to many other countries as exports are a
relatively lower share of total GDP. India has a more diversified export base as it is less reliant
on exports of manufactured goods as compared to many other countries. This is due to the large
component of Indian service sector exports notably information technology and business process
outsourcing services.
The advantages of doing business and investing in India include democracy, the rule of law,
independent judiciary, a robust regulatory framework, separation of powers between the center
and the state and economic reforms.
The government also places a high importance on infrastructure development, including
highways, ports, railways, airports, power, telecom and more and the Indian government actively
seeks domestic and private investment for its infrastructure sector development. India as a
country has many factors which can attract new businesses and investors from all around the
world.
Foreign companies have found that manufacturing in China isnt much of an advantage once all
costs are taken into account. In the longer run government policies, the pace of economic
reforms (including compliance with WTO commitments), political instability, Chinese foreign
policy and social unrest will adversely affect the business climate for foreign investment in
China.

17

Manoj Jain
Managing Director
Riskpro
Email: manoj.jain@riskpro.in
Mangesh Sawant
Senior Vice President
Security Consulting & Risk Management
Riskpro
Email: mangesh.sawant@riskpro.in
www.riskpro.in
Political Risks Country Risks Physical Security Assessments Financial Advisory

18