INDIA AND CHINA: INVESTMENT

AND DEVELOPMENT STRATEGIES

2 MARCH 2007

STEPHEN THOMSEN
CHATHAM HOUSE
 TOTAL FDI IN INDIA AND CHINA, 1990-2006
80
CHINA

70

60

50
U S$ b illio n

40

30

20

INDIA
10

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006e

Source: UNCTAD FDI database

IMPEDIMENTS TO FDI IN INDIA, CHINA

•Infrastructure

•Restrictions on foreign investment

•Business climate
BUSINESS CLIMATE RANKINGS*, 2007
China India

Overall 93 134
Starting a business 128 88
Dealing with licenses 153 155
Employing workers 78 112
Registering property 21 110
Getting credit 101 65
Protecting investors 83 33
Paying taxes 168 158
Trading across borders 38 139
Enforcing contracts 63 173
Closing a business 75 133

*Based on a survey of 175 developed and developing countries.

Source: World Bank Doing Business 2007
 FDI IN CHINA AND INDIA (percentage of GDP)
7.0%

6.0%

5.0%

CHINA
4.0%

3.0%

2.0%

INDIA

1.0%

0.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006e

Source: UNCTAD FDI database

 FDI INFLOWS INTO CHINA VS OECD* OUTFLOWS TO CHINA
80000

70000

60000
Reported by the Chinese government
50000
U S $ m illion

40000

30000

20000
OECD* outflows to China
10000

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

*OECD includes EU15, Japan and the United States

Source: UNCTAD, OECD
 SHARE OF TOTAL U.S. IMPORTS FROM SELECTED ASIAN COUNTRIES
35%

30%

25%
Hong Kong, Japan, Korea and Taiwan

20%

15%

10%
China
5%

0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: OECD
 CHINESE EXPORTS BY DOMESTIC AND
FOREIGN-OWNED FIRMS, 1991-2002
(percentage of GDP)
18%

16%

14%

12%

10%

8%

6%

4%
Affiliated Unaffiliated
2%

0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: UNCTAD World Investment Report 2006

 FDI INFLOWS INTO INDIA VS OECD* OUTFLOWS TO INDIA
7000

6000

5000

Reported by Indian government

4000
U S $ m illio n

3000

2000

1000
OECD* outflows to India

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
*OECD figure includes EU15, Japan and the United States

Source: UNCTAD, OECD International Direct Investment Statistics database

 FOREIGN DIRECT AND PORTFOLIO INVESTMENT IN INDIA
(fiscal years)
25000
Portfolio
FDI
20000

15000
$ m illio n

10000

5000

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*

*First 9 months for FDI and first 8 months for portfolio investment
Source: Reserve Bank of India
 CONCLUSION
CHINA IS A SPECIAL CASE, NOT NECESSARILY RELEVANT FOR
INDIA

• ROLE OF DIASPORA
• EAST ASIAN DEVELOPMENT MODEL
• QUANTITY IS NOT THE SAME AS QUALITY

INDIA IS MORE LIKELY TO FOLLOW A DIFFERENT PATH

• NO GREAT LEAP FORWARD FROM THE DIASPORA

• A GREATER ROLE FOR FIRMS FROM OECD COUNTRIES
• GREATER EMPHASIS ON THE DOMESTIC MARKET