A Tale of Two Countries

China and India each have their own methods for developing their industries, and Nayan Chanda reminds that a nation’s foreign direct investment, inward or outward, can achieve more than economic goals. The founding editor of YaleGlobal Online outlines differences between the approaches employed by China and India: “The main difference between the two is that one aims to grab cutting-edge technology to make products for China rather than inside the country, while the other wants to bring manufacturing to India. It is in these divergent approaches that one can discern the clear gap in the relative scale of the two economies, as well as their national ideologies and political systems.” In essence, India is intent on cheerleading about its aspirations to attract more manufacturing and jobs to its borders. China is more strategic in acquisition of foreign firms, pursuing control of sensitive technologies and production, and less concerned with relocation or jobs for Chinese workers. – YaleGloba

A Tale of Two Countries

While India seeks to woo foreign firms to “Make in India,” China’s aim is to grab cutting-edge technology to make products for China
Nayan Chanda
Tuesday, April 19, 2016

While the mechanized lion mascot for the “Make in India” campaign strides across websites and TV screens to announce India’s industrial aspirations, there is no such razzmatazz about China’s industrial ambition. The mainland’s trillion-dollar reserve-backed ambition only creeps into view when a high-profile acquisition bid in the West is approved or blocked.


The main difference between the two is that one aims to grab cutting-edge technology to make products for China rather than inside the country, while the other wants to bring manufacturing to India. It is in these divergent approaches that one can discern the clear gap in the relative scale of the two economies, as well as their national ideologies and political systems.


Ever since the founding of the People’s Republic, China’s government has been single mindedly seeking to bridge the technology and power gap with the West. Its tradition of using technology and novel manufacturing techniques – think of paper, gunpowder, water-wheel, and the compass -– gave it a strong base from which it has sought to acquire leading technologies, through commercial means if possible or by outright theft if necessary.


China’s industrial drive has reached new levels of urgency as it feverishly seeks to leverage its enormous foreign exchange reserves to gain a technological and military edge over the US. This approach is also backed by commercial considerations: Chinese companies hurry to spend their cash before devaluation eats into their balance sheet and in a slowing economy they also hope to secure cash flow by acquiring high-profile foreign companies.


China’s early attempts to snap up cutting-edge American technology companies were rebuffed by the US government, but it has still succeeded in acquiring some of the world’s most profitable operations. The millions of American movie watchers who flocked to AMC Theatres last year contributed around $632 million to Chinese coffers, and thanks to the acquisition of Smithfield Foods by Shuanghui International, one in four hogs raised in the US add to China’s bottom line. Lenovo which acquired PC business from IBM posted a net $300 million profit last quarter.


China has since stepped up its bid for foreign acquisitions — totaling over $100 billion in first three months of this year alone. Its recent industrial forays have been marked by attempts to acquire cutting-edge technology which have military applications.


To date, few have succeeded in overcoming the objections of American lawmakers and regulatory authorities. For example, China recently tried to acquire a $2.9-billion controlling stake in a unit of the Dutch company Philips, which has developed LED technology which might have application for space-based weapons. The bid was ultimately rebuffed, as was China’s earlier effort to acquire a $2.5-billion controlling stake in Fairchild Semiconductors, which produces sensors used to guide unmanned submarines and drones.


Notably, none of these acquisition targets were meant to relocate to China or create jobs for local workers. Instead, they were intended to give China control over sensitive technologies needed for power projection, and also corner world production of certain high-value technologies.


The lion representing the ‘Make in India’ project, by contrast, is focused mainly on economic aspirations. Its majestic allure aims to woo foreign firms to shift manufacturing to India, to supply commodities from aircraft parts to soft drinks while providing employment. If China were to create a truly representative mascot for its ‘Make for China’ programme, it would be a crouching dragon.

Nayan Chanda is the author of Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization and is consulting editor of YaleGlobal Online, published by the MacMillan Center, Yale University.


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