China and India show there are merits in both order and chaos

The governments of India and China are vastly different, but both systems have their advantages.

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While I have made several trips to India over the years and been to China often, including three times last year, I had never until last month visited both back-to-back. The advantage of doing that is it gives you a fresh and clear sense of the differences.

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Last Updated: May 22, 2011

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The good news is India has made considerable progress in improving its infrastructure over the past decade, and the number of homeless in the streets in the major cities appears to have diminished.

In a country of 1.2 billion people, half of the population can live in poverty and there can still be a vibrant economy.

India's middle class is larger than the entire population of the US. Still, only 10 per cent of the population pays taxes and a relatively small percentage works at conventional jobs, many for the government.

This is a country of shopkeepers and small-time entrepreneurs, but there are a number of world-class companies, some of which I visited on this trip.

The contrast with China is striking. Because it has an authoritarian government, it can deal with some of the problems it shares with India quickly and decisively.

Older, run-down housing and office structures have been torn down, and roads have been rerouted and rebuilt. There are no visible homeless.

The emphasis on infrastructure and export-oriented industries has resulted in China accounting for close to 20 per cent of US imports while India accounts for less than 2 per cent.

One day we visited several retail establishments in parts of Shenzhen. The city has changed totally since it was established as a manufacturing centre just 80km from the border with Hong Kong.

Today it is a modern metropolis of office and apartment blocks with wide, beautifully landscaped highways and carefully planned open spaces.

The sprawling, orderly urbanisation of Beijing continues to impress. New office and apartment buildings stretch for mile after mile along wide avenues lined with greenery. I discussed the possibility of a housing bubble with almost everyone I met and nobody seems to think it is a serious issue.

Perhaps the most significant difference between my meetings with company executives this year and last was the view on opportunities in the Chinese domestic market.

Many companies are projecting earnings growth of 25 per cent or more.

China and India are bifurcated societies. With more than 1 billion people in each country, there are several hundred million in each place living lives comparable with those of middle-class people in the US or Europe.

At the same time, both countries have hundreds of millions of people living in rural poverty.

Unfortunately, India's government lacks China's flexibility and decisiveness. India is much more dependent on the entrepreneurial skill, capital and innovative ability of the private sector to make progress.

China operates on a series of five-year plans designed to expand GDP and create economic opportunity for its population. India has the objective of improving its infrastructure, but the government lacks the authority to make rapid progress.

The result is that Indian cities seem afflicted with a kind of dusty constructive chaos. Plenty of business is being done, but traffic can be brutal, garbage is everywhere and street begging is a depressing distraction.

In spite of its problems, India is expected to grow at a high single-digit rate. Software and call centre companies do not require a modern infrastructure, and there are banks, steel, construction, property, transport equipment and natural resource companies that are doing well.

The major difference between China and India is in how each approaches the future. Fifteen years ago, China was a relatively unimportant, struggling economy.

Through effective central planning and execution it now accounts for over 9 per cent of world GDP and has passed Japan as the second-largest economy in the world.

And it isn't stopping there. Whereas China recognises its major challenge is to give its rural young the chance to escape the poverty of the agrarian past and is hoping to do this by providing manufacturing jobs rather than entitlements, India's government appears to be less active in developing economic opportunities.

Most Chinese believe the order in their system is a strong positive. In India, many believe the chaos is what gives the country its character.

"India's slums are not like today's American slums. They are places of hope, not hopelessness," says the author and former banker Sanjeev Sangal.

Partha Mukhopadhyay of the Centre for Policy Research, a New Delhi think tank, says: "If you strive for too much formality, if you try to clean things up too much, you might end up with cities that are dysfunctional in a different way."

So there is the dilemma. There may be no single right answer for both countries; it may be that order is right for China and chaos is right for India.

Right now, what each has is working and neither condition is likely to change in the future.

Byron Wien is a vice chairman of the Blackstone Group