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Human Capital India Versus China. a Case Study

Human Capital India Versus China. a Case Study

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Published by chirjotkaurz

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Published by: chirjotkaurz on Jun 06, 2009
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09/05/2010

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Human Capital and Foreign Direct Investment: India versuschina: A Case StudyChirjot kaur
 Neha Khanna of IIM Ahmedabad and Yang Hui from Cheung KongGraduate School of Business in Beijing are called to represent their countriesin a Management fest in USA to represent their economies as the Next hubfor global workforce. The judge David Arkless an executive board member,Manpower UK is called as a jury to conclude the session.
Neha Khanna
: China is still what I would refer to as a more “inwardlooking economy” which can easily self fuel its growth from the domesticeconomy, where as India is essentially becoming an “ outward looking”economy which will generate more of its growth from foreign investmentand by becoming one of the largest labour exporters in the world.
Yang Hu
i: Mam, I have different view point here In Foreign Directinvestment, FDI, China + Hong Kong received US$106 billion in2007[US$70billion from NRC's] vs US$3.6 billion [US$0.2b from NRI's for India! Only better Governance can attract FDI and Tourists. In exports,China is nearly +700% of India.
 
Taking the exports of Hong Kong + Macauinto account, China's exports would be +1000% of India! China?s GDP is50% in manufacturing or $ 650 billion per year. India’s GDP is 25% inmanufacturing or $110 billion per year. China’s manufacturing base is nearly6 times of India.
Neha Khanna
: I agree with your point but the data you have quoted wasrelevant two years ago when the view that India might have a morecompetitive economy than China was met with incredulity. Now acomparison of the two countries offers valuable insights for anyone studyingeconomic growth. A fundamental distinction is that China’s growth stemsfrom resource accumulation while India’s is rooted in increasing efficiency.Those who warned that India attracted too little foreign direct investmentundervalued its business environment, characterized by entrepreneurship,healthy competition, and minimal political intervention.
 
I would also like to quote that another myth is that China’s rise was due tomajor investment in infrastructure, when economic liberalization andinstitutional reforms deserve more credit. Indeed, Yasheng Huang of MITnotes that single-minded development of infrastructure has its drawbacks,and China pursued this goal while giving less priority to education. India’seducational system, on the other hand, has steadily improved, especially inrural areas. For these and other reasons, he postulates, India couldoutperform China over the next 20 years - unless that is, the Chinese learnfrom their neighbor and rival.
Yang Hu
i: My friend has very rightly pointed out that China has focused primarily on Infrastructure development but let me tell her that Why Chinagets 60 Billion Dollars as FDI whereas India is unable to get even 6 billiondollar is an Intriguing question. For China Congenial Business climatefactors comprising of making structural changes, Infrastrucal models,Developing SEZ strategically, providing economic freedom, opening up itseconomy and creating flexible labour laws has been one area where Chinahas created an edge over India.
Neha Khanna
: India has not lagged behind in any of the areas; we haveopened our economy quite late that is in 1990 and have grown phenomenallydue to our human capital, size of market, rate of grown of market and political stability. India is on the radar of global investors and has a lot of outsourcing and BPO services from US and EU.
Yang Hu
i: On the other hand, China has grown 10 times faster in terms of FDI inflows and has grown three times faster economy as compared toIndia.
Neha Khanna
: Having a look at the latest data, we see that India appears tohave permanently broken out of its leisurely “Hindu rate of growth”– anannual gross domestic product increase of around 2 to 3 per cent – and its performance is beginning to approach the East Asian level. From April toJune 2005, India’s GDP grew at 8.1 per cent, compared with 7.6 per cent inthe same period the year before. More impressively, India is achieving thisresult with just half of China’s level of domestic investment in new factoriesand equipment, and only 10 per cent of China’s foreign direct investment.
 
While China’s GDP growth in the last two years remained high, in 2003 and2004 it was investing close to 50 per cent of its GDP in domestic plant andequipment – roughly equivalent to India’s entire GDP. That is higher thanany other country, exceeding even China’s own exalted levels in the era of central planning. The evidence is as clear as ever: China’s growth stemsfrom massive accumulation of resources, while India’s growth comes fromincreasing efficiency.Source: China Could Learn From India’s Slow and Quiet Rise;YashengHuang;
The Financial Times
, 27 January 2006An economic litmus test is not whether a country can attract a lot of FDI butwhether it has a business environment that nurtures entrepreneurship,supports healthy competition and is relatively free of heavy handed politicalintervention. In this regard, India has done a better job than China. FromIndia emerged a group of world-class companies ranging from Infosys insoftware, Ranbaxy in pharmaceuticals, and Bajaj Auto in automobilecomponents and Mahindra in car assembly. This did not happen by accident.
Yang Hui:
I believe facts are a better witness to our country’s success:
1. FDI inflow (China + HongKong)US$ billions/year 106 82. Forex Reserves(China+Hong Kong)US$ billions 1017+122=1,1391753. GDP (China+Hong Kong) US$ billions2102+179=2,2817504. GDP Growth (2006) in % rate over last year9.3 7.95. Labour Composition Agriculture %/Industry%/ Services %49/22/29 60/17/236. Population millions 1,314 1,0957. Population increase per millions 7.2 15.3

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