Steel Scenario conference--focus on India and

China: India, rich in ore but poor in coking

coal, has been developing its own
technologies to overcome the shortage of
suitable coal, which it largely has to import
from China.
From November to February India's most populated city, Kolkata (Calcutta) experiences its cool
season with pleasant daytime temperatures of 20-25[degrees]C. Hence, these are the months for
weddings and conferences.
Steel Scenario's regular annual conference takes place here in February each year and indeed,
this year's event on 4 & 5 February proposed a marriage between the Indian steel industry and
the Chinese steel industry.
Starting in 1945 with almost equal outputs, China's growth in output and demand has been
spectacular, particularly in the past decade and now stands at 272Mt of crude steel in 2004
(Table 1). In contrast, India's crude steel output in 2004 fiscal was just 32.26Mt and finished
steel output 36.1Mt.
In 2004, the Government of India published its Draft National Steel Policy with the ambition of
increasing crude steel output to 100Mt by 2020. This will require a 7% annual growth--a modest
figure compared with China's double-digit growths in recent years--but one that will require the
Indian economy (GDP) to grow at least 6% annually. If domestic growth does not materialise,
there will be 12Mt/y of Indian steel each year looking for an export market.
The keynote address by DrJamshed J Irani, Member of the Board of Directors Tata Steel, was
read in his absence. While the steel industry was currently enjoying an unprecedented boom, it
must be remembered it is a cyclic industry rising and ebbing every five to seven years. Steel
producers should analyse the underlying reasons for the current surge in an attempt to prolong
this profitable era. He saw the present healthy trend continuing for a further two to three years
throughout the world and possibly for a lot longer in developing countries such as India and
China.
While the Chinese factor was an important boost to today's market, consuming as it does some
300Mt/y of steel or 30% of world output--a figure that still has potential to grow to 350-400Mt
as China moves from completing infrastructure projects in the east to the underdeveloped areas
of Central and Western China--but China's production capacity is also growing rapidly and now
stands at 400Mt/y, diminishing its need to import finished steel.
Apart from China, demand in USA and Europe as well as developing countries is growing as
100-year-old infrastructure is replaced.
India, said DrIrani, has not yet come up to earlier expectations with consumption standing, at
about 35Mt/y. The recent upsurge in economic activity in India is likely to lead to a spurt in
consumption reaching 50Mt by 2008 and maybe 75Mt by 2012.
Unlike China, India is well endowed with good grade ore (+55% Fe content viz China's typically
32% Fe content) but lacks significant deposits of coking coal, which it has to import, largely
from China in exchange for exports of ore. However, it is employing stamp charging in coke
ovens to make use of some of its vast reserves of Indian thermal coal.
DrIrani put the proposition that India and China were not competitors in the steel market but
rather partners. In the future, he said, the dominant success factor for a steel company will be
whether it has sufficient access to raw materials. Companies must ensure supplies by buying into
ore and coal mines.
Also, increasingly bulk carbon steelmaking would move away from developed countries into
those with raw materials, leaving the developed countries to concentrate on producing more
sophisticated grades. However, countries like China and India were also increasingly producing
such high grade steels.
MARKETING
Six papers were presented in the session on marketing.
There are four strategic groups in India, said Shoeb S Ahmed of SAIL. The major integrated
companies SAIL, TISCO and RINL account for 45% of output with the remainder produced by
secondary majors, minimills and rerollers. India's strengths were an abundance of ore, a skilled
work force and low cost labour. Its weaknesses were low productivity, high social costs and poor
coal for coking. Its opportunities are from a low per capita consumption, a vast latent demand
from rural regions and low exports. Its threats were poor R&D, lack of coking coal and
substitution of steel by other materials. Its strategy should be for the top three players to capture
66% of the market through mergers, acquisitions and joint ventures.
India, it was claimed, is the world's lowest cost producer, a fact disputed in the Q&A session
where Russia and Ukraine were cited as the lowest costs producers, while accepting that TISCO
is the lowest cost company. Greater customer value is needed with quality and distribution
needing improvement and a reliable brand name established. To reach the rural market, SAIL has
appointed 700 rural dealers and is marketing complete solutions such as the design and
production of steel door frames.
Sushin Banerjee, GM SAIL comparing China and India pointed out that while GDP's were not
dissimilar (8.5% in India in 03 and 9% in China) investment in the Chinese steel industry at
$260bn was over eight times India's $31bn. On India's demand for steel, an overall growth rate
of 7.9% was forecast for 2006-7 led by household appliances followed by petroleum
infrastructure projects (Table 2).
Cost of production have risen steeply due to increased raw material and freight costs with some
prices more than doubling between December 02 to January 05 (Table 3).
M Roy Exec Dir Salem Steel Plant--SAIL's alloy steel plant--saw a potential for low nickel
containing stainless steels (2%Ni + Mn austenitic steels) in India. Globally, the stainless steel
producers were now highly concentrated with four major players: Acerinox, Arcelor,
Outokumpu and TK Stainless. Despite its richness in chrome ore, India has no commercially
significant deposits of nickel.
SanjeevDhinda of Broner Metals (UK) explained how Broner's scheduling software has helped
improve productivity, in steel processing lines improving manufacturing agility in order to
respond to changing markets. Steel, with its high capital investment, needed to be flexible to
respond to changing markets. In India, typical delivery times were 30 days compared with 7 days
in developed countries and just one day in special cases. This was too rapid for a manual
planning process to be used.
A lively debate in the Q&A session revealed that India's largest producer, state owned SAIL has
no plans to enter the automotive sheet market until the 2013 to 2020 period, although they
already produce alloy steels for automotive production.
A special session was presented by DrAmitChaterjee, former Chief Technology Officer Tata
Steel and now advisor to the GM. DrChaterjee outlined the history of Tata Steel, founded in
1907 in Jamshedpur--formerly named Tatanagar--and hence the origin of the company's name.
Access to raw materials was essential. The world's resources of +47% Fe content ore was 150bn
tonnes of which Russia and Ukraine accounted for 75%. While China has large deposits of ore
the grade is poor. Regarding coking coal, USA has 23% of the world's reserves, China 11% and
CIS 23%. USA was the leading coking coal supplier. India's coal reserves were 201bnt but only
11% of this was suitable for coke production and all had a high ash content. Natural gas was
present in good quantities in the eastern region and also in Bangladesh. Worldwide 60% of the
natural gas was in Russia, Iran and Qatar.
Per capita consumption of steel in India was 32kg/y, compared with a world average of 140kg.
However, based on the 300M urban population where most steel was used then per capita
consumption was closer to 117kg. Another measure of steel market penetration is the
steel/cement ratio. While this is 0.31 in India it is closer to 1.0 in developed countries. (Table 4)
SAIL plans an Rs25 000 crore ($5.707bn) expansion to grow capacity from 11Mt to 20Mt by
2012. Tata Steel will increase output at Jameshedpur by 3.4Mt to 7.6Mt by 2008. Esser Steel
plans a 4Mt/y expansion plus a 6Mt/y pellet plant in the state of Orissa. However, such
expansions could not keep pace with growth in China which has seen the period needed to
increase capacity by 50Mt decreasing from 37 years for the first 50Mt to just a year in 2003-04.
India has still not reached its first 50Mt, even although both India and China started with an
equal production base of 1Mt in 1949.
India is now the world's largest producer of DRI, at 6.9Mt, close to half (3.28Mt) of which is
produced by reduction with coal in rotating kilns--a technology originally developed by Tata
Steel and used extensively in India but elsewhere only in South Africa. Total world output of
DRI has grown to 50Mt in 30 years (Fig 1).
[FIGURE 1 OMITTED]
DRI 'Sponge iron' produced from coal has a low carbon content and is often directly melted in
induction furnaces with minimum refining and cast to billet for rolling to rebar. DrChaterjee--and
others--were critical of the poor quality of such rebar and he said that Tata was in the process of
commissioning a new rebar mill to meet demand for a certified rebar product. Other smelting
processing being considered for use in India are HIsmelt and Romelt as neither require coking
coal.
The issue of C[O.sub.2]. output was also addressed by DrChaterjee who pointed out that China's
total output (all industries) was over three times that of India's at 3473.597Mt and 1007.978Mt
respectively. On a per capita basis India's C[O.sub.2] emissions were 0.96t/y compared with
China's 2.69 or USA's 19.8t.
DrChaterjee concluded that there was a bright future for India and with a population forecast at
1.5bn by 2015 it would need to produce 150Mt to satisfy the market but China would remain the
world's leading producer.
RAW MATERIALS
The session on raw materials saw four papers, two dealing with coal/coke one on iron ore and
one on the State of Orissa, possibly India's most mineral endowed state.
'India's steel scenario--Advantages of Orissa' was presented by B K Mohanty, former Director of
Mining & Geology, Orissa and was co authored by Ashok Kumar Sahu, Joint Secretary to the
Government of Orissa Dept of Steel & Mines.
A detailed analysis of this state's potential for steelmaking was made in the March issue of Steel
Times International (p38). In summary, this east Indian state bordering on the Bay of Bengal is
immensely rich in haematite ore, chromium, manganese, bauxite and thermal coal and
contributes a major part of India's production of these minerals (Table 5).
The state boasts one large integrated mill in the north, SAIL's 2Mt/y flat products plant at
Rourkela and two smaller blast furnace plants, NeelachalIspat Nigam (NINL) near Duburi,
which produces billet and wire rod and the KIW pig iron plant near Barbil. Also, MESCO has
built but not yet commissioned a 0.5Mt/y pig iron plant. Total iron capacity, including Mesco, is
3.2Mt. The State also has 47 sponge iron units of total capacity 2Mt/y. Another 18 such plants
are planned by 2007. A further 47Mt capacity of projects are under consideration of which 25Mt
have MoUs signed, 7.75Mt are under consideration and 15.2Mt are at the discussion stage. In
this latter category is a proposed investment by South Korean steelmaker, Posco to build a
12Mt/y (in two 6Mt stages) in a joint venture with BHP Billiton. This will be located at the
State's main seaport, Paradip. A further 11Mt of capacity is proposed in the Kalinganagar
industrial zone near a major ore deposit at Daitari. Ore exports currently stand at 6Mt/y and
major infrastructure developments are planned to increase port, rail and road facilities.
N K Patnaik, joint MD Orissa Sponge Iron Ltd at Palaspanga presented iron ore reserves in India
at 13 460Mt or about 10% of world resources, giving India the fifth largest reserve. The figure,
some 1143Mt above that quoted by MrMohanty also includes 3407Mt of magnetite ore, any
remaining discrepancy being due to the cut off assay and depth selected for commercial mining.
The various grades of ore are given in Table 6.
Although high in iron content, Mr A K Mathur of MSTC said Indian ores tend also to have a
high alumina content (2.5-4.5% viz world typical < 1%) which results in the formation of a more
viscous slag in the blast furnace, which requires more addition of flux, greater slag volume and
increases coke consumption.
Looking at availability of coal, there is a shortage of coking coal, which has resulted in
integrated steelmakers such as SAIL and Tisco to partly charge sponge iron to their blast
furnaces. In 03-04, 4.109M of coal based sponge iron and 3.976Mt of gas produced DRI were
made in India. For production with coal, coal grades A, B and C can be used of which there are
10589Mt of reserves but production of these coals has mainly been reserved for other industries
prior to the importance of sponge iron being recognised. The government has been approached to
reallocate coal distribution.
Mr A K Mathur of MSTC Ltd spoke of methods of improving Indian coals by washing to reduce
the ash content which can be as high as 50%. India's integrated industry is dependant on
imported coal and coke, mainly from China where export licences were reduced to 9-11Mt in
2004, a drop of 5-6Mt. China and India are both building new coke ovens to meet the demand.
M P Srivastava said that India exported 48Mt of ore in 02-03 worth Rs5800 crores ($1323.4M)),
of which 20Mt was to China worth Rs2400 crore ($547.6M). Output in 2003 increased to 78Mt,
mainly from the states of Jharkhand, Orissa, Chattisgarth, Karnataka and Goa. SAIL operates
seven ore mines with a projected capacity of 24.6Mt by 2006-07.
CHINA
The session on China saw four papers, two presented by Chinese nationals. DrZhengZhenghao
of the engineering and raw materials trading company, CMIEC, said that consumption of
finished steel in China grew 33% in 2004 and crude steel output increased 50Mt to 273Mt.
However, production costs jumped 46% due to the scarcity of raw materials--200Mt of ore was
imported--and cost increases for electricity. Chinese domestic ore has a typical iron content of
only 38% and must undergo benefication treatment.
Asked on future consumption trends, DrZhenghao said that a fall in consumption was likely to
take place in 2006 as the major infrastructure projects for the Olympic Games will have been
completed by then. However, this fall back would be temporary as other infrastructure projects in
Central and Western China were still upcoming.
Mr Henry Wang of Sino-Steel Industry & Trading Group Corp, Beijing (SSIT) pointed out that
the Chinese steel industry was still guided by central government control. For example, all
further loans to build coke ovens have been stopped in an apparent attempt to slow the growth of
the steel industry. The government now wishes to concentrate on producing high grade steels
rather than a large volume of plain C steels.
In contrast, a comment from the floor said that the Indian government gave up control of the
steel industry on liberalisation but never-the-less this does not mean the government should not
plan levels of steel production in the future.
DrMaharajKoul, President CashmirInc USA presented a paper outlining what China and India
could learn from the mistakes of the US steel industry. He pointed out that without exception,
steel consumption follows a sigmoid shaped curve with initially slow growth accelerating in a
growth boom, only to fall back in a 'shake out' phase until growth resumes to maturity when once
again consumption drops. China was still in the initial rapid growth phase and had not yet
reached shakeout. India was further behind and has not yet reached the rapid growth stage. The
USA was at the mature consumption stage with demand levelling at 120Mt/y (Fig 2).
[FIGURE 2 OMITTED]
Table 7 compares production and marketing parameters for the three countries.
Table 1 China's ferrous production 2004 (Mt)

Production % Change

Crude steel 272.46 23.2

Pig Iron 251.85 24.1
Iron Ore 310.10 22.5
Coke 177.48 25.8
Ferroalloys 8.65 28.5
Rolled steel 297.39 23.6
Wide HRC 10.38 38.6

Table 2 Demand projection for steel in India

Sector Demand Demand Growth rate Growth rate

2006-07 2011-12 2006-07 2011-12
(Mt) (Mt) 2002-03 2006-07
Construction 15.0 20.0 10.8 6.0

Fabrication 6.0 8.6 10.0 7.5

Automobile 2.0 2.7 9.0 6.0

Transformation
of Petroleum Products 3.1 7.7 20.0 17.0

Tube making 3.3 4.1 6.0 4.5

Cold reducing 7.2 12.1 21.6 11.0

Household appliances 2.0 4.0 26.0 15.0

Total demand for

finished steel 41.0 59.9 7.9 7.9

Source: S Banergee SAIL

Table 3 Input costs for SAIL (US$ FOB/t)

Dec 02 Jan 05 % rise

Met Coke 80 260 225

Coking Coal 47 125 166
Scrap 110 200 82
Pig Iron 110 325 195
Freight * 9 35 289

* Cape sized vessel >80kt

Table 4 Comparison of key parameters India vs

China

India China

Literacy (%) 65 86
Life Expectancy (yrs) 63 72
GDP ($tr) 0.4 1.2
Total Trade ($bn) 93.9 851
FDI in 2003 ($bn) 5.1 57
Income/cap 04 ($) 454 960
Av inflation (%) 8.0 6.5
Steel consp/cap (kg) 32 118
Crude Prod 03 (Mt) 32 220
Vehicles/1000 pop 0.84 2.52

Table 5 Orissa's mineral wealth (Mt)

Mineral/Ore Reserves Production 03-04

Orissa India % Orissa India %

Haematite iron ore 4177 12317 33.9 30.18 114 26.4

Chromite 110 114 96.5 3.18 3.20 99.0
Manganese 115 406 28.3 0.57 1.74 32.0
Limenite (sands) 45 348 12.9 0.10 -- --
Limestone 2223 169941 1.3 2.23 154 1.4
Dolomite 882 7348 12.0 1.25 3.82 32.7
Bauxite 1529 3075 49.7 4.93 10.95 45.0
Coal 60980 212712 28.6 60.00 361 16.6
Graphite 4.6 5.9 77.9 0.03 0.09 3.3
Fireclay 177 706 25.0 0.05 0.60 0.80

Table 6 Grades of workable ore in India (%)

High grade (>65%Fe) 13

Medium grade (62-65%Fe) 47
Low grade (<62%Fe) 22
Unclassified 18

Table 7 Comparative steel statistics

USA CHINA INDIA

Crude steel (Mt) 110 300 40

by BOS (%) 50 72 50
by Electric (%) 50 16 43
by Other (%) 0 12 7
Con Cast (%) 98 93 65
Yield (%) 90 80 70
Man power (thou) 125 3000 500
Man hr/t 2.5 25 30
Vehicle prod (M) 12.2 3.2 1
Elect prod (tril kWh) 3.719 1.42 0.533
Total C[O.sub.2] emis (Mt) 5.7 3.7 1.0

I India's DRI production by type

Year Coal Gas

95-96 1.9 2.9

96-97 1.95 3.3
97-98 1.56 3.6
98-99 1.75 3.4
99-00 1.93 3.4
00-01 2.03 3.45
01-02 2.26 3.18
02-03 3.28 3.62

Note: Table made from bar graph.

World crude steel output decreases by -8.0% in
2009
(www.worldsteel.org)
Updated: 2010-03-15 15:20
Counter:898
Brussels - World crude steel production reached 1,220 million metric tons for the year of 2009.
This is a decrease of -8.0% compared to 2008.

Steel production declined in nearly all the major steel producing countries and regions including
the EU, North America, South America and the CIS in 2009. However, Asia, in particular China
and India, and the Middle East showed positive growth in 2009.

In December 2009, world crude steel output for the 66 countries reporting the World Steel
Association (worldsteel) was 106.4 mmt, an increase of 30.2% compared to December 2008.
Most major-steel producing countries showed two-digit growth in December 2009. The world
crude steel capacity utilisation ratio of the 66 countries in December 2009 was 71.5%, a
decrease from 74.7% in November 2009. Compared to 2008, the utilisation ratio in December
2009 increased by 13.4 percentage points.
China's crude steel production in 2009 reached 567.8 mmt, an increase of 13.5% on 2008. This
is a record annual crude steel production figure for a single country. China's share of world steel
production continued to grow in 2009 producing 47% of world total crude steel, an increase of 9
percentage points compared to 2008.

Asia produced 795.4 mmt of crude steel in 2009, an increase of 3.5% compared to 2008. Its
share of world steel production increased to 65% in 2009 from 58% in 2008. Japan produced
87.5 mmt in 2008, a decrease of -26.3% on 2008. India's crude steel production was 56.6 mmt
in 2009, 2.8% growth on 2008. South Korea showed a decrease of -9.4%, producing 48.6 mmt
in 2009.

The EU-27 where all major steel producing countries including Germany, Italy and France
showed substantial decline recorded a decrease of -29.7% compared to 2008, producing 139.1
mmt of crude steel in 2009.

In 2009, crude steel production in North America was 82.3 mmt, a decrease of -33.9% on 2008.
The US produced 58.1 mmt of crude steel, 36.4% lower than 2008.
The CIS showed a decrease of -14.7% in 2009. Russia produced 59.9 mmt of crude steel, a
-12.5% reduction on 2008 while Ukraine recorded a decrease of -20.2% with year-end figures of
29.8 mmt.
Table 1: Top 10 steel-producing countries

Rank Country 2009 2008 %2009/2008

1 China 567.8 500.3 13.5
2 Japan 87.5 118.7 -26.3
3 Russia 59.9 68.5 -12.5
4 US 58.1 91.4 -36.4
5 India 56.6 55.1 2.7
6 South Korea 48.6 53.6 -9.4
 7 Germany 32.7 45.8 -28.7
8 Ukraine 29.8 37.3 -20.2
9 Brazil 26.5 33.7 -21.4
10 Turkey 25.3 26.8 -5.6

2009 graphs and figures.pdf

India vs. China

 • Jackie Steinitz
Published 12/14/2006
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LONDON (ResourceInvestor.com) -- India and China are frequently mentioned in the same
breath; they are neighbours, both have populations of more than a billion, both have enjoyed fast
growth in recent years contributing a joint 30% to global growth since 2001, and both are poised
to be in the world’s three largest economies in the twenty-first century. But to date their impact
on the commodity markets has been quite different.
For most commodities Chinese demand far outweighs that of India. China is the world’s number
one consumer of all the major base metals and either first or second (after the U.S.) for most of
the energy markets and agricultural products, (with the notable exception of coffee where it is
ranked 45th).
Meanwhile India’s ranking generally hovers between five and fifteen for the major metals. It has
a greater presence in energy and agricultural commodities, generally ranking in the top half
dozen. The Indian production base for agricultural commodities is large but its international trade
is modest.
Typically however China, which has a population which is 20% more than India’s but three
times the GDP, consumes anywhere from six to twenty times as much as India in metals, two to
five times as much energy and more than twice as much cotton and rubber.
The only exceptions to Chinese supremacy over India are in the tea and sugar markets and in
gold and diamonds. India is the world’s largest consumer of gold accounting for 23% of world
demand in 2005, and it is the third largest consumer of diamonds after the U.S. and Japan.
Why Are India and China so Different?
A book published recently by Edward Luce, the Financial Times’ bureau chief for South Asia
from 2001-2005, suggests some interesting answers as to why the two countries are so different
despite starting at a similar state of development some 50 years ago when they had roughly equal
incomes per head (and also much the same as Korea’s).
The rather long-winded title of the book, “In Spite of the Gods: The Strange Rise of Modern
India,” is also its main thesis; the rise of modern India has been unusual. While India is now
expanding rapidly, and has been since 1991, it has not followed the typical developmental
pattern of most countries.
China has developed in much the same sequence as most western economies have done. It began
with agricultural reform, moved to low-cost manufacturing, is now climbing up the value-added
chain and will probably eventually break into the internationally tradeable services on a large
scale.
India meanwhile has grown from the other end. The service sector was more than half the
economy in 2006, a similar figure to mature economies, yet there has been no agricultural reform
(India’s average yield per hectare is half that of China) and no broad-based industrial revolution.
The country’s economy is now booming but it is a lop-sided or a multi-speed economy. The
images of the new Indian economy, with its successful IT sector, its offshore call centres, its
Bollywood film industry and its successful communities outside India in the U.S., U.K. and
elsewhere, (there are several thousand Indian millionaires in Silicon Valley), are indeed a reality.
But they are only a small part of the whole picture.
The GDP per capita in India is still just over $700 compared to China’s $1,700, (Korea’s
$16,000 and the U.S.’s $44,000). India is home to over a third of the world’s malnourished
children. The average life expectancy (63 years) and literacy rate (61% of adults) are well behind
those of other developing countries; in China for example the life expectancy is 71 years while
91% of the adult population are literate.
As Luce points out less than 7% of India’s 430 million strong labour force is in the formal
economy, and only 35 million pay income tax. The remainder are in the villages, “milking the
cow, making up the armies of mobile casual farm workers, running street stalls etc.” Twenty-one
million of the 35 million people working in the formal sector are employed by the government
leaving just 14 million in the private sector of which just one million are in IT. Seven million
work in the manufacturing sector compared with 100 million in China.
So why it is thus? Why has the service sector been so successful and why is the manufacturing
sector so small? It is not possible here to begin to do justice to the full historical, religious,
economic and political analysis presented by Luce, or to his assessment of the enduring legacy
left by three key figures of the twentieth century; Gandhi (who among many other things was
anti-materialist and saw the village as the building block of society), Nehru (who sought to build
a self-sufficient state-dominated economy) and Ambedkar. But a few points should be noted.
Luce writes, for example, about the importance of the English language. Since India’s middle
classes speak English this has given India a huge competitive advantage over China in the
service sector where the ability to converse in the world’s business language makes a big
difference.
The success of the service sector can also be attributed to the historic allocation of the education
budget, with equal measures devoted to universities and primary education. This has resulted in a
society with a highly educated elite but a poorly educated majority. India produces a million
engineering graduates every year (compared to 100,000 in the U.S.) but its literacy rate is under
65%. China by contrast has invested much more heavily in elementary schooling for those at the
bottom of the social ladder.
According to Luce the Indian manufacturing sector though small is nonetheless competitive and
strong. He cites examples in the pharmaceutical and biotech sectors, Tata Steel (turnover $4
billion+) which supplies high quality steel for export, and Gokaldas Exports which manufactures
two million garments per month for brand labels around the world. Both of the latter use
complex capital- intensive manufacturing and are very flexible, but both have been constrained
by labour laws, taxes, bureaucracy; and in the textile example, by regulations to fragment the
production lines so that each line is small.
So Will India Be the New China for Commodities?
The growth rate of India has broadly doubled since 1991 when India sharply altered its economic
course by dismantling a tight system of controls. It is now growing at 6%-7% pa which is behind
China’s growth rate (which is closer to 10%) so it is not yet catching up with China, though it is
with most of the rest of the world.
However there are plenty of examples already of what can happen as Indian demand for a
product explodes. Take mobile phones. In 2000 India had just 3 million mobile phone users
while China was adding that number every month to its subscriber base. By the end of 2005
India had 100 million users and was expanding at rate of 4 million per month. Or take diamonds.
The market has trebled in just ten years.
Looking ahead Luce forsees many challenges for India to overcome. Besides the overriding need
to lift 300 million people out of poverty, he lists challenges related to environmental degradation,
Aids and in protecting India’s democracy. But he cites an awareness among policy markets that
the best way to cure poverty is through accelerating economic growth.
However Luce also lists a number of opportunities and colossal advantages that India enjoys.
Firstly the demographic profile is favourable. From 2010 China’s dependency ratio – the
proportion of China’s working-age population to the rest - will start to deteriorate. India’s, by
contrast will improve until the 2040s. In the next 20 years the proportion of dependents to
workers will fall from 60% of the population to 50% which will give the economy a large
‘demographic dividend’. In 2032 India is projected to overtake China to become the most
populous country in the world.
The higher workforce will also boost the savings ratio which will lift investment which in turn
will boost economic growth. Already the savings rate has improving from 18% of GDP in 1990
to 26% in 2006. At this level it is still well below China’s 40%, but China’s is falling while
India’s is improving. India is projected to overtake Japan as the world’s third largest economy in
the 2020s.
Luce’s conclusion is that India is not on autopilot to greatness, but that it would take an
incompetent pilot to crash the plane. He asks too whether the Indian tortoise will overtake the
Chinese hare? For the investor in resources the question about which country will be the larger
consumer is perhaps academic.
India won’t be the new China for commodities tomorrow or the day after tomorrow. It still has a
long way to go. But it is already becoming a major consumer of commodities, it has the scale as
shown already in the gold sector to be number one, it is gaining momentum all the time, and it
looks set to be a crucial prop for the supercycle and commodity prices in the decades to come.
China
This section requires
expansion.

Main article: Coal power in China

The People's Republic of China is by far the largest producer of coal in the world, producing
over 2.8 billion tons of coal in 2007, or approximately 39.8 percent of all coal produced in the
world during that year.[10] For comparison, the second largest producer, the United States,
produced more than 1.1 billion tons in 2007. An estimated 5 million people work in China's coal-
mining industry. As many as 20,000 miners die in accidents each year.[26]
Most Chinese mines are deep underground and do not produce the surface disruption typical of
strip mines. Although there is some evidence of reclamation of mined land for use as parks,
China does not require extensive reclamation and is creating significant acreages of abandoned
mined land which is unsuitable for agriculture or other human uses, and inhospitable to
indigenous wildlife. Chinese underground mines often experience severe surface subsidence (6–
12 meters), negatively impacting farmland because it no longer drains well. China uses some
subsidence areas for aquaculture ponds but has more than they need for that purpose.
Reclamation of subsided ground is a significant problem in China.
Because most Chinese coal is for domestic consumption and is burned with little or no air
pollution control equipment, it contributes greatly to visible smoke and severe air pollution in
industrial areas using coal for fuel. Air pollution control equipment is being installed on some
plants, but there are unconfirmed reports it is only turned on when inspectors visit.[
 Ne
Home>Business>Special Top of Form ws
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Can India's infrastructure rival China's? E n te r e - m a il
tod
Bottom of Form ay!
ManjeetKripalani, BusinessWeek | May 08, 2006
Ar
ticl
The commotion over the building of a dam over the Narmada River E
ema
in the western Indian state of Gujarat hogged the headlines in India To
over the past few weeks. MedhaPatkar, activist and leader of the il
ols
thi
Narmada BachaoAndolan (Save Narmada movement), went on a 20-
day fast to protest the government's failure to come to the aid of an sTo
estimated 500,000 villagers who have lost their livelihood as a parti
consequence of the SardarSarovar dam, which will supply electricity cle
em
to Gujarat state. ail
ed
The issue has become a classic one of haves vs. have-nots: On one Pri
lin
side are the farmers who need the dam to irrigate their fields, and on nt
ks
the other are those who have lost access to their land because of it. thi
And true to type, the ruling Congress administration in New Delhi, s
Co
afraid of alienating any bloc of potential voters, didn't make a arti
nta
decision. Instead the government left it to the Supreme Court to direct cle
ct
the state to speed up its program for compensating and relocating the the
area's inhabitants. edi
Di
Power struggle tor
scu
s
ss
It all generates a rather depressing sense of deja vu. Patkar has staged
thi
several hunger strikes in the 20 years the dispute has been running, in
s
support of the rights of the local tribespeople. The Supreme Court has
arti
handed down several decisions and directions on the building of the
cle
dam and compensation and relocation efforts -- and reaffirmed them
last month.
• Wal-Mart: Rapping On India's Door
• Nurturing Success in India
• 10 Wonder of the New China
The federal, state and local governments have been lax in implementing either their promises, the
law or the Supreme Court directives. In short, it's been business as usual in the world's 10th
largest economy.
It's a grim scenario for a country that aims to be a world super power. India is at a critical
juncture in its development. Its private companies have performed so well that the Bombay
Stock Exchange attracts $1 billion a month in foreign investment. India's software, telecom,
pharma and auto industries are globally competitive, and the country's vibrant culture produces
movies and music that are popular in Asia and gradually gaining an audience in the West.
Endless delays
But concerns about India's ability to sustain the boom are cropping up. There's the overheated
stock market and the real-estate gold rush -- both indications that there's too much money
chasing a limited supply of a good thing. For India to keep up its momentum, it must make a
giant leap into China-style 10% annual growth. And that growth will only come when
policymakers begin a serious campaign to tackle the country's gaping infrastructure deficit.
Sadly, as the Narmada dam shows, this is not regarded as a pressing issue in New Delhi. For the
last two years, during his visits to foreign capitals, Indian Prime Minister Manmohan Singh has
invited investors to participate in India's $150 billion infrastructure buildout -- large projects for
power, water, mines, roads, ports, rail, airports, townships, and more recently, special economic
zones. All these, of course, require the acquisition of land and the relocation and proper
compensation of locals with money, training, and social services.
India's Narmada dam, with all its issues of federal and state permissions, environmental
approvals, and equitable rehabilitation of the inhabitants, could have been a showpiece for
foreign investors. Instead, it's a disgrace: a sorry tale of a 20-year delay, cost overruns, state
negligence, and bitter local resistance -- and a reason why foreign direct investment bypasses
India and heads for China, whose infrastructure is first rate.
Riled residents
Narmada-style failures are happening across the country, especially in the resource-rich but cash-
poor eastern states of Orissa, Jharkhand, and Chattisgarh. Foreign investors such as Korea's
Posco have committed $13 billion to mine iron ore and build a steel facility in Orissa, and
billions more have been pledged by Indian heavyweights like Tata Steel, aluminum major
Hindalco, and London-based Indian expats Lakshmi Mittal and Vedanta Resources' Anil
Aggarwal.
• Dubai's World-Beating Buildings
• Open Season On Outsourcers
But the portents are gloomy: None of those projects has really gotten off the ground, and the one
that has ran into inevitable trouble.
In January, violent protests erupted when Tata Steel, widely regarded as a benevolent employer,
began construction of a steel mill on land it had acquired in Kalinganagar in Orissa. The locals,
however, claimed the land was still in their possession. The state police were called in and 12
tribespeople were shot dead.
Tata executives say they paid the government full price for the land. But the locals felt they had
not been adequately compensated by the government. Officials in Orissa could not be reached
for comment. "The fruits of development must be shared, and until these issues are resolved,
India's development will be stymied," says Tata director IshaatHussain.
Invisible institutions
Such clashes are a sure deterrent for foreign investors. India has ample supplies of iron ore,
bauxite and coal. But though the government has allowed private players to bid for mining
rights, not many have actually taken the bait. Roddy Sale, a British consultant in Bombay who
represents Anglo-Australian giant BHP Billiton, says the company is interested in mining
bauxite in Orissa and Andhra Pradesh, and perhaps building a refinery and smelter there at some
future time.
But BHP is daunted by the prospect of poor implementation of the law by the state governments
on issues like properly compensating and relocating inhabitants affected by big projects. "There
aren't really institutions which can manage these processes," Sale says.
Many development experts think the government can do better. Even in India's road-widening
efforts or its attempts to acquire land to build airports or develop stunted cities, the state
"expropriates the land for paltry compensation," says Nasser Munjee, an infrastructure expert
and chairman of the Development Credit Bank. If this keeps up, India can bid farewell to its drea
ms of becoming an Asian power and successfully rivaling China.

‘Ban on iron ore export a ploy to help illegal miners’ Bangalore:July 29, DHNS:
Indian mining industry has dubbed the Karnataka government’s action of imposing ban on
transport of iron ore for export as a move to indirectly help those into illegal mining.
The industry is of the view that the Chief Minsiter, instead of punishing those into illegal
activities, has only robbed business from those who are into legal business.
R K Sharma, Secretary-General, Federation of Indian Mineral Indutry (FIMI), said those who are
into illegal mining don’t need permit to carry on their business.

“In Karnataka all are into legal mining except some people. Instead of taking administrative
measures to set right the system, the Chief Minister has stopped giving permits for transport of
ore. He lacks political will to provide good governance. This action will not help in curbing
illegal mining as those who are into illegal never take any permits, be it for mining, transport or
shipping,” he said.

Sharma said that of the 40 million tonnes of iron ore extracted annually in the State, only 15 per
cent is used domestically and the rest is exported. Both the Centre and the State will lose revenue
while illegal trade will thrive, he argued.

Sharma said the South Indian chapter of the Association will meet shortly to take a decision on
this issue.

Congress’ Santosh Lad, partner of V S Lad Mining Company, said the Chief Minister should
justify the reasons for imposing such unreasonable restriction. “We are into mining from last
three decades. How can the Chief Minister assume that we are all into illegal mining? We will
meet him to educate how the industry works. If we are not heard, then we will approach court,”
he said. Lad is an active participant in the Congress padayatra against illegal mining.

He said that mine owners may resort to selling ore to steel plants in other states and later export.
There is no restriction on steel industry to export ore. “None can trample my right to conduct
legal business. We will find ways of carrying on our business”, he asserted.

KRaghavacharyulu, senior counsel for OMC owned by the Reddy brothers, said trade policies
come under the domain of Parliament and the Centre. The prohibiting the exports is
unconstitutional and violative of fundamental rights granted under the Constitution.
The counsel said that the state government has jurisdiction over only minor minerals and not
major minerals like iron ore.
“Having banned export of iron ore, why doesn’t the Chief Minister ban export of steel and
finished product manufactured within the State? The Chief Minister has erred. He is trying to
help a particular steel company of Bellary,” he said.
However, the Reddys, on record, have welcomed the Chief Minister’s decision.
The Reddys are mining in Andhra Pradesh and the mainly export through Krishnapatnam port.

Rahul Kumar Baldota of Hospet-based MSPL mining company said that no one takes permit for
illegal mining, and hence the Reddys would continue their illegal business through Andhra
Pradesh.

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India & China - Presentation Transcript

1. INDIA & CHINA
○ China and India are the largest, agrarian economies in the world,
accounting for a substantial share of the world poorest people.
2. INTRODUCTION
○ The rate at which China and India have been growing since the early
1990’s has been a major topic of discussion around the world. Both
countries are home to nearly a billion people and they experience
tremendous GDP growth each year.
○ One of the main factors that make India and China an interesting
comparison is the fact that although they are similar in many ways,
their differences have led each of the take different paths towards
economic development.
3. INDIA AND CHINA COMPARISON OF KEY INDICATORS
○ India’s growth has been spurred by the service sector as opposed to its
○ manufacturing sector. India’s service sector comprises approximately
52% of
○ its GDP while China’s is significantly lower, at 41%.
Indicators India China Size of Population 1.1 Billion 1.3 Billion Type of
Government Democracy Communist State GDP Growth (2007) 9.3% 11.4%
Manufacturing as a % of GDP 16% 53.3% 1 Services as a % of GDP 51.5%
41.2% FDI Inflows (2006 – 2007) $67.72 Billion (predicted) $699.5 Billion
4. INDIA OPENS ITS ECONOMY
○ India is viewed as a rising economic superpower today, but as recently
as 1991, it was in dire financial straits. Economic liberalization opened
India’s doors to foreign investors.
○
○ Before India began welcoming foreign trade and investors, its
economic growth rate hovered around 3%. Three years after the 1991
reforms, the rate of growth jumped to 7% and since then, the country
has experienced an overall 6 - 7% growth rate.
○
 ○ India had only $1 billion in foreign currency at the time of the reforms;
today, it has an astounding $239.4 billion. (31 December 2007 est.).
○
○ India is playing an increasingly important role in information
technology innovation. Motorola, Hewlett-Packard, Cisco
Systems,Microsoft and other technology giants rely on their Indian
employees to design software platforms and futuristic multimedia
features for next-generation devices.
5. CHINA OPENS ITS ECONOMY
○ “ To get rich is glorious,” declared China’s leader in 1977, signifying
the opening of the world’s most populous country to international
trade. In China today, there is no question that communist ideology
takes a backseat to capitalism for economic growth.
○
○ For the past two decades, China’s average annual economic growth
has been an incredible rate of 9.5%. If this rate continues, China’s
economy could be 75% bigger than the U.S. economy by 2050.
○ China is the world’s largest manufacturer of consumer electronics.
China impacts our lives in some fashion every day, as consumers,
sellers, employees, employers, manufacturers, etc. China leads the
world in the number of clothes made and toys assembled. China
makes more than 40% of all the furniture sold in the United States.
6. COMPARISON OF INDIA & CHINA ON THE BASIS OF
○ Education
○ Manufacturing Industry
○ Service Industry
○ Infrastructure With Focus On The
○ Power Sector
○ Petroleum
7. EDUCATION
○ I NDIA & C HINA
8. EDUCATION
○ China and India are churning out large numbers of well-educated
students armed with the skills that are necessary to compete in and
drive an economy based on information and technology. In 2007 China
produced 3.3 million college graduates; India, 3.1 million. In
engineering, China graduated 600,000 students & India 350,000.
○
○ China does not attempt to provide education opportunities to all, and
economically, it does not need to. China’s huge population supplies
ample numbers of educated professionals to fill its needs. India is
 trying to make education available to all its citizens, and enrolment of
Indian children ages 6 to 14 increased to 90% in 2006, up from 75% in
2003. However, about 75% of those students drop out by 8th grade
and 85% by 12th grade.
○
○ The Indian government enhanced the program by increasing education
spending from 3% of gross domestic product (GDP) in 2004 to 4% in
2005. And now in 2007 it is 6% of GDP.
9. MANUFACTURING INDUSTRY
○ C HINA
10.OVERVIEW OF MANUFACTURING
○ China has experienced spectacular economic growth, quadrupling its
GDP to become the second largest economy in the world based on its
purchasing power parity (CIA Fact book, 2005). Much of this growth is
driven by manufacturing.
○ China has become the manufacturing centre of the world. Exports of
manufactured goods have risen at a rate of 15 percent per year to
about $730 billion.
○
○ China now makes 50 percent of the world's telephones, 17 percent of
refrigerators, 41 percent of video monitors, 23 percent of washing
machines, 30 percent of air conditioners, and 30 percent of colour TVs.
11.KEY MANUFACTURING SECTORS: ELECTRONICS AND AUTOMOTIVE
COMPONENTS
○ The Chinese electronics industry has become the leading export
industry in China, and has a significant presence globally across a wide
spectrum of electronics products, from household electrical appliances
to semiconductors. Today China makes $60 billion worth of consumer
electronics goods a year.
○ China is also fast becoming an important source of automotive
electronics for the global market. According to figures by Chinese
supplier Asimco Technologies, in 2005, China exported $1.49 billion
worth of automotive electronics and electrical instruments.
○
○ The combination of preferential government policies, foreign direct
investment, great infrastructure, and human capital has contributed to
the success in Chinese electronics and automotive component
manufacturing.
12.FACTORS LEADING TO SUCCESS IN MANUFACTURING
○ Preferential Government Policy
○ The Chinese government has led investment in the manufacturing
sector by giving preferential loans to targeted industries. In recent
years, the government has promoted growth in the value added
 manufacturing industries such as electronics and automotive
components.
○ Compared to other countries in the Asia-Pacific, the cost and time to
start up and close a business are lower in China (IFC Doing Business).
Moreover, the costs and procedures involved in importing and
exporting a standardized shipment of goods in China are less than
countries in the region.
13.
○ Foreign Investments
○ By welcoming foreign investment, China’s open-door policy has added
power to the economic transformation. In 2005, China received $153
billion in foreign direct investment (US China Business Council).
Through this strategy, multinationals have brought large sums of
capital and senior talent to China, helping China develop its
manufacturing arm without relying on local institutions.
○
○ Joint venture firms have also been a huge boon for the Chinese
manufacturing sector. By employing local managers and workers,
foreign-invested companies teach management, production, and
marketing skills to local employees.
○
○ High-tech companies are also establishing in western China: Intel
Corp. announced a $375 million chip testing and packaging facility in
Chengdu, Sichuan ((US China Business Council).
14.
○ Infrastructure Investment
○ One of the most important success factors is China’s superior
infrastructure. China invests heavily in maintaining its transport
system. It makes enormous efforts to lower congestion levels on main
railways. Additionally, China has built 25,000 km of four to six-lane,
access-controlled expressways in the past 10 years.
○ Human Capital
○ Cheap labour is one of the main draws for firms relocating in China.
Firms come in search of human resources.
○
○ Many hi-tech firms choose to locate in Xian because the surrounding
universities provide an abundant supply of educated labourers.
Similarly, one of the reasons global electronics and car manufacturers
are relocating its headquarters to Beijing and Shanghai is to access the
readily available supply of cheap, skilled human capital. China
currently has 1,731 universities and continues to build more
universities and trade schools
15.MANUFACTURING INDUSTRY
 ○ I NDIA
16.OVERVIEW OF MANUFACTURING
○ India’s manufacturing sector has lagged behind those of China,
Thailand, Malaysia, and Mexico. The main reasons multinational
companies have not invested in India results from the lack of
infrastructure including electricity, roads, and sea and air ports as well
as government regulation and corruption.
○
○ Despite these obstacles to growth, electrical and electronic
components manufacturers ABB, Honeywell, and Siemens and
automotive manufacturers DaimlerChrysler and Toyota Motor have
started operations in India.
○
○ India needs to continue to take steps to improve its infrastructure and
government regulation in order to increase FDI flows. A further
examination of the electronic components and automotive
manufacturing sectors will provide insight on what factors are spurring
growth in these sectors and what government regulations need to be
leveraged to increase growth.
17.KEY MANUFACTURING SECTORS: ELECTRONICS AND AUTOMOTIVE
COMPONENTS Source: India Brand Equity Foundation. 2006 Key Sub-Sectors
• Commercial vehicles • Passenger vehicles • Two wheelers • Three wheelers
• Consumer electronics • Industrial electronics • Computers • Strategic
electronics • Communication & broadcasting equipment • Electronic
components Market Size (2004 -05) Total vehicle production – 8.4 million
Total size – US$11 billion Domestic Growth Rate CAGR – 14.2% last 4 years
Export Growth Rate CAGR – 39% last 4 years 16% between 2003 and 2004
Key Companies Ford, General Motors, Hyundai, Hero Honda, Toyota, Daimler
Chrysler, Tata Motors, Mahindra & Mahindra, Ashok Leyland, Hindustan
Motors, Bajaj Auto, Maruti Suzuki etc . Samsung, LG, Philips, Mirc Electronics,
Flextronics, Solectron, Jabil Circuits, HCL ,Info systems Ltd, Videocon
International Ltd.
18.FACTORS LEADING TO GROWTH IN MANUFACTURING
○ Preferential Government Policy
○ Government has implemented reductions in import and customs
duties. In the electronics sector the government has removed customs
duty on raw materials and inputs for the manufacture of electronic
components. In the automotive sector the government has reduced
customs duties on raw materials and inputs for manufacture of
automotive components from 20 – 15 percent.
○
○ India has also developed Special Economic Zones (SEZ) that allowed
for government, private, or joint sector initiatives to develop business.
The SEZs provide high quality infrastructure facilities and support
services.
19.
○ Human Capital
○ India has an abundance of skilled engineers and technical experts. The
U.S. and Singapore are the only countries the outrank India in the
availability of skilled-workforce.
○
○ India’s employable skilled workforce is predicted to grow for the next
20 years, but China’s skilled workforce will begin to decline in 2010.
○
○ In 2005, India also had the lowest hourly labour costs among its major
competitors at US$0.74. India’s competitors followed at the following
rates: China US$0.90, Thailand US$1.20 and Mexico US$1.68
○
○ India has a well-developed technical and tertiary education
infrastructure that produces over 500 PhDs, 200,000 engineers,
300,000 non-engineering postgraduates and 2,100,000 other
graduates each year
20.
○ Large Domestic Markets
○ India’s rising incomes and growing consumerism are the main factors
aside from lower costs that make India appealing to foreign
investment.
○
○ Between 2006 and 2007 domestic consumption was forecasted to
increase by 8.7%
○ Quality and Trade Standards
○ India manufacturing companies have quality management programs in
place including ISO 14001, TS 16949 and TQM that make them export
ready.
○
○ Approximately 80 percent of automotive component manufacturers in
India meet ISO 9000 quality standards. In addition they are WTO
compliant for Trade Related Intellectual Property (TRIPS).
21.FACTORS SLOWING INDIA’S GROWTH IN MANUFACTURING
○ Lower Levels of Foreign Investment than China
○ Since the beginning of the 1990’s,. India has improved its
manufacturing environment exports grew 30% higher than the world
export market, but during this time China’s exports grew at a rate of
57% higher than the world market.
○
 ○ One main factor that contributed to China’s higher rates of growth was
that during that time China averaged US$40 billion in foreign
investment annually while India averaged foreign investment was only
US$3 during the same period of time.
○
○ According to the World Bank 2004 , it is harder to do business in India
than China. One supporting example of this fact is that in 2005 it took
89 days to start a business in India, but it only took 41 days to start a
business in China. India also has stricter labour laws, which makes it
much harder to hire and especially fire workers.
○
○ Senior management at Indian firms also spends more time addressing
regulatory issues than management of Chinese firms (11.9% in India
vs. 7.8% in China) (World Bank 2005)
22.
○ Lack of Infrastructure
○ Infrastructure is often cited as the biggest impediment to growth of the
manufacturing sector in India. Gains made through low labour costs
are often lost through bottlenecks in power supply, telecommunication,
and transportation.
Objective Indicators of Bottlenecks in India and China Source: World Bank.
India: Investment Climate and Manufacturing Industry . In terms of
transportation, India has the second largest railways system in the world, but
the high duties on transporting goods makes it an expensive way to move
goods around the country. Telecommunication Power Supply Transportation
Number if Days to get a new phone connection Number of Days to get
connected to a public grid Average Inventory Days of Average Inputs India
China India China India China 29.8 9.3 47.8 25 32.5 24.2
23.RECOMMENDATIONS FOR INDIA’S MANUFACTURING SECTOR GIVEN CHINA’S
SUCCESS
○ Recommendation 1: Increase FDI Inflows
○
○ FDI inflows is one of the main factors that will enable India to improve
its manufacturing sector. Higher FDI will allow India to further develop
its infrastructure, which will lead to business development.
○
○ To increase FDI, India needs to further liberalize FDI regulation.
○
○ Recommendation 2: Improve Infrastructure
○
 ○ While the Indian government is taking some steps towards developing
infrastructure through the Special Economic Zones, in order to truly be
competitive they need to allow for better access to power supply and
transportation.
○
○ Note : - Until these factors are addressed foreign companies will
continue to choose other destinations for their investment like China,
Brazil, or Malaysia.
24.SERVICE INDUSTRY
○ I NDIA
25.OVERVIEW OF SERVICES
○ The Indian information technology (IT) industry has been the source of
much discussion on the successful growth of a knowledge industry in a
largely poor, developing country.
○ IT in India is spread across four key sectors- IT services; IT enabled
services (ITES), software, and e-business. These sectors combine for a
2008 annual revenue forecast of $87B, (NASSCOM) with numerous
analysts suggesting higher revenue.
○
○ The rapid growth of IT in India, software was a small $150MM industry
in 1991, but grew to $5.7B in 2000.An annual growth rate of 50% .
(NASSCOM).
26.FACTORS LEADING TO GROWTH IN SERVICES
○ Passive Role of Government
○ India’s IT industry has flourished with minimal intervention or support
from the central government .
○
○ The Indian IT industry did not face a rigorous process for starting new
companies. IT also faced limited labour restrictions on hours and
overtime, while having the opportunity early in its development to
receive foreign direct investment
○ English
○
○ At least 70MM individuals (Torreblanca) speak English at a professional
level in India.
○
○ India’s IT industry has matured from software to business process off
shoring (BPO), English has again been a comparative advantage as the
sheer number of employable English speakers has made India a key
FDI destination.
27.
 ○ Education
○ I ndia has only 4% engineers, while Germany and China have 20% and
33% respectively.
○ IT required large numbers of technical graduates, especially relatively
inexpensive, English speaking ones, which has been a major
advantage for India, despite overall shortcomings in the education
system.
○ Entrepreneurship
○ While the heavily regulated post-Independence economy in India was
not conducive to entrepreneurship, IT beginning in 1980s was an
exception.
○
○ Starting a software company was comparatively easy to manufacturing
or other capital intensive industries. As multinationals began using
India for IT services
○
○ Clusters of high tech areas formed in cities like Bangalore and
Hyderabad, essentially creating natural high tech zones that pulled in
greater amounts of investment .
28.OVERVIEW OF SERVICES
○ One of China’s fastest growing service industries is the software
industry. The Chinese software industry is inherently different than
India’s and will likely take different paths. The majority of Chinese
software services producers are domestic companies with domestic
consumers.
○
○ Chinese firms comprise about a third of the domestic software market,
with the government pushing for a 60% domination by 2010. China is
also experiencing growth in other knowledge based service sectors.
○
○ China is racing India in the IT enabled services/ Back Office Operations
industry.
29.FACTORS LEADING TO GROWTH IN SERVICES
○ English
○ The recent emergence of English education in China is likely attributed
to the growth of the service sector. Because the government
understands the importance of English-language knowledge to success
in the Knowledge based service sector.
○ Education
○ To take advantage of the large technically educated labour pool, many
American educated and trained Chinese entrepreneurs are moving
back to China to develop ITES/BPO companies.
 ○
○ Salaries amongst IT professionals in China are less than a sixth of
those in the United States. China, spent 2.3% of GDP on education,
compared to 5.1 % by the United States in the same year.
30.OBSTACLES TO GROWTH IN SERVICES IN CHINA
○ IPR violations
○ Despite the efforts in education and infrastructure that China has
started, one of the largest drawbacks is the constant threat of
intellectual property rights violations in China.
31.RECOMMENDATIONS FOR CHINA’S SOFTWARE INDUSTRY/ITES GIVEN INDIA’S
SUCCESSES
○ Recommendation 1: Become More Export Oriented
○
○ The first recommendation that China should adopt to improve its
software sector is to develop a more export oriented growth strategy.
Being domestically focused could leave the industry susceptible to
internal shocks.
○
○ The high tech development zones should provide technical assistance
on exporting guidelines and globalization to help companies export
abroad.
○
○ Recommendation 2: C reate A Better IPR Regulatory Environment
○
○ China needs to focus on improving its protection of IPR and target
pirating. A first step towards this goal is through the creation of an
IT/Off shoring Trade Association similar to India’s NASSCOM.
○
○ The creation of this type of organization would allow companies to
share best practices to increase efficiency and, apply more pressure to
increase compliance with international IPR standards
32.INFRASTRUCTURE WITH FOCUS ON THE POWER SECTOR
○ I NDIA & C HINA
33.INTRODUCTION
○ The East Asian region including China and India is projected to
experience stronger growth in electricity consumption than any other
region of the world. Total electricity consumption is projected to grow
by more than 3 trillion-kilowatt hours between 1995 and 2015, a
growth rate above 5 percent per year, with China alone accounting for
more than half the growth.
 ○ China and India are more heavily dependent on coal for electricity
generation than are the other developing Asian nations. The relative
shares for oil and nuclear power are expected to decline
34.INTRODUCTION
○ At the time of India’s independence, India and China were at par with
respect to overall infrastructure development. Now China’s per capita
consumption of steel is five times that of India and that of energy if
three times.
○ The success of reforms in the power sector in China paves the way for
India in understanding the formulation and implementation issues
relating to the same. China is a very relevant case study for India
because of various similarities viz. population, size, demographics.
35.THE CHINESE POWER SECTOR China has the world's fastest growing electric
power. Per capita consumption in China is currently only 6% that of the
United States.
36.THE DEMAND – SUPPLY SITUATION
○ Strong projected growth in electricity demand in China results from
two factors.
○ Increased need for rural electrification. Although nearly 90 percent of
the rural households in China had access to electric power at the end
of 1993, some 120 million people were still without electric power. The
Chinese government plans to increase electrification to 95 percent by
2000.
○ The Chinese government is working to keep electric power growth in
line with economic growth. China's annual average ratio accounted for
only 1.24 percent of GDP from 1980 to 1999. Hence, China is heavily
investing in power projects. Growth in electricity generation averaged
8% per annum during the last 15 years.
37.ENERGY SUPPLY PTIONS
○ China’s installed power generating capacity was 250 GW in 1997 of
which 77% was thermal and 23% was hydro. Nuclear capacity
occupied only a fractional share of the total power generated.
○ 1.) Thermal Power,
○ 2.) Hydroelectric Power,
○ 3.) Nuclear Power.
38.THERMAL POWER
○ Coal-fired power plants provide more than 90% of thermal generation,
with oil based generation accounting for most of the balance. The
share of natural gas-based power generation is negligible and is
expected to remain so even if the country succeeds in implementing
its challenging gas import projects.
○ The power sector’s use of coal amounted to 370 million tons, which is
more than one-third of the total coal consumption in the country.
39.THERMAL POWER
○ Although government policy emphasizes the addition of larger, more
efficient units of 300 MW and 600 MW, over half of the existing
capacity is still in units below 200 MW. Only 15% of installed capacity
are in units of larger than 300 MW, compared to 60-80% in
industrialized countries.
○ New plants being built by the local governments are in unit sizes of 50
MW or less. The main reason is that these small units are easier to
finance. At the same time, these units consume 60% more coal per
unit of electricity produced compared to units of 300 to 600 MW.
40.HYDROELECTRIC POWER
○ Hydropower is the least-cost generation source in China. It serves, and
will serve, a major role in meeting the base-load power generation
needs of the country. The generation cost is about $0.03 / kWh.
○ The country has a hydroelectric potential of 670 GW, of which 380 GW
is considered suitable for exploitation. This capacity may generate up
to 1900TWh per year. By the end of 1996, 56 GW of installed hydro
capacity were in operation, reflecting approximately 14.7 percent of
the exploitable resource. The installed capacity is expected to increase
to 100 GW by 2010.
○ The Three Gorges project on the Yangtze River involves construction of
the world's largest dam, with its 26 hydropower generating units (700
megawatts each) slated to provide a total of 18 gig watts generating
capacity by 2009.
41.NUCLEAR POWER
○ Nuclear power represents a relatively minor, but growing, share of
China‘s electric generating capacity, with two plants currently in
operation: Qinshan at Hangzhou Bay in Zhejiang province (288
megawatts) and a plant at Daya Bay in Guangdong province (1812
megawatts).
○ China has plans for 9 additional units, totalling 8 gig watts. By 2015,
output from nuclear plants is projected to increase 9-fold over 1996
levels, accounting for about 4.5 percent of China's electric power
generation. Under construction are two 600-megawatt units at the
Qinshan plant and two 1,000-megawatt units at a new plant, Lingao,
near Hong Kong.
42.ENERGY CONSUMPTION PROJECTIONS FOR CHINA
○ If electricity demand grows, as expected, at 8 to 9% per annum, China
would need to add about 18-20 GW of capacity per year.
○ Even with a growth rate of 7% (low-case scenario), the growth in
China’s power generating capacity will be about 16 GW per year. This
still accounts for more than 20% of the world’s new capacity.
○ The projected huge increase in overall energy usage by 2020 (162
percent), a massive investment in energy infrastructure for natural
 gas, nuclear, hydroelectric (e.g., Three Gorges Dam project), and other
renewable is a must.
○ The large annual increases in energy demand in Asia will most likely be
met by rapid increases in coal and oil imports. In 1992, China was a
net oil exporter, but it is expected that by 2010, China will become the
second largest importer of oil in Asia.
43.THE INDIAN POWER SECTOR India’s power sector has grown many fold in size
and capacity. India consumes two-thirds more energy per dollar of gross
domestic product (GDP) as the world average. India consumes only about 18
percent of the energy per person as the world average.
44.THE DEMAND – SUPPLY SITUATION
○ The power sector has been characterized by shortage in supply vis-à-
vis demand. From 1998, there has been peaking shortage of 18% and
energy shortage of 12%.
○ The transmission and distribution losses in India are among the highest
in the world. Against the normal world average of 8-10%, the figures
have been about 23%, which is alarmingly high.
45.ENERGY SUPPLY OPTIONS
○ Coal currently accounts for 78% of fuel use at India’s electric power
stations. As in China, India’s high coal use is a reflection of its ample
coal reserves. Renewable energy (almost entirely hydropower) is the
next largest source of electricity supply in India.
○ Renewable energy (almost entirely hydropower) is the next largest
source of electricity supply in India. In1995, renewable accounted for
14% of India’s electricity generation. Natural gas (at about 5%), oil (at
2%), and nuclear energy (at just under 2%) provided the remaining
fuels to India’s electricity industry.
○ A wind-energy rush began in 1994 as the government opened up the
power grid to independent developers and offered tax incentives for
renewable energy development. Indeed, India is now second only to
Germany in the number of annual wind-power installations.
46.ENERGY CONSUMPTION PROJECTIONS FOR INDIA
○ Electricity demand in India is projected to grow dramatically over the
next 20 years. With about 6 percent of total world coal reserves, India,
like China, relies on coal for much of its energy supply. Although coal's
share of India's electricity generation is projected to drop slightly, from
77 percent in 1995 to 64 percent in 2015.
○ The contribution of natural gas in electricity generation is projected to
rise from only 4 percent in 1995 to 12 percent by 2015.
47.WORLD ENERGY CONS. FOR ELECTRICITY GENERATION BY REGION AND FUEL
48.LEADING ELECTRIC POWER COMPANIES IN ASIA
49.
50.PETROLEUM
 ○ I NDIA & C HINA
51.PETROLEUM CONSUMPTION IN CHINA
○ From 1993 China began to become a net importer of energy resources,
with yearly petroleum import increasing around 10m tons and the
amount tending to grow on an annual basis.
○ China will still be short of 8 percent energy by 2010 and about 24
percent by 2040, of which petroleum shortage may reach several
hundred million tons. Dependence on imports had jumped from 6.6
percent in 1995 to 25 percent in 2000. The figure is expected to rise to
30 percent by 2010 and further to top 50 percent by 2020.
○ The country plans to increase its proven oil reserve by four billion tons
and crude oil production by 10 million tons in the next five years,
mainly by stepping up exploration and exploitation efforts in the
western regions and its offshore areas
52.PETROLEUM CONSUMPTION INDIA
○ India's oil import bill has swelled 52 per cent to $44.64 billion in 2005-
06 on the back of high global oil prices.
○ India imported 99.4 million tones of crude oil for $38.77 billion and
11.67 million tones of petroleum products for $5.86 billion in 2005-06.
○ In 2006- 2007 the import bill of PETROLEUM, CRUDE & PRODUCTS was
$52.11 billion according to latest Petroleum Ministry data.
○ LPG demand was up 0.6 per cent to 10.3 million tones and petrol
consumption rose 4.8 per cent to 8.64 million tones
53.INDIA & CHINA
○ Quick Facts In Figures
54.ECONOMY INDIA CHINA GDP (purchasing power parity): $2.965 trillion (2007
est.) $7.043 trillion (2007 est.) GDP (official exchange rate): $894.1 billion
(2007 est.) $2.879 trillion (2007 est.) GDP - real growth rate: 8.5% (2007 est.)
11.4% (official data) (2007 est.) GDP - per capita (PPP): $2,700 (2007 est.)
$5,300 (2007 est.) GDP - composition by sector: agriculture: 16.6% industry:
28.4% services: 55% (2007 est.) agriculture: 11% industry: 49.5% services:
39.5% note: industry includes construction (2007 est.) Labour force: 516.4
million (2007 est.) 803.3 million (2007 est.) Labour force - by occupation:
agriculture: 60% industry: 12% services: 28% (2003) agriculture: 43%
industry: 25% services: 32% (2006 est.) Unemployment rate: 7.2% (2007
est.) 6.1% unemployment in urban areas; substantial unemployment and
underemployment in rural areas (2006 est.)
55.ECONOMY INDIA CHINA Population below poverty line: 25% (2002 est.) 8 %
note: 21.5 million rural population live below the official
&quot;absolutepoverty&quot; line (approximately $90 per year); and an
additional 35.5 million rural population above that but below the official
&quot;lowincome&quot; line (approximately $125 per year) (2006 est.)
Household income or consumption by percentage share: lowest 10%: 3.6%
highest 10%: 31.1% (2004) lowest 10%: 1.6% highest 10%: 34.9% (2004)
Distribution of family income - Gini index: 36.8 (2004) 46.9 (2004) Inflation
 rate (consumer prices): 5.9% (2007 est.) 4.7% (2007 est.) Investment (gross
fixed): 31.8% of GDP (2007 est.) 42.2% of GDP (2007 est.)
56.ECONOMY INDIA CHINA Public debt: 58.8% of GDP (federal and state debt
combined) (2007 est.) 18.9% of GDP (2007 est.) Agriculture - products: rice,
wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo,
sheep, goats, poultry; fish rice, wheat, potatoes, corn, peanuts, tea, millet,
barley, apples, cotton, oilseed; pork; fish Industries: textiles, chemicals, food
processing, steel, transportation equipment, cement, mining, petroleum,
machinery, software mining and ore processing, iron, steel, aluminium, and
other metals, coal; machine building; armaments; textiles and apparel;
petroleum; cement; chemicals; fertilizers; consumer products, including
footwear, toys, and electronics; food processing; transportation equipment,
including automobiles, rail cars and locomotives, ships, and aircraft;
telecommunications equipment, commercial space launch vehicles, satellites
57.ECONOMY INDIA CHINA Industrial production growth rate: 10% (2007 est.)
12.9% (2007 est.) Electricity - production: 661.6 billion kWh (2005) 2.866
trillion kWh (2006) Electricity - production by source: fossil fuel: 81.7% hydro:
14.5% nuclear: 3.4% other: 0.3% (2001) fossil fuel: 80.2% hydro: 18.5%
nuclear: 1.2% other: 0.1% (2001) Electricity - consumption: 488.5 billion kWh
(2005) 2.859 trillion kWh (2006) Electricity - exports: 67 million kWh (2005)
11.27 billion kWh (2006) Electricity - imports: 1.764 billion kWh (2005) 5.39
billion kWh (2006) Oil - production: 834,600 bbl/day (2005 est.) 3.71 million
bbl/day (2006) Oil - consumption: 2.438 million bbl/day (2005 est.) 7 million
bbl/day (2006) Oil - exports: 350,000 bbl/day (2005 est.) 375,800 bbl/day
(2006) Oil - imports: 2.098 million bbl/day (2004 est.) 3.646 million bbl/day
(2006) Oil - proved reserves: 5.848 billion bbl (1 January 2006 est.) 16.3
billion bbl (1 January 2006 est.)
58.ECONOMY INDIA CHINA Natural gas - production: 28.68 billion cu m (2005
est.) 58.6 billion cu m (2006 est.) Natural gas - consumption: 34.47 billion cu
m (2005 est.) 55.6 billion cu m (2006 est.) Natural gas - exports: 0 cu m
(2005 est.) 2.874 billion cu m (2006) Natural gas - imports: 5.793 billion cu m
(2005) 976 million cu m (2006) Natural gas - proved reserves: 1.056 trillion
cu m (1 January 2006 est.) 2.45 trillion cu m (2006 est.) Current account
balance: -$18.53 billion (2007 est.) $363.3 billion (2007 est.) Exports: $140.8
billion f.o.b. (2007 est.) $1.221 trillion f.o.b. (2007 est.) Exports -
commodities: petroleum products, textile goods, gems and jewellery,
engineering goods, chemicals, leather manufactures machinery, electrical
products, data processing equipment, apparel, textile, steel, mobile phones
59.ECONOMY INDIA CHINA Exports - partners: US 17%, UAE 8.3%, 7.8%, 4.3%
(2006) US 21%, Hong Kong 16%, Japan 9.5%, South Korea 4.6%, Germany
4.2% (2006) Imports: $224.1 billion f.o.b. (2007 est.) $917.4 billion f.o.b.
(2007 est.) Imports - commodities: crude oil, machinery, gems, fertilizer,
chemicals machinery and equipment, oil and mineral fuels, plastics, LED
screens, data processing equipment, optical and medical equipment, organic
chemicals, steel, copper Imports - partners: China 8.7%, US 6%, Germany
4.6%, Singapore 4.6%, Australia 4% (2006) Japan 14.6%, South Korea 11.3%,
Taiwan 10.9%, US 7.5%, Germany 4.8% (2006)
 60.ECONOMY INDIA CHINA Economic aid - recipient: $1.724 billion (2005) $1.757
billion (2005) Reserves of foreign exchange and gold: $239.4 billion (31
December 2007 est.) $1.493 trillion (31 December 2007 est.) Debt - external:
$165.4 billion (30 June 2007) $363 billion (31 December 2007 est.) Stock of
direct foreign investment - at home: $67.72 billion (2006 est.) $699.5 billion
(2006 est.) Stock of direct foreign investment - abroad: $21.11 billion (2006
est.) $75 billion (2006 est.) Market value of publicly traded shares: $818.9
billion (2006) $2.426 trillion (2006) Currency (code): Indian rupee (INR)
Renminbi (RMB); note - also referred to by the unit yuan (CNY) Currency
code: INR CNY Exchange rates: Indian rupees per US dollar - 41.487 (2007),
45.3 (2006), 44.101 (2005), 45.317 (2004), 46.583 (2003) yuan per US dollar
- 7.61 (2007), 7.97 (2006), 8.1943 (2005), 8.2768 (2004), 8.277 (2003) Fiscal
year: 1 April - 31 March calendar year
61.THANK YOU

Hidden Companies Set to Profit From China’s Hunger for Iron Ore
by Tony Daltorio, Investment U Research
Wednesday, April 21, 2010
If you read my article on April 5, you know that the iron ore market is changing… a lot.
In the past, iron ore producers and steelmakers negotiated fixed, yearly prices. Now though,
prices will be set in quarterly contracts linked to the spot market.
That means major iron ore producers can expect huge profits going forward, especially
considering that prices are 100% higher than last year’s.
And it could easily go higher, considering China’s latest move on the subject.
Chinese firms can no longer import low-quality iron ore, which means anything with less than
60% iron content in this case. That means they can’t buy from India, the market’s third largest
exporter in the world. Shipments from there contain only between 55% and 58% actual iron.
Australia and Brazil – the two leaders in the trade – don’t have to worry. Australian ore weighs
in with 62% iron content, while Brazil boasts 63.5%-65%. But with India out of the running, the
market has little choice but to tighten in the next few years considering China’s growing demand.
China leads the world in importing the commodity, with about 70% of the seaborne market, up
from 16% in the last ten years.
Investors can get involved through one of the big boys, like – BHP Billiton ADR (NYSE: BHP),
Rio Tinto ADR (NYSE: RTP) and Vale ADR (NYSE: VALE).
Or they can choose a more risky but potentially more rewarding way of banking on the changing
times.
Brazil’s “Hidden” Iron Ore Treasures
Long before the 100% rise in iron ore prices, Brazil’s rich mining sector was gearing up to meet
rising demand from China and other fast-growing markets.
That includes CompanhiaSiderurgicaNacional – CSN ADR (NYSE: SID), commonly thought
of as only a steelmaker.
It does make steel. But it also has plans to spin off its iron ore and logistics assets some time this
year. It’s just deciding whether to offer them together or separately at this point.
Its properties include a 32% stake in rail company MRS, along with other rail and port facilities.
It also has a dominant position in Namisa, which produced 5.5 million tons of iron ore last year.
But its biggest cash cow is Casa de Pedra, one of the largest iron ore mines in the country.
Casa de Pedra produced 17.1 million tons in 2009. And CSN believes it can yield over 70
million tons per year after investing $3 billion into it. By 2014, the company even sees it
producing 109 million tons annually.
That would make it a decent-sized competitor for even Vale, a fellow Brazilian company and the
world’s largest iron ore producer at 300 million tons per year.
Two Calls To Profits
CSN has long argued that its share price does not factor in the value of its non-steel assets. And it
believes that dividing itself into two companies would solve that problem.
It has a point too, considering that it is also Brazil’s fourth largest cement producer, and yet its
shares remain significantly undervalued. Still, that shouldn’t last for long once it blatantly calls
attention to its iron ore assets.
Investors should get in while the going is so good.
Another way to do that is through UsiminasADR (PINK: USNZY). Brazil’s biggest maker of
flat steel products, the company has its own plans of spinning off its mining and logistics assets.
Back in February 2008, Usiminas bought four iron ore mines for the bargain price of $925
million. And it plans on boosting annual output there to 29 million tons by 2014… more than
five times their current yields. Clearly, according to the company, the mines have significant
promise.
On the logistics side, Usiminas has 20% ownership in the rail company MRS and a planned port.
Though not as far along as CSN in its plans, USNZY aims to complete a spin-off this year. It
then wants to look for a strategic investor to purchase 20% of the new company.
Chances are, it will find one.
Even if big miners or steel companies don’t jump at the chance, China is actively trying to boost
its iron ore supplies. Last November, its Wuhan Iron and Steel bought 21.5% of Brazil’s MMX
ADR (PINK: MMXMY) for $682 million.
And in March, East China Mineral Exploration & Development signed a letter of intent to buy
Brazilian iron ore producer ItaminasComercio de Minerios for about $1.2 billion.
Steel: One More Reason To Get Into The Iron Ore Industry Now
CSN and Usiminas have talents in other areas as well, specifically steelmaking.
That works well considering Brazil’s rising star as the world’s third largest auto market. And
with the country building up its infrastructure for the upcoming World Cup and Olympics, both
companies are well placed to sell their goods.
In short, the global iron ore industry looks very bright moving forward. And CSN and Usiminas
offer relatively cheap entry points into it. Though who knows how long that may last…
Good investing,
Tony Daltorio
More on this topic (What's this?)
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Satyajit Das: Chinese Contradictions (naked capitalism, 9/27/10)
Iron Mining Companies: The Best Iron Mining Stocks (Learn Mining News, 10/8/10)
Read more on Iron Ore Prices, Investing in China at Wikinvest