Chinese Success with FDI: Lessons for India‪.‬

In 1947, China and India were on the same footing in terms of main economic indicators such as per capita income. But today, the picture of the two countries is very different. For instance, China's GDP growth rate reached 10.7 per cent in 2006, while India's was 9.2 per cent. (1) It was estimated that China would grow by 10 per cent in 2007 and 9.5 per cent in 2008, while India's growth for these two years would be 8.4 and 7.8 per cent, respectively. In 2005, China's GDP, at about USD2.2 trillion, was roughly thrice that of India; its trade amounted to 7.4 per cent of world trade, as against one per cent in India's case. The other key parameters of both economies suggest that the Chinese dragon is flying ahead of the Indian elephant. (2) Clearly, both countries are the star growth performers among the world's major economies, though a major difference in scale between the two countries exists (see Table 1). China's economy is three times larger than India's and contributes significantly more to global economic growth. It has emerged as a production hub and export market for the region. These are the key factors in boosting intra-regional trade and investment in China. Meanwhile, India has also grown rapidly following reforms in the early 1990s and more recently, has become a global leader in service exports, even though its impact on the regional and global economies has so far been more or less limited. (3) Both the Asian giants are on their way to becoming economic super powers, but both have different strength and weaknesses. They also follow different economic models and political systems. (4) While China is a closed society run by a tightly knit communist party, India is an open democratic society, with an independent judiciary and free press. (5) Despite their differences, there are many lessons these countries can learn from each other. Chinese success in attracting foreign direct investment (FDI) may prove very useful to other countries, especially India which aims to become a global economic power by 2020. Hence, the main objective of this article is to examine the lessons which India can learn from China's success in attracting FDI on a large scale.