May 22, 2013, by Editor
Diverging Globalizations: Lessons from China and India
Written by Roselyn Hsueh.
China is the world’s largest autocracy. India is the world’s most populous democracy. Both economies have maintained steady GDP growth even as countries in the developed world grapple with financial and economic crises. They have conducted unprecedented market reforms and boast some of the most competitive industries and companies in the developing world. China and India’s international economic integration and success have also carried a cost to their citizens, judging by various development indicators, from infant mortality to distribution of wealth and air quality. They are also Asian neighbors positioning and jostling for regional dominance. Each side demonstrates its geopolitical power through occasional passive aggressive actions, such as crossing disputed maritime or land borders. Surely, these two countries’ varying and vastly complicated political systems alone make them developmental juggernauts to be admired and gawked at, and restive powers to be constrained, not provoked.
China and India fascinate the world but appear to provide almost no unifying road-map for industrialization, human development, or globalization. Beyond macroeconomic indicators and simple observations that these are developing countries with diverse and large populations, what is often missed is that these two countries offer two distinct yet internally variegated road maps for globalization that can provide lessons for other countries. In the post-neoliberal era where the International Monetary Fund, the World Bank, and other bastions of “Washington Consensus” debate the extent and scope of austerity measures and advocate some form of state intervention, the economic development trajectories of these two countries and their internal variations question conventional wisdom on the effects of state intervention, competition, and markets on innovation, economic growth, and regime stability.
Beginning in the 1980s, both China and India liberalized foreign direct investment and exposed their economies to foreign technology and knowledge transfers. Rather than one straight path out of economic misery toward industrial development, however, both countries have gone separate ways, which reflect how nation-specific ideas and norms and institutional legacies interact with the globalization of industries. In the aftermath of the Tiananmen Square Incident, China’s leaders sought to modernize infrastructure and enhance the national technology base while at the same time maintaining political stability in the hands of the Chinese Communist Party. Even as China permitted foreign investors to develop modern telecommunications networks, the government retained basic operations in the hands of competing state-owned carriers. The Communist leadership switches off network infrastructure when social unrest threatens to stir up trouble for state authorities in Tibet or when anti-Japanese protests threaten to transform their nationalist origins and incorporate social demands, mobilizing laid off workers and environmental activists. Otherwise, the Chinese blogosphere is one of the world’s most vibrant, espousing rising nationalism as well as societal discontent with corruption in officialdom.
Today, China Mobile ranks number one in the world in subscribers. Conveniently, China Mobile is also the service provider tasked to implement TD-SCDMA, China’s indigenous networking technology, developed with the initial assistance of western companies Siemens and Motorola. With telecommunications basic services in the state’s hands, the Chinese government introduced competition and encouraged and courted foreign investment in telecommunications equipment and consumer electronics. The development and success of Lenovo and Huawei represent how private individuals, doubling as, or well connected to, government and party officials, benefited from strategic liberalization to achieve state goals.
Responding to balance of payment concerns and global ideological and market pressures, the Indian government, supported by an international liberalizing coalition of Indian returnees, introduced competition and privatized previously state-owned assets in the early 1990s. The state privatized and corporatized state-owned telecommunications operators and allowed private and foreign operators to bid for licenses in telecommunications circles, which cut across Indian states and reached previously isolated rural areas. Today the British company Vodafone ranks among India’s largest mobile carriers. Value-added service providers operating with software designed by India’s IT industry have revolutionized how business is conducted.
However, cumbersome technical compliance rules and nontariff trade barriers plague the market entry of foreign telecommunications equipment makers. Overseas Indian returnee Sam Pitroda, leading the Centre for Development of Telematics, along with Rajiv Gandhi, jump started telecommunications reform in the 1980s when he introduced telephone exchanges to the rural areas. Yet, sluggish state-owned equipment makers nurtured by Nehurivan era techno-nationalist policies produce antiquated technology and never fully modernized nor moved up the value chain. Recent calls for protectionist policies in the name of national security concerns, ideals as rarely connected to Indian telecommunications as they are commonly associated with Chinese telecommunications, have highlighted not so much the internal security concerns grappling the Indian government, but just how rare it is to find an Indian manufacturer of telecommunications handsets or terminal equipment.
To the extent that India has liberalized telecommunications services, it has been slow to open up other economic sectors, such as garment and textile manufacturing and retail. This reflects the centrality of the rural and agrarian interests championed by Mahatma Gandhi in India’s struggle for independence and intense trade unionism dominated by small-scale, labor-intensive service providers and manufacturers. This is why it took years to modernize the country’s international airports and the success of resistance that delayed the entry of global retailers, such as Walmart.
In contrast, China has extensively liberalized textiles, along with other sectors deemed to have little application for national security and contribution to the national technology base. China now serves as the manufacturing center of the world from fiber processing to garment manufacturing, and emergent is a private sector, competing with foreign capital that have migrated factories to China to take advantage of lower costs and deregulation. All the same, less state intervention in these economic sectors has translated into weak regulatory capacity, as high polluting factories and questionable production practices fester alongside market saturation in easy to enter sectors with little innovation other than price-cutting strategies.
The internally variegated development witnessed in China and India reflects each country’s distinct international economic integration. It is debatable which globalization path is better placed to cope with the human costs mentioned earlier. All the same, several years ago The Economist posited that the health of companies is no longer connected to the wealth of economies, as multinationals are increasingly decoupled from the fate of countries and indebted to the global markets that they serve. The lessons of China and India’s different approaches toward market reform and subsequent re-regulation and resulting patterns of sectoral development call into question such assessments of the impact of globalization on nation-states and the private and state-sponsored companies which come from them. They further question zero sum assumptions about the ideal extent and scope of state intervention in the face of globalization.
Multinationals operating in services and manufacturing in telecommunications and textiles in these two countries have had to adjust to their market entry and business scope according to the globalization paths of the world’s two most populous nations. Moreover, the outward globalization of Chinese and Indian companies suggest that what has led to their development at home influences their initial, if not also eventual, success abroad. No one model of development and globalization is better than another and each model solves some problems only to create other ones. What is clear is that China and India do not have to be enigmas and understanding the complexity of their globalization sheds light on their successes and whether or not those can be easily replicated.
Roselyn Hsueh is assistant professor of Political Science at Temple University in Philadelphia. She is the author of China’s Regulatory State: A New Strategy for Globalization (Cornell University Press, 2011) and her research focuses on the politics of market reform and internationalization across industries in developing countries.