China not yet buying the world

The most remarkable fact is that Nokia has not been killed by a Chinese or Indian rm
Anuj Srivas Professor Peter Nolan has researched, written and taught on a wide range of issues in economic development, globalisation and the transition of former planned economies. After receiving his BA degree from the University of Cambridge and his MSc and PhD from the University of London, he went onto become the Director of University of Cambridges Centre of Development Studies. He is also in charge of the Chinese Executive Leadership Programme (CELP), which each year brings CEOs from Chinas largest rms to the University of Cambridge for a three-week training programme, taught by a combination of academics and the leaders of international rms. As theFinancial Times put it: Nolan knows more about Chinese companies and their international competition than anyone else on earth, including in China. Excerpts from his recent interview to The Hindu: What is the way forward for China now, with its new leadership, with regard to its economy? Well, the challenges facing China at the moment are very clear, very obvious. It has had a very successful export strategy and needs to start thinking about moving from that and creating consumer demand. Great potential is coming from the service sector, of course, and another major problem is, of course, corruption which India is suffering from as well. One of the major factors why China has grown so fast when compared with India is the ease of allowing foreign investment. Of course, yes, it is phased, but look at them, theyre thinking about opening up the services sector to more foreign competition. In India, yes, you have your reforms which are slowly happening, but it is such a colossal issue that sometimes it dampens the positive effects of foreign investment. One of the major contentions that India has with China at the moment is the widening trade gap. What is your take on this? Is it a question of India not producing quality manufactured goods or China clamping down on Indian imports? I think for a problem like this, the root cause, what is exactly the nature of this situation becomes very important in solving a problem. Lets be clear, it is a long-term issue. Whether it is the penetration of Indian pharma products or IT services into the Chinese market, what you have to understand is the similarities of both China and India. These are two countries which have companies that compete in a lot of the same areas. It is very similar to the struggle over who gets to be the leading producer of air-conditioners or any other fast moving consumer good. Not everybody can be a leader in everything and thats where the problem starts. Sure some of the fault might be that India cannot produce high-quality goods for export, which is why most of Indias exports to China are raw materials, but the problem also extends beyond that. More rational discussion is needed. Have Chinese and Indian rms reached the point where they can truly project themselves onto the global stage? In a short answer, no, at least mostly no. The most remarkable thing, of the last ten years, is the fact that Nokia has The whole threat of security concerns is laughable. It is also hypocritical of America. Take, for example, the Chinese banking system the reason why it is so modernised and secure is that most of them are using IBM mainframes. Isnt that an American product in a Chinese sector that needs the greatest security? I honestly believe that this Huawei incident is a bone that is being thrown to the anti-Chinese sentiment in the U.S. The whole affair has caused deep debate in China and I am sure that there are lessons in it for India too. With the shale gas revolution starting to gather pace, and China having abundant reserves of it, will this reduce Chinas dependence on oil and other sources of energy? Why yes, it does appear that China has large reserves of shale gas, which is very good news as this means China could become self-sufficient in terms of energy. There are, however, a couple of problems that have to be surpassed before this is realised. One is that China needs the technology, and while there are some advances on that front it isnt for sure. Number two is that getting the shale gas requires a lot of water. There is a lot of water requirement for the whole process. Now U.S. has that in the form of even rainfall distribution, but China has overall very little water. Over the last year, there have been a number of disputes between China and Japan, how has this affected business and overall relations? Well, when people talk about these disputes the important thing to understand is that Japans FDI stock in China last year was in the range of $83 billion. Sure there are regional and international disputes and if it does continue, the effects, of course, will be harmful. However, there has been far too much media speculation over this. The studies and surveys that I have personally seen show that most people in China want these disputes to be resolved by diplomatic means. I also believe that Abe will distance himself from some of the comments he made during his election campaign. Also, to the contrary, these sentiments are not being whipped up by the Chinese Government. There has been a lot of talk about Chinese investment into global natural resources. Is the string of pearls approach something that India should be worried about? I think my feelings on this can be summed up by a message from my book Is China Buying the World. The concluding sentence is this: China is not yet buying the world and shows little sign of doing so in the near future. But let us look at the numbers and not the hype. In 2011, Chinas total outward FDI in extractive industries was $67 billion, and in the manufacturing sector it was just $27 billion. Chinas outward stock of FDI in the extractive industries is less than a quarter of the international assets of a single giant global company, Royal Dutch Shell, and less than onethird of that of Exxon Mobil. Chinas outward stock of FDI in manufacturing amounts to only one-twentieth of the foreign assets of General Electric, and 13 per cent of that of Toyota. Who is buying who, you tell me. anuj.s@thehindu.co.in

can do is go out and buy a trophy company, like Jaguar Land Rover. Where is their global dominance? The operating-system market is dominated by just two companies Apple and Google. Over 90 per cent of market share. The problem with Indian and Chinese companies is that they have deep roots in the political economy. The Ambanis, Tatas and Birlas. The whole banking sysnot been killed by a Chinese or Indian tem as well. Sure, it protects them from company. Its been brought down by two nancial shock and such, but it begs the American rms Apple and Google. question as to what they have really proNow just think about that for a second. duced on a global level? This is someOnce you become a world leader like thing that needs to be reected on. Nokia, it isnt that easy to be brought When Chinese and Indian companies go down. out, however, there is mistrust. Take Ten years ago, everybody was talking Huawei for example, are the recent about how even though low-income security concerns expressed by both countries like India might not be able to U.S. and Indian officials a real threat? Or catch up in terms of manufacturing, they is it smoke without re? would win the race in terms of high-tech The allegations of security problems and other forms of consumer electronics and technology. That hasnt happened and intellectual property theft are just now and I dont think it is likely to hap- absolutely ridiculous. Just because the pen. There is something about the ecol- head was a former member of the Army? ogy of high-income countries such as the Come on. Today, for example, there was U.S. that allow them to dominate in this a delegation of American businessmen who went to Iran to further their inspace. terests. They were made up of military But you have companies like Tata in India men tell me now why that isnt a probwho have gone out, there might not be lem? something too wrong with the Indian and The thing about Huawei is that it is the Chinese ecology? only Chinese company which is truly Well, I mean sure yes, you have a large competing on a global level in a very group of very powerful companies in high-tech industry. They were initially both China and India who are literally disadvantaged in the Chinese market; into everything. Those rms manufac- they werent given lucrative government ture everything from salt to roads to contracts and were forced to look outtrucks. But thats the thing; if you want to side Chinese borders to grow. be a global company you cant diversify The upper management of Huawei is into everything and do that. You have to actually grateful for that, as it helped focus on one or two things. Sure you have them focus if they had taken governChinese and Indian companies which ment contracts to build roads and airsuck in huge amount of resources and ports they would have become bloated produce cheap goods but the best they and diversied.