china and india: two superpowers of the 21 century …1 china and india: two superpowers of the 21st...

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China and India: Two superpowers of the 21st century How to evaluate as overseas business location?1

(Case study material Ver. 2011/2/13, TMI, University of Tokyo) 1. Introduction

Both China and India are gathering global attention as the two superpowers of the 21st century. Nevertheless, China is by far preferred by Japanese enterprises as investment destination than India at present. Japanese direct investment balance in China was 37.8 bn. yen as of the end of 2007 while that in India was 4.2 bn. yen or only 10 percent of the former. However, in the most recent years, Japanese investment in India has rapidly been increasing. India has continuously achieved 9 percent economic growth since 2005 and owing to the robust domestic consumption, the country only suffered limited effect of the global business recession caused by the financial crisis in autumn 2008. In the meantime, investment climate is becoming deteriorated in China due to revision of preferential treatment to foreign-affiliated enterprises and increase in domestic labor cost. Besides, the so-called China plus One movement to diversify the risk of investment that has heretofore been concentrated in China is spreading. According to the “Survey report on overseas business operations by Japanese manufacturing companies” (2008) prepared by the Japan Bank for International Cooperation, while China is still top ranked as a promising country for investment for Japanese companies, BRICS countries other than China, namely India, Russia and Brazil are becoming to fall into rank of promising investment destination.2

Now, how important will India become as an investment destination for Japanese companies in the future? Will Japanese companies continue to look at India in the way of China plus One basically placing priority to China as before? There is a view that India will eventually become the world’s biggest economic power since population of China is expected to decrease in the long run. Considering such a potential, there can be an opinion that Japanese companies should take a strategy to regard India as an investment destination equivalent to or more important than China.

In this paper, I’d like to determine how attractive the countries are as investment

1 This case example is developed as a material for “Asia Technology Management Program” by Kazuyuki Motohashi (Professor, Department of Technology Management for Innovation, Graduate School of Engineering, University of Tokyo) and Yuan Yuan (Project Assistant Professor of the same).

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destinations in such a long view as five or ten years from the viewpoint of a general trade company that has been supporting global strategy of Japanese companies for years. A general trade company is a corporate structure peculiar to Japan that supports globalization of enterprises in all sectors from resources to energy, chemicals, machinery, textile, commodities and high-tech industries. While post-war economic recovery of Japan largely depended on expansion in export, Japanese general trade companies played a potent role in the process. The role of the trade company changed in line with globalization of Japanese economy from support for commodity trade to investment in businesses centering on the overseas resources and energy sectors. In addition, investment business in overseas logistics business and high growth enterprises is becoming more and more important.

In expanding such businesses, it is important to make dependable forecast concerning the sectors and destination countries for starting overseas operation for Japanese-affiliated firms since business can often be conducted in connection with foreign-based Japanese companies. Furthermore, since India is still new to Japanese enterprises as an investment destination, we can expect big business opportunities including support for globalization. However, whether or not we can actualize the opportunity depends on to what extent Japanese enterprises expand business to India. From such a viewpoint, I’d like to compare China and India as investment destinations of Japanese enterprises and make forecasts into the development in both countries in such a long time span as five to ten years.

2. Development of globalization of Japanese economy

Before looking at the situation in China and India, let me summarize how Japanese enterprises have engaged in global activities until today. The Japanese rapid economic growth after the war largely depended on increase in export. Behind the economic growth was the fixed $1=¥360 exchange rate system determined by the Bretton Woods regime established at the initiative of the US after the World War II. Japanese enterprises have strengthened export competitiveness on the basis of comparatively low and stable yen rate in the process of their growth. However, the fixed exchange rate system became difficult to be maintained as a result of the rise of Japan and European countries. In 1971, the US president at the time Nixon declared abolition of the fixed exchange rate system to shift to the floating exchange rate system (Nixon shock). As the result, yen has become significantly stronger against dollar over the long term.

Fig. 1 shows the relationship between fluctuation of the exchange rate and globalization indices such as amount of export and overseas sales of Japan. We can see that higher

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yen rate exerts negative effect on the export value. For example, when the exchange rate moved toward significantly strong yen in late 1970s after the Nixon shock, the export value dropped considerably at that timing. In the period of rising yen after the so-called Plaza Accord in 1985, the growth rate of the export was restrained. After 1990, while the yen rate temporarily rose significantly, the rate has been kept in the range from 100-120 yen per dollar at large. The export value has gradually increased during the period.

In the process where yen rate rose significantly higher, Japanese manufacturing companies established overseas production bases to reduce the exchange risk as well as to maintain price competitiveness of products. It was in the late 1980s after the Plaza Accord that the movement of overseas direct investment became prominent. In 2000, overseas sales value exceeded export value to run up to approx. 100 trillion yen in 2006 (export value was approx. 80 trillion yen).

Fig. 2 shows the number of foreign subsidiaries of Japanese companies as of 2008 by the location country and year of establishment. The graph shows that overseas operations in industrializing countries began from investment in NIES (New Industrial Economies) 3 and ASEAN (Association of South-East Asian Nations 4 . Japanese electronics companies and automobile manufacturers actively started overseas operation in those areas when yen rate rose in the late 1980s. Then in the 1990s, investment in China increased rapidly. This is the result of active introduction of foreign investment by China in the 1990s that took the policy to open the country to foreign businesses. In the meantime, the reason the number of foreign subsidiaries established in the late 1990s has dropped sharply is because foreign business expansion is strongly influenced by the domestic macro economic environment. To be concrete, many companies refrained from new overseas investment under the recession that began with bankruptcy of major financial institutions in 1997. In 2000, while investment in NIES and ASEAN remained almost the same level, the investment in China restarted rapid increase. As above, the overseas business expansion activities of Japanese companies are recently concentrated in China without the strategy of China plus One in the macro level.

Fig. 3 shows share of overseas sales by industry by the trading partner country. In China of which overseas sales value is the largest, while electric machine,

3 Refers to Korea, Taiwan and Singapore here. Hong Kong is included in China. 4 Federation composed of ten countries: Indonesia, Singapore, Thailand, Philippines, Malaysia, Brunei, Vietnam, Myanmar, Laos and Cambodia. Only, Singapore is excluded here as the country is one of NIES.

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info-communication equipment and transport equipment are ranked high in ratio, investments are also made in other industrial sectors with comparatively good balance. That is, Japanese manufacturing companies are engaged in production and distribution activities in almost all business sectors. With respect to ASEAN, the proportion of the transport equipment is higher than in China. This is because the proportion of sales of automobile manufacturers and the related parts manufacturers accounts for a large ratio. Concerning NIES, it is characterized by a high percentage of chemicals and petroleum and coal industries sales. Lastly, with respect to India, 90% of the sales of Japanese companies in the country is accounted for by transport equipment. We can see that while automobile and motorcycle manufacturers and related parts manufacturers are operating in India, there are almost no Japanese companies in other business sectors in the country.

Fig. 4 shows the ranking of the number of foreign subsidiaries and total number of employees by the location country. China is in the lead with approximately 6,000 companies and nearly 1.3 million employees together with the fourth-ranked Hong Kong. Second is the US and the third is Thailand. Singapore and Taiwan etc. follow them and India is ranked 18th with 262 companies and a little more than 60,000 employees far behind China5. Vietnam, often cited along with India in connection with China plus One, is ranked 16th ahead of India but the country is still in the developing state, too.

Lastly, Figs. 5 and 6 show major enterprises operating in China and India (according to the ranking of the number of employees in the TOYO KEIZAI data). In China, locally established joint ventures of automobile manufacturers such as Toyota, Nissan and Honda, automobile parts manufacturers such as Sumitomo Densan and Yazaki Corp. and electronics manufacturers such as Mitsumi Electric, TDK, Canon and NEC TOKIN are operating. In the meantime, most Japanese-affiliated companies operating in India are automobile manufacturers such as Suzuki Motor Corp. and motorcycle manufacturers and related parts manufacturers as shown in Fig. 6.

3. China and India: history of economic development

China (People's Republic of China) was founded in 1949 as a communist state under the leadership of Mao Zedong. It was after 1978 that China achieved full-fledged economic development when Deng Xiaoping who succeeded the leadership of the country after death of Mao Zedong adopted reform and liberalization policy to lift the embargo on 5 According to statistics compiled by the Japanese Embassy in India, there are 438 Japanese-affiliated companies in India as of January 2008.

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trading and foreign direct investment. The foreign investment invitation policy was accelerated by Nanxun Jianghua 6 conducted by Deng Xiaoping leading to rapid increase in investment in China by Japanese companies. Today, China is referred to as the “world factory” meaning that consumers all around the world are unable to live everyday life without products made in China. In addition, China is maintaining such a high economic growth rate as around 10% in and after the 1990s to show its economic presence in the world. According to a forecast by Goldman Sachs, Chinese GDP will overtake Japan in 2015 and the US in the middle of the 2030s to become the biggest power in the world.7

In the meantime, India (Republic of India) broke away from the UK in 1947 and was founded as a social-democratic country with Jawaharlal Nehru as the founding prime minister. In India, each state has independent economic system and tax system and regulatory

system are very complicated. With respect to foreign economic relation, while foreign investment was partly approved by the deregulation in 1980, the effect has been quite limited compared to the deregulation in China. India is handicapped as a production base in terms of underdeveloped infrastructures including roads and electric power supply. However, recent rapid development of IT service industry centering on software development and BPO (Business Process Outsourcing) has largely changed international image of India. When China is referred to as “world factory”, India can be referred to as “world software development center”. In the meantime, Goldman Sachs forecasts that India will overtake Japan in 2025 in GDP and the US in 2040.8

Fig. 7 shows changes in GDP per capita of China and India. It’s interesting to note that both countries’ GDP per capita was changing at almost the same level by around 1990. After the 1990s, however, the growth rate of China largely exceeded India and GDP per capita of the countries have become largely different in 2006: approx. $2,600 for China and $1,000 for India. Fig. 8 shows comparison of the amount of direct investment accepted by the countries. The amount of direct investment accepted by China increased rapidly owing to open policy starting with the “Nanxun Jianghua” in 1992. In India, while the country is implementing deregulation of foreign investment in stages, the measures are unsatisfactory yet. The significantly smaller investment in India compared to China by Japanese companies mentioned in the previous section shows

6 Deng Xiaoping made an inspection tour to southern regions of China including Wuhan, Shenzhen, Zhuhai and Shanghai to reacknowledge importance of open economy policies including invitation of foreign investment and issued a statement that the government would precede with the reform track aiming at economic development. 7 Goldman Sachs (2007) 8 Goldman Sachs (2007)

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that there are some problems within India including an unsatisfactorily environment for foreign investment. In China, however, it is obvious that positive introduction of foreign capitals is exerting strong effect on the economic growth of the country and it is said that most exports from China are made by foreign-affiliated companies.

While India is behind China in economic growth as above, the country has maintained 9% of economic growth since 2005 and has large potential for growth in the future. In contrast to this, China is shifting from economic growth-oriented policy in the past to the policy to counteract the disparity in income levels between the coastal regions and inland regions. China’s attractiveness as an investment destination is diminishing due to abolishment of the preferential taxation system offered to foreign-affiliated companies up to now and wage increase.

Like this, in order to reconsider how to evaluate India in terms of China plus One, we need to understand actual status of China and India more precisely. For comparing both countries, here are interesting questions posted to readers by Tarun Khanna (2007) of the Harvard Business School9. Let me introduce some of them below.

� Why India cannot construct a road quite soon while China can build a city overnight?

� Why is free election prohibited in China while it is realized in India?

� Why India cannot build many globally competitive private companies while China can establish mammoth ventures?

� Why Indians don’t like fellowmen living abroad while Chinese like those (overseas Chinese)?

� Why Indians don’t bid Chinese welcome while Chinese do to Indians?

4. China: Centralized administration by communist party

4-1. History of opening up to the world

Before shifting to a route of reform and liberalization, China only traded with socialist countries heavily restricting foreign economic exchange with liberalism states. However, trading was restarted by the shift to a route of reform and liberalization in and after 1978 and embargo on direct foreign investment was lifted. In the ensuing year, Joint 9 Quoted from page 7 of Tarun Khanna (2007). This paper is written with the intention to answer the questions.

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Venture Law (Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment) was enacted and institutional basis was established for inviting foreign enterprises including introduction of foreign investments, technology transfer and promotion of export. Chinese government at the time established four special economic zones including Shenzhen, Zhuhai, Shantou and Xiamen in 1980 in order to effectively utilize limited resources and foreign capitals as well as to reduce the impact on the domestic economy by the liberalization policy. The government improved infrastructures to invite foreign capitals to the special economic zone and offered favorable treatment to foreign capitals such as reduction of tax and tax exemption. Fourteen seaboard cities were additionally liberalized in 1984 including Shanghai, Tianjin and Dalian. In 1986, by enforcement of the “Law on Wholly Foreign-Owned Enterprises”, the regional restriction on individual investment by a single foreign company was removed. In addition, by enforcement of the economic development strategy for coastal areas in 1988, most coastal areas were included into the coastal economic liberalization zones.

After that, at the opportunity of Nanxun Jianghua by Deng Xiaoping in 1992, market reform was re-accelerated and introduction of foreign investment increased rapidly. During the period from 1995-97, Chinese government implemented liberalization of trade aiming at joining in WTO including opening up domestic market and reduction of customs duties. After the Asian currency crisis broken out in 1997, investment in the manufacturing and assembly-oriented industry began to be concentrated in China. China attracted foreign capitals using generous favorable treatment and low labor cost as leverage and reached the position of the “world factory”. In 1999, the Overall Plan for Development of the Western Region was started and open door policy was deployed from the coastal area to the midland. In 2001, China became a member of WTO and the amount of accepted direct investment steeply increased to triple in six years from 2002-2007. (See Fig. 8.)

In the meantime, four methods are mainly used as the means of direct investments: individual investment by a foreign capital (individual ownership), joint venture or collaboration company with a Chinese company, and M&A of Chinese company. As of 2006, the most common method of direct investment in China is individual ownership company accounting for 72.7% of all amount of direct investment accepted. With respect to the investor countries, large amount of direct investment is accepted from Japan, Korea and the US except for Hong Kong and the Virgin Islands. (See Fig. 9.)

In 2007, Chinese government clearly showed shift to “technology-oriented nation” to enhance competitiveness of Chinese enterprises and manifested intention to

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discriminate between foreign capitals. In January 2008, Chinese government enforced new Corporate Income Tax Law10 to abolish preferential treatment including reduction and exemption of income tax on foreign capitals and Labor Contract Law to improve labor conditions. At present, Chinese government desires to invite high-tech and environment-related companies which will contribute to development of China rather than simple manufacturing and assembly businesses which have been the mainstream up to now. In the environment marked by diminution of preferential treatment to foreign capitals, wage hike and the recent rise in exchange rate, foreign enterprises are changing investment stance in China. In and after 2007, direct investment in China of advanced nations including Japan, the US and European countries is on a declining trend. Foreign companies are accelerating moves to establish bases in Vietnam etc. for diversification of risks. A major toy manufacturer Tomy Company, Ltd., for example, unveiled its policy to largely curtail production in China which accounts for 90% in amount and expand ratio of production in other than China such as Vietnam and Thailand up to 60% under the influence of increase in cost in China. In the meantime, the policy to encourage research and development activities by foreign capitals in China is showing effect to increase research and development bases. Foreign companies such as GM and Motorola have recently established a research and development center in China one after the other.

4-2. Economic performance

China maintained more than 10% real GDP growth rate for consecutive five years from 2003 to 2007 and the country’s nominal GDP per capita reached $2,500 in 2007. However, motive power of the Chinese economy is investment and export, and domestic consumption associated with national life is on the decline (see Fig. 10). Trade structure is centered on the secondary industry products among which electric and transport equipment is increasing share in the export. In addition, the rapid increase in demand for energy due to recent overheating of business activities caused rapid increase in import of the primary products. Trade partners of China are the US, Japan, Hong Kong, Germany and Korea etc. While Chinese trade balance is favorable with the US and Hong Kong, it is adverse with Japan and Korea.

More than half of GDP is produced by the manufacturing industry and the high growth rate of economy is lead by the secondary industry. Looking at the structure of GDP, the primary, the secondary and the tertiary industries account respectively for 14%, 63% 10 Corporate income tax on foreign-affiliated companies is to be increased from 15% until 2007 to 25% by 2012 while that on domestic companies is to be decreased from 33% to 25% by 2012 to unify the tax rate on both domestic and foreign companies.

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and 23% of the GDP. In the meantime, with respect to the employment population by industry, more than 40% of the working population is accounted for by agriculture which only produces about 10% of GDP. The secondary and the tertiary industries account respectively for 25% and 32% of the working population.

What is important in examining economic performance of China is the role played by foreign-affiliated companies and state enterprises. Looking at the manufacturing industry in 2007, foreign affiliated-companies account for 27% of the amount of value added. While many domestic companies are limited liability corporations or stock corporations, many of them are controlled by a state enterprise or local government. While privatized companies are lately increasing share of the market, the share is no more than 22.5% as of 2004.

4-3. Population and education

According to a population census conducted by China in 2006, Chinese total population was 1,307 million as of the end of 2005. Among the 1.3 billion people, 60% are listed on rural family register. Racially, Han people accounts for 92% and the official language is Chinese. Literacy rate reaches 93%. In the meantime, China has implemented birth control (so-called “one-child policy”) since 1979 in order to prevent leap in population and it is expected that China will be confronted with serious problem of aging society in the future.

All Chinese people are divided into those who are listed on rural family register and those listed on urban family register and children are to be registered in their mother’s family register. Therefore, if a woman listed on rural family register gets married to a man listed on urban family register, their child is registered on rural family register. While many farm people have come to town looking for job opportunities since the reforms and opening-up were implemented, those people who are listed on rural family register are given discriminatory treatment in various ways from those listed on urban family register. For example, even employed by the same company, workers are discriminated

with respect to endowment insurance and medical care insurance etc.

4-4. IT and home electric appliances

The above-described policy of opening the country to foreign businesses and reform policy for enterprises eventually promoted development not only of foreign-affiliated companies and joint ventures that started operation in special economic zones and economic deregulation zones but also of domestic enterprises located around those zones. Examples of successful domestic enterprises include such electronics enterprises as

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Haier, TCL, Lenovo and Huawei (see Fig. 11). These enterprises not only gained a position in emerging markets but also are gaining more and more presence in advanced countries. In 2003, major Chinese general electric manufacturer TCL formed an affiliation with a French major electronics corporation Thomson to establish world’s largest TV manufacturer “TCL-Thomson Electronics”. PC manufacturer Lenovo has completed acquisition of PC business division of IBM of the US to become the third largest PC manufacturer in the world. In the meantime, there are also enterprises gaining presence in the global market with their own brand. In 2008, Japanese Emobile decided to adopt portable terminal of Huawei Technologies and also provided in collaboration charge-free mobile BB in “2008 Hokkaido Toyako Summit”.

Chinese cellphone and PC production volume is number one in the world now. The country’s domestic demand and export are sustaining mass production of cellphone and PC. However, most cellphone terminals exported from China are given brand name of foreign-affiliated companies. In the meantime, internet user population and cellphone production rapidly increased after 2000. Now, cellphone subscribers and Internet user population of China are the largest in the world (see Fig. 12).

4-5. Automobile

The number of automobiles sold in 2007 was 8.79 million or the second largest in the world and production was 8.88 million, the third place in the world. Upper crust expanded in line with economic growth and family car owners increased significantly (see Fig. 13). However, automobile industry is different from IT industry etc. at the point that Chinese government has been taking protective policy since long ago. Since Chinese automobile manufacturers are in inferior positions even in the domestic market, joint ventures are dominating the market. In order to strengthen competitiveness of the domestic automobile industry, China restricted controlling share of foreign capitals in Chinese automobile manufacturers and the number of foreign-affiliated companies by the “Automobile Industry Policy” in 1994 and obligated to use locally produced parts. In addition, Chinese government also obligated foreign-affiliated companies coming to start operation in China to establish a research and development base etc. Despite being protected by such measures, Chinese automobile industry is still technically fallen behind. While First Automobile Works Group, one of the three biggest Chinese automobile manufacturers, is placed under the development center of the whole Chinese automobile industry, it employs the engine of Chrysler, transmission of VW and body of Audi 100 for its “independently developed” automobile “Hongqi”. However, Qirui Qiche and Geely Automobile are actively exporting original brand automobiles.

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4-6. Daily commodities/cosmetics

Before reform and liberalization, there was almost no culture of putting on make up in China. However, in line with improvement in income level owing to economic development, Chinese people have become interested in aesthetics. Chinese women are strongly conceiving a longing for white and clean skin to take a keen interest in skin care. Consequently, consumption of cosmetics is concentrated in skin care products. In contrast, the ratio of the make up products such as lip sticks in cosmetics consumption is small at present. However, consumption of such products is considerably growing.

Women in their 20s and 30s are highly conscious about dressing up and compose central part of cosmetic consumers. Especially city-dwelling women of the generation are interested in dressing to the same level as women in developed countries such as Japan and are purchasing beauty products other than cosmetics today. In actuality, according to a survey on middle or higher income women conducted by Hakuhodo in September 2006, more than 50% of all women are going to aesthetic salon and 15% are going to nail salon.11

4-7. Financial, retail and catering industries

With respect to Chinese stock market, problems have been criticized including existence of nonnegotiable stocks, ambiguity of accounting standard, unsatisfactory information disclosure and extensive restriction on foreign investors. After joining WTO, however, step-by-step reforms have been implemented including introduction of the indemnity system for circulation stockholders by elimination of nonnegotiable stocks, revision of listing requirements, expansion of information disclosure and deregulation of foreign investment. In an environment marked by such stock market reform and economic growth, Chinese stock market conditions changed for the better in and after 2005 and the Shanghai general index largely improved from 1060 in 2005 to 4176 in 2007. In the meantime, there are a small number of institutional investors in China with 90% or more of participants in the stock market being private investors.

With respect to the retailing industry, participation of individual capital was approved in December 2004 to trigger active start of operation in China by foreign retailers. In 2005, European, American and Taiwanese retailers took top ten ranks of the largest selling supermarkets with the top being Carrefour of France. However, total sales of the top ten retailers only account for 1.3% of the total retail sales meaning that the Chinese

11 Hakuhodo News, May 15, 2007

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market has enormous potential of growth for retailers.12

Dietary life of city dwellers has largely changed in association with improvement in living standard. As a result, the catering industry has come to be extensively utilized. For example, according to the result of questionnaire survey on three big cities, Beijing, Shanghai and Guangzhou, by Yahoo value site, 30% people answered that they take their breakfast out “almost everyday”. Also 30% are taking lunch out “five to six times a week” and approx. 47% are taking dinner out “once or twice a week”. In the meantime, according to the same questionnaire survey, “Chinese dishes” is by far the most favorite cooking of the people accounting for 96%.13

5. India: Democracy-based decentralized nation

5-1. History of opening up to the world

It was after the assumption of the presidency by Indira Gandhi in 1980 that deregulation policy was started in India. The pioneering figure of the deregulation was the automobile industry and the electronics industry. Suzuki Motor Corp. took the opportunity to instantaneously start operation in India to form a joint venture with Multi Udoyok, a state enterprise of India. In the beginning of 80s, however, economic deregulation did not yet gain momentum and there was no foreign capitals making investment in the passenger car sector in India except for Suzuki which started operation in 1982. While Toyota, Mazda, Mitsubishi and Nissan started operation in the commercial car sector in India in a form of technical cooperation, they had to withdraw unable to show good performance.

In the meantime, the deregulation policy in the 1980s was implemented under significantly closed economic regime and there was quite severe regulation enforced on trade. Customs duties were high, quantity of import was limited and import of consumer products was completely prohibited. While import of capital goods, raw materials and intermediary goods were partly permitted, license for import was required for goods which can be produced in India.

Facing a budget deficit in the late 1980s, India received support from IMF and the World Bank to implement new economic policies for financial reconstruction from the beginning of the 1990s. What was done first was reform of foreign trade scheme. Aiming at liberalization of trade, step-by-step abolition of import license and reduction of

12 “Current status of retail industry in China” 13 MarekZine news

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customs duties etc. were implemented. In addition, foreign direct investment had become automatically approved to a certain extent, though there are differences according to business sectors, and the time until approval was shortened. At this period of time, direct investment in India by Daimler-Chrysler, GM, Ford as well as Japanese automobile manufacturers increased rapidly. At the same time, foreign investment institutions were permitted to buy and sell stocks of listed companies.

Recently, the government has understood that competition and improvement in technical level are promoted by introduction of foreign investment and is accelerating the move of deregulation. In and after 2000, deregulation of foreign investment was further progressed and 100% ownership of a company by foreign capital was approved in most business sectors. Even for those business sectors on which regulations were stern such as banking, telecommunications and real estate industries, policy of sweeping relaxation of regulations was adopted in and after 2005. As a result, development of real estate by 100% foreign capital was permitted and the upper limit of the ratio of foreign capital has been raised to 74% for banking and telecommunications sectors. In addition, 100% investment by foreign capital is approved even in the Internet service, telecommunication equipment manufacturing and IT service sectors if certain conditions are satisfied.

Furthermore, special economic zones have been established. Those special economic zones aim to promote export approving 100% investment by foreign capitals in many sectors within the zone offering preferential taxation measures to the tenant companies. More than 200 special economic zones have been approved by the government as of 2007. However, while many special economic zones are approved, actual construction of most of them has not been started yet. There are many cases where even construction plan cannot be developed due to oppositions of the local residents.

India is recently achieving rapid economic development. Nominal GDP per capita increased from $407 in 1998 to $941 in 2007. The amount of foreign direct investment accepted increased from $750 million in 1998 to $1,930 million in 2007 (see Fig. 8). At present, about half of foreign direct investment is invested in the service businesses (Services sector, Computer software & hardware and Telecommunications). With respect to the investor countries, about a half is from Mauritius (most residents are Indians and Indian descents) and the rest is mainly from the US, the UK, Japan, Netherlands and Singapore etc (see Fig. 14).

5-2. Economic performance

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The motive power of high-rate growth of economy in India is the service sector centering on software development and outsourcing. At present, more than half of GDP is produced by the service businesses. The primary and the secondary industries account for 20% and 25% respectively. In the meantime, development of manufacturing industry is falling behind. Kadokura (2006) pointed out three reasons for late development of the manufacturing industry of India. The first reason is unsatisfactory infrastructures such as slow construction of roads and extremely lacking electric power supply. The second is that domestic demand is weak because most people are in poverty group. In addition, lack in international competitiveness making export to be difficult is also a hindrance to development of the manufacturing industry. The third reason is that craftsmen who manufacture goods belong to lower castes causing manufacturing business to be disdained among Indian people.

In the meantime, it is important to understand the role of conglomerates in the economy of India. In India, there are about 20 medium-sized conglomerates besides the three gigantic conglomerates the Tata Group, the Birla Group and the Reliance Group. Many of well-to-do population in India are entrepreneurs of these conglomerates. The conglomerates are also playing important roles in the economic activities in India. For example, the Tata Group has about 93 affiliated companies and employs 215,000 employees as the whole group. The total group sales accounted for 3% of GDP amounting $ 17.8 bn. in 2004 (Kadokura 2006).

5-3. Population and education

India is a multiethnic and multilingual nation with 1.1 billion of population today. UN forecasts that India will become largest in total population in 2030 overtaking China. At the same time, India is expected to maintain pyramid shaped population structure even in 2050 meaning that the country will have abundant supply of young work force which holds the key to economic growth to let India hold all the trumps. Since more than 30 million people speak English as the nation’s secondary official language is English, India holds advantage also in terms of language. In addition, math education in compulsory and higher education are thoroughly provided to make the nation superior in mathematics. In India, about 120,000 students graduate from faculty of engineering of colleges every year and about 70,000 students thereof take a job in the software industry.

In India, there was rigid casteism (hierarchy, class system) in the past under which people were to succeed to profession and social position according to the class. People belonging to the lowest caste were severely discriminated as well as being put under

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horrendous labor conditions. However, as a result of enforcement of Constitution of India in 1950, caste-based discrimination is prohibited. In addition, various preferential measures are taken for lower casts by policy. While persistent caste-based discrimination still exists even today, people belonging to lower casts are gradually coming to have voice.

5-4. IT and telecommunication

India is the world’s largest IT service exporting country today. The central motive power of development of IT industry of India is the software sector. Among the software businesses, Infosys, Wipro and TCS (Tata Consulting Service) are regarded as the three major offshore development companies and have comparable scale with Japanese and European IT service companies in terms of the number of employees (see Fig. 11). The total income of the software industry is growing by 30% every year partly encouraged by

the Software Industry Development Policy announced by the Government of India. Major export destinations include North America (60%), Europe (25%) and Japan (less than 6%). While export to Japan has been small up to now, Japanese-affiliated firms of Hitachi and Fujitsu etc. are lately shifting to outsourcing to Indian companies partly because of wage increase in coastal areas of China.

In the meantime, software industry has limits in the labor absorption capacity different from the manufacturing industry. The number of employment in the whole IT industry (software, hardware and BPO) as of 2005 was only about 1 million out of 415 million total employment.

The number of subscribers to cellphone services exceeded 200 million in 2007 to become third in the world following China and the US. With respect to the cellphone services, domestic major enterprises have 80% or more share of the domestic market. While the telecommunications equipment manufacturing industry in India does not have own research bases, they have achieved the same level of technology as multinational enterprises of advanced countries. This is the result of significant contribution of development activities of the national research institution Centre for Development of Telematics to the development of telecommunications equipment in India.

5-5. Automobile

New well-to-do population is rapidly increasing along with economic development especially in big cities such as Delhi and Mumbai and people’s life style is changing. For example, demands for automobiles and home electric appliances are rapidly increasing. As a result of such changes, foreign-affiliated companies and locally established

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companies are competing against each other in the automobile and home electric appliances markets. For example, foreign-affiliated companies have started operation in the automobile sector of India and the keenest competition is taking place. Share of Maruti Suzuki in the automobile market decreased from about 80% in the 1990s to about 50% in 2004. Lately, competition between low-priced automobiles is getting fiercer and in April 2009 Tata Motors began offering national automobile “Nano” at 100,000 rupee (half the price of Maruti Suzuki’s low-priced automobile) for the first 100,000 units since April 2009. While automobile market in India is expanding centering on low-priced automobiles in recent years, Japanese-affiliated automobile manufacturers are focusing on high-priced sedan avoiding the low-priced automobile market. For example, Honda is producing and selling “Civic” and “Accord” and Toyota “Corolla” (see Fig. 15).

5-6. Daily commodities/ cosmetics

Along with enhancement of the standard of living, the amount of cosmetics purchased by women is increasing. Whitening cosmetics are by far well selling in the Indian cosmetics market. This is partly because fair-faced people often belonged to higher castes while dark people often belonged to lower castes in India where there was historically a stern class system. The fixed idea among Indian people that people with white skin at all can get nearer “high echelons of society” is leading to the high sales of whitening products. In contrast, since the economic level is not yet high enough, sales of basic cosmetics are low as is the usage rate of lipstick.

5-7. Financial, retail and catering industries

India is evaluated as one of important emerging markets by the international financing industry and has shown significant increase both in foreign direct investment and foreign securities investment since 1993. The number of foreign institutional investors having a business base in India counts up to 823 companies. The transaction volume of the National Securities Exchange (NSE) is the third largest in the world (see Fig. 16).

India is the country where the density of retail stores is the highest in the world. The retailing is the largest industry of India accounting for 10% of GDP and employing 6-7% of all workers to be the second after agriculture. However, entry of foreign capitals is prohibited into the retail industry except for single brand specialty stores.

In the catering industry, McDonald and Kentucky Fried Chicken etc. started operation in India. Since there are many food-related taboos such as Islamists who don’t eat pork, Hindus who don’t eat beef, and vegetarians accounting for more than 30% of all

17

population, catering companies operating in India need to exercise ingenuity. For example, McDonald in India is offering hamburgers using vegetable crocket for vegetarians.

6. China and India: How to evaluate as long-term investment destination?

6-1. Cost factor

Fig. 17 shows comparison of business costs between major Asian cities. First, while wage differs according to the business sectors and the level of the business, wage in each city of India is lower than in Shanghai and Beijing. However, when compared with Dalian and Guangzhou, there is not significant difference in wage level. It should also be noted that wage rate largely differs between regions within the country since both countries have vast national territory.

In the meantime, if a general business corporation intends to “withdraw” or make “layoff” in India, approval of provincial government is required of which acquisition is said to be practically impossible. There is almost no system established of unemployment compensation insurance and pension program and labor dispute is occurring often and the number of strikes is by far the most in Asian countries. In the meantime, in China, total labor cost is increasing as a result of expanded labor rights brought about by the revision of the labor law.

It is said that unsatisfactorily constructed infrastructures is the largest hindrance to direct investment in India. Especially, lack of electric power supply and transport system is becoming serious problems. Most Japanese-affiliated companies starting operation in India have introduced privately-owned electrical power facilities at a cost in order to secure stable power supply. In the meantime, since India is suffering worst traffic congestion and is poor in road conditions, products may get damaged during transportation. Only, India is lately getting to work on improvement of infrastructures. For example, nation-wide express way construction of 150,000 km in total is planned. In contrast to this, China has better infrastructures on the whole though there is a fear of serious water shortage in the northern area.

In terms of the tax system, both countries are approximately on the same level if both direct and indirect taxes are considered comprehensively. Both countries have established special economic zones to offer reduction and exemption of taxes to foreign-affiliated companies which should also be taken into consideration. While China established special economic zones in the 1980s to actively invite foreign investment, the country decided to abolish the preferential taxation system for foreign-affiliated

18

countries in January 2008. It is rather recently, in 2000, that India introduced the special economic zone system and more than 200 special economic zones have been specified until now and the country is still actively increasing the number. However, it should also be noted that there are occurring opposition movements of local residents against development insisting that such expansion of special economic zones is rampant development of the national land. Recently, Tata Motors planned to start up the production line of the world’s lowest-priced automobile “Nano” in the factory in West Bengal state from October 2008 and construction of the factory was almost completed. However, protest movement occurred against displacement of poor farmers for construction of the factory and Tata eventually was forced to move the factory to another location. Similar industrial site-related risks also exist in China though the characteristics may be somewhat different. For example, in Shanghai Jiading Industrial Zone that invited mainly foreign-affiliated companies capitalizing on the favorable location in the suburb of Shanghai, an incident occurred that 10 Japanese companies which had just moved in were forced to evacuate the site for the reason of city plan. The authority said that it was because the new city of the Jianding was decided to be the top priority area of the city plan based on the 11th five-year plan of Shanghai city.

6-2. Market factor

China has 1.3 billion of population and India 1.1 billion to account for nearly a half of the world’s population by the two and both are quite attractive as vast markets. However, China’s GDP per capita is only $2,500 and India’s is $1,000 to be at one tenth level of advanced countries.

Both countries are large in disparity in income level between nations and the difference is expanding. In China, policy of opening the country to foreign businesses which is a major pillar of the reform and liberalization was started from coastal areas and the benefit is limited only to the coastal areas. Regional difference between coastal areas and inland areas as well as disparity between farmers and city-dwellers are widening. This is because the merit of economic development in the coastal areas doesn’t spread to inland areas since movement of people between rural villages and city areas is not liberalized. Nevertheless, several hundred millions of people are living in the coastal areas and there are big markets around major urban areas such as Beijing, Shanghai and Guangzhou.

MGI (2006) analyzed rise of the middle-income class in China using statistical survey data on city-dwellers. If those families with 40,000 yuan or more disposable income are

19

classified as upper middle-income class (UMC) and those with 25,000-40,000 yuan as lower middle-income class (LMC), UMC or higher families account for 10% of all families and LMC families account for 12.6% as of 2005. Since the two classes accounted for 1.5% and 5.7% ten years ago respectively, the middle-income class families increased rapidly in the past ten years (see Fig. 18). According to the analysis of MGI, UMC or higher families will increase to about 30% in the next ten years to create globally a vast number of people with disposable income.

The IT service industry which is holding center stage in India has small labor absorption capacity and the benefit of economic growth is limited only to a part of the elite class. Nevertheless, disposable income of each family is increasing also in India along with economic growth. In 2001, the middle-income class (90,000 rupee or more per year) has increased to 28% which is said to be target customer of NANO (100,000 rupee car) of which sales is started in April this year by Tata Motors (see Fig. 19). In this way, business opportunities are also expected to expand in India in a wide variety of business sectors from consumer durable goods, including automobile and home electric appliances, to daily commodities and dining services as the income level rises.

6-3. Comparison of comprehensive business environment

IMD, a business school in Switzerland, is publishing competitiveness ranking of countries in the world as World Competitiveness Yearbook every year. According to 2008 edition, China is ranked 17th and India 29th among 55 countries. Fig. 20 shows summary of indices by item for China, India and Japan.

Firstly in the business sector, both countries are ranked high for labor market owing to low wages. However, particularly China is inferior in terms of finance and corporate governance. It is noteworthy that India is ranked high in corporate governance. However, India is ranked low in the infrastructure sector. India is inferior to China not only in basic infrastructures such as roads and railroads but also software infrastructures such as science and education.

Lastly, looking at the government sector, India is ranked low in the institutional system (uncertainty in financial institutions and official sector) and China is ranked low in the legal system (regulations etc.). Relationship with the government is an important factor in the business in developing countries. In China, while the central government is often taking the leading role, operational authority for individual investment case is often given to the provincial or city government level. In India, power is shifted from the center to local governments more than in China and business is strongly influenced by

20

the government and policies of each state. Consequently, comprehensive evaluation of local government policies and long-term stability of the political institution etc. is required when selecting an investment destination.

Reference in Japanese

Hideki Esho (2008) “Indian economy taking the air” Minerva Publishing Co., Ltd.

Takafumi Kadokura (2006) “Real capacity of Indian economy” Nikkei Inc.

Jin Jianmin (2007) “Growing Chinese Electronics Information Enterprises”

http://jp.fujitsu.com/group/fri/report/china-research/topics/2006/no-29.html

“Investigation report on overseas business deployment of Japanese manufacturing enterprises” Result questionnaire survey on overseas direct investment for FY2008 (20th) November 25, 2008

Hakuhodo News, May 15, 2007 http://www.hakuhodo.co.jp/pdf/2007/20070515.pdf

“Actual status of retail industry in China”

http://www.mof.go.jp/jouhou/kokkin/tyousa/1903chinakenkyuukai_10.pdf

MarekZnie News, http://markezine.jp/article/detail/1518

Reference in English

MGI(2006), The value of China’s emerging middle class, The McKinsey Quarterly, 2006 Special Edition

Goldman Sachs (2007), India’s rising growth potential, Global Economics Paper NO.152

http://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdf

Tarun Khanna (2007), Billions of Entrepreneurs: How China and India are reshaping their futures and yours, Harvard Business School Press

21

Fig. 1: Changes in dollar-yen rate and export/overseas sales

0

20

40

60

80

100

120

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

0

50

100

150

200

250

300

350

Export (tril. Yen) Overseas Sales (tril. Yen) Dollar-yen rate (right axis)

Source: Created from “Survey of Overseas Business Activities” (Ministry of Economy, Trade and Industry) and “Trade Statistics of Japan” (Ministry of Finance) etc. Fig. 2: Number of companies by location country/year of establishment

0

100

200

300

400

500

600

700

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

China(+HK) NIES ASEAN US+Europe

Source: Created from “2008 Database on Enterprises Operating Overseas” (Toyo Keizai Inc.)

22

Fig. 3: Overseas sales by country/industry

0% 20% 40% 60% 80% 100%

China

ASEAN

NIES3

India

USA

Europe

Food/textile Chemical/oil & coalSteel/nonferrous metal General machineryElectric machinery Info/telecom equipmentTransport machinery Precision machineryOther manufacturing

Source: Created from “2007 (37th) Survey of Overseas Business Activities” (Ministry of Economy, Trade and Industry)

23

Fig. 4: Number of companies and employees by country (Ranking) Country Companies Employees

China 4882 1,137,463 USA 3287 464,821 Thailand 1584 500,555 Hong Kong 1139 144,051 Singapore 992 48,833 Taiwan 900 90,659 UK 799 95,229 Malaysia 761 151,246 Korea 715 70,829 Indonesia 660 240,384 Germany 628 54,979 Philippines 421 194,799 Australia 408 38,748 France 374 32,126 Netherlands 359 13,320 Vietnam 333 146,244 Canada 265 30,625 India 262 62,862 Brazil 262 62,957


24

Fig. 5: Major Japanese-affiliated companies in China Local company name Industry Business content Employees Investing company Established

Dongfeng Motor Corporation Automobile & parts Passenger cars and commercial cars production & distribution (50% owned by Nissan (China) Investment Co., Ltd.)

40015 Nissan Motor Co., Ltd.

2003

Tingyi (Cayman Islands) Holding Corp.

Foods Instant noodles, snack foods and beverages production 32631 Sanyo Food Co., Ltd.

1999

QINGDAO MITSUMI ELECTRIC CO., LTD.

Electric & electronic equipment

Electric & telecommunications equipment parts production & distribution

10533 Mitsumi Electric Co., Ltd.

1992

TDK Xiamen Co., Ltd. Electric & electronic equipment

Electronics parts production (86.9% of TDK is invested through an affiliate company)

9899 TDK Corp. 1994

ZHUHAI MITSUMI ELECTRIC CO, LTD.


Electric & telecommunications equipment parts production & distribution

9782 Mitsumi Electric Co., Ltd.

1991

Huizhou Zhurun Wiring Systems Co., Ltd.


Automobile & motorcycle wire harnesses production & distribution

9756 Sumitomo Wiring Systems, Ltd.

1995

Tianjin FAW Toyota Motor Co.,Ltd.

Automobile & parts Automobile production (TMCI 10%) 9543 Toyota Motor Corp. 2002

Huanan Yazaki (Shantou) Auto Parts Co., Ltd.


Automobile wire harnesses production 9149 Yazaki Corp. 1990

NEC TOKIN Electronics (Xiamen) Corporation


Electronics parts production & distribution (NEC TOKIN Singapore 17.4%)

8851 NEC TOKIN Corp. 1995

Uniden Electronics Products (Shenzhen) Co., Ltd.


Wireless applications-related equipment production (Uniden Hong Kong, Ltd. 100%)

7736 Uniden Corp. 1993

NIDEC (DONGGUAN) LIMITED


Personal computer peripherals DC motor, fan, precision motor parts production

7222 Nidec Corp. 2002

Yantai Yazaki Automotive Parts Co., Ltd.


Automobile wire harnesses production (YCIC 26.2%, YNA 6.4%)

7013 Yazaki Corp. 2001

Fujinon Tianjin Optical Co., Ltd. Precision equipment Optical equipment production 7000 Fujinon Corp. 1995 Dongguan Huaqiang Sanyo Motor Co. Ltd.


Micro-motors, flexible disk drives, DSC production & distribution

6500 Sanyo Seimitsu Co., Ltd.

1995

Guangzhou Honda Automobile Co., Ltd.

Automobile & parts Automobile production & distribution (HMCI 10%) 6500 Honda Motor Co., Ltd.

1999

Canon Zhuhai, Inc. Precision equipment Camera and business machines production & distribution 6435 Canon Inc. 1990 Shanghai Pioneer Speakers, Co., Ltd.


Loud speakers production & distribution 6008 Tohoku Pioneer Corp.

1993

Minebea Electronics & Hi-Tech Components (Shanghai) Ltd.


Small diameter ball bearing and fan motor production 5931 Minebea Co., Ltd. 1994

Canon Zhongshan Business Machines Co., Ltd.

Precision equipment Laser beam printer production 5866 Canon Inc. 2001

SMK Electronics (Shenzhen) Co.,Ltd.


Connectors production & distribution 5759 SMK Corp. 1996


25

Fig. 6: Major Japanese-affiliated enterprises in India

Local company name Industry Business content Employees Investing company Established Maruti Suzuki Ludia Ltd. Automobile & parts Automobile production & distribution 6776 Suzuki Motor Corp. 1983 Motherson Sumi Systems,Ltd. Holding Corp.


Automobile wire harnesses production & distribution 5945 Sumitomo Wiring Systems, Ltd.

1984

Shriram Pistons & Rings Ltd Machinery Piston ring, piston pin, piston & engine valve production & distribution

4111 Riken Corp 1963

Toyota Kirloskar Motor Pvt.Ltd. Automobile & parts Automobile and auto parts production & distribution 2528 Toyota Motor Corp. 1999 Tata Yazaki Autocomp Ltd. Electric & electronic

equipment Automobile wire harnesses production & distribution 2526 Yazaki Corp. 1999

Kansai Nerolac Paints Ltd. Chemicals & pharmaceuticals

Paint production & distribution 2040 Kansai Paint Co., Ltd.

1920

Yamaha Motor India Pvt.Ltd. Automobile & parts Motorcycle production & distribution 1810 Yamaha Motor Co., Ltd.

1995

Munjal Showa Ltd. Automobile & parts Motorcycle & automobile parts production & distribution 1079 Showa Corp. 1985 Toyo Engineering India Ltd. Building & construction

work Various industrial facilities planning & design and equipment procurement, construction and operational instruction

1647 Toyo Engineering Corp.

1976

Igarashi Motors India Ltd. Automobile & parts Automobile onboard small-sized motor production & distribution

1500 Igarashi Electric Works Ltd.

1993

Ucal Fuel Systems Ltd. Automobile & parts Automobile carburetor & fuel pump production & distribution

1250 Mikuni Corp. 1990

Swaraj Mazda Ltd. Automobile & parts Automobile production & distribution 1135 Sumitomo Corp. 1985 Sumi Motherson Innovative Engineering Ltd.


Automobile wire harnesses connector/parts production & distribution, dies production & distribution

917 Sumitomo Wiring Systems, Ltd.

1997

Yokogawa India Ltd. Electric & electronic equipment

Industrial instruments production & distribution, measuring instruments distribution

912 Yokogawa Electric Corp.

1987

DENSO India Ltd. Automobile & parts Electrical components, electric fan, ventilator, magnet, wiper motor production & distribution

903 Denso Corp. 1985

JNS Instruments Ltd. Automobile & parts Motorcycle/automobile instruments production & distribution

897 Nippon Seiki Co., Ltd.

1998

Rane Brake Linings Ltd. Automobile & parts Brake friction material production 818 Nisshinbo Holdings Inc.

1964

Sona Koyo Steering Systems Ltd. Automobile & parts Automobile steering production & distribution 813 JTEKT Corp. 1984 Napino Auto & Electronics Ltd. Electric & electronic

equipment sales Electrical components distribution 796 Shindengen

Electric Mfg. Co., Ltd.

1991

Accelerated Freeze Drying Co.,Ltd.

Foods Freeze-dried foods production & distribution 790 Nissin Foods Holdings Co., Ltd.

1980


26

Fig. 7: GDP per capita of China and India ($)

0

500

1000

1500

2000

2500

3000

3500

400019

7019

7119

7219

7319

7419

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

09

China India

Source: Created from United Nations Statistics Division Fig. 8: Amount of FDI accepted of China and India (billion dollars)

0

20

40

60

80

100

120

140

160

1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

China India

Source: Created from ADB Key Indicators 2008

27

Fig. 9: Amount of FDI accepted of China by investor country (100 million dollars)

Source: Created from “2008 China Statistical Yearbook” Fig. 10: Changes in contribution to Chinese real GDP growth rate by demand component

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

19791981

19831985

19871989

19911993

19951997

19992001

20032005

2007

Family consumption Govt. consumption Fixed capital formationStock buildup/decrease Net export Real DGP growth rate

Source: Created from “Trade White Book 2008”

28

Fig. 11: Chinese electronics companies as of 2007

Company name Sales (billion dollars.)

Employees (1,000)

China Lenovo Corporation 13.9 25

Huawei Technologies Co. Ltd 16.0 69 Haier Co., Ltd. 15.2 50

Hisense Electric Co. Ltd 6.1* - TCL Corporation 5.4 40

India Tata Consultancy Services 5.7 111

HCL Technologies 5.0 58 Wipro 3.5 70

Infosys Technologies 3.0 100 Satyam Computer services 2.1 52

FORTUNE top IT electronics companies Siemens 106.4 430

Samsung Electronics 106.0 138 Hewlett-Packard 104.3 172

IBM 98.8 355 Hitachi 98.3 390

Panasonic 79.4 328 SONY 77.7 181

Toshiba 67.1 198 Microsoft 51.1 94

Intel 38.3 84 *: Calculated assuming $1 = 8 yuan

Source: Created from various materials

29

Fig. 12: Condition of usage of the Internet and cellphone of China and Japan

0

50

100

150

200

250

300

350

400

450

500

19901992

19941996

19982000

20022004

2006

ChineseInternetpopulation(million)Chinesecellphonesubscribers(million)Japanesecellphonesubscribers(million)JapaneseInternetpopulation(million)Indiancellphonesubscribers

Source: Created from “2007 China Statistical Yearbook”, “2005 Internet White Paper”, and “Information & Communications Statistics Database of the Ministry of Public Management, Home Affairs, Posts and Telecommunications” Fig. 13: Number of automobiles possessed of China and Japan Passenger car possessed

(million units) Passenger car possession

rate (unit/1,000) USA 135.9 463.1 Japan 56.0 438.1 Russia 23.4 163.7 Brazil 16.6 92.8 Indonesia 3.6 16.3 China 10.7 8.3 India 8.6 8.0 Pakistan 0.8 4.9 Nigeria 0.2 1.8 Bangladesh 0.1 0.5

Source: Created from “Automobile market of India & Russia” (Mitsubishi UFJ Research and Consulting)

30

Fig. 14: FDI by India by investor country in 2000-2010 (10 thousand dollars)

Mauritius 49751Singapore 11164USA 8864UK 6123Netherlands 4942Japan 4204Cyprus 4036Germany 2847France 1773UAE 1728

India

Department of industrial policy &promotion, ministryof commerce and industry,India

Source: Created from Manufacturing Today, The Monthly Bulletin of the CII National Industry Council, september 2008 Fig. 15: Automobile market of India

Company name Market share Maruti Suzuki Co. Ltd. 46.5% Tata Motors Limited 14.6% Hyundai Motor Company 13.5% Mahindra & Mahindra Limited 6.5% GM 4.0% Honda Shell Cars 3.7% Toyota Kirloskar Motors Ltd. 2.5% Ford 1.7%

Source: Created from “Nihon Keizai Shimbun (October 15, 2007)”

31

Fig. 16: Global securities market ranking in terms of transaction volume

2002 2003 2004 2005 2006Nasdaq 1 1 1 2 1New York 2 2 2 1 2NSE 3 3 3 3 3Shanghai 5 4 4 6 4BSE 7 5 5 5 6Korea 4 7 6 4 5Taiwan 6 6 7 8 8Shenzhen 8 8 8 7 7Deutsche Borse 9 9 9 9 9London/Euronet 12 11 10 10 10

Source: Esho (2008)

32

Fig. 17: Comparison of cost in major cities in Asia

Item Chennai (India) New Delhi (India) Bangalore (India) Mumbai (India)Singapore

(Singapore)Bangkok(Thailand)

Hanoi (Vietnam)Ho Chi Minh(Vietnam)

Seoul (Korea)Guangzhou

(China)Shanghai (China) Dalian (China) Beijing (China)

US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollar US dollarWage Factory Worker (Monthly) 166.8 196.2 208.4 155.4 966.9 230.6 104 99.7 1,219.50 227.4 302.2 215.3 379.1

Engineer (Mid-levelengineer,Monthly)

356.9 462.9 539.4 336.7 1,997.30 540.2 287.1 293.3 1,675.20 508.8 633.2 419.5 700.7

Mid-level executive (Sectionalchief level, Monthly)

790.8 1,116.10 1,144.40 833.4 3,357.00 1,341.50 822.3 669.3 2,436.60 985.2 1,100.40 763.3 1,199.20

97/mth.86.65/mth.

～95.94/mth.80.0/mth.

3.77/day. ～3.94/day.

なし 6.27/day. 74.7/mth. 74.7/mth.3.65/時

29.23/day.（8時間）

125.97/mth. 140.6/mth.102.53/mth. ～

87.89/mth.117.2/mth.

輸送1,011.2

～3,446.3

1,950.68 ～4,950.68

1,736.9 ～4,104.2

100 ～1,800

650 ～1,500

1,081.36～2534.19

970～3,370750

～2,190 400～1,200 650～2,025 565～2,150

110.00 ～1,950.02

100～3,200

1.1 0.98 1.1 1.07 1.2869～1.3301 1.1 0.914 0.914 1.66 0.89～1.039 0.97 0.9 0.980.8 0.72 0.8 0.81 0.9456 0.87 0.828 0.828 1.47 0.93 0.95 0.98 0.97

為替 $1＝45.62Rupee $1＝45.62Rupee $1＝45.62Rupee $1=45.62Rupee$1＝

1.3886Singaporedollar

$1＝32.874baht $1＝17,941dong $1＝17,941dong$1＝

1,125.00won$1＝6.8271yuan $1＝6.8271yuan $1＝6.8271yuan $1＝6.8271yuan

税制 30% 30% 30% 30% 17% 30% 25% 25% 10%～22% 25% 25% 25% 25%30％ 30％ 30％ 30％ 20％ 37％ 35％ 35％

35%45％ 45％ 45％ 45％

12.5％（VAT）（standard

tax rate）


tax rate）


tax rate）


tax rate）

7％（standard tax

rate）

7％（standard tax

rate）0％、5％、10％ 0％、5％、10％

10％（VAT）（standard

tax rate）


tax rate）


tax rate）


tax rate）


tax rate）Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010 Jan. 2010

Individual income tax (%)

Added-value tax(％)

Date of research

Legal minimum wage

Container transport (40ft container)

Regular gasoline price (per liter)Diesel fuel (per liter)

Local currency-dollar rate (per dollar)

Corporate income tax (%)

Source: JETRO

33

Fig. 18: China’s families composition ratio by income

China’s families composition ratio by income

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1995 2005

High-income class(200,001RMB-)

Upper middle-incomeclass (100,001-200,000RMB)Middle middle-incomeclass (40,001-100,000RMB)Lower middle-incomeclass (25,001-40,000RMB)Low-income class (- 25,000RMB)

Source: Created from “The value of China’s emerging middle class”, The McKinsey Quarterly, 2006 Special Edition Fig. 19: India’s families composition ratio by income

India’s families composition ratio by income

0%10%20%30%40%50%60%70%80%90%

100%

1985 1995 2001

High-income class(180,001 Rupee-)

Upper middle-incomeclass (135,001-180,000 Rupee)

Middle middle-income class (90,001-135,000 Rupee)

Lower middle-incomeclass (45,001-90,000Rupee)

Low-income class (- 45,000 Rupee)

Source: Created from “2007 White Paper on International Trade”

34

Fig. 20: Competitiveness index JPN CHN IND Real economy sector

Domestic economy (GDP, consumption, investment, saving)

7 2 12

Trade (International trade balance)

39 4 31

International investment (Domestic/foreign direct investment, securities investment)

32 23 19

Employment (Employment, unemployment rate)

18 1 13

Commodity price (CPI, rent)

46 35 33

Government sector Public financing (Public sector debt, foreign currency reserves etc.)

53 1 31

Financial policy (Tax rate etc.)

28 23 9

Institutional system (Monetary policy, transparency of public sector)

21 14 28

Legal system (Regulations etc.)

24 35 32

Social system (Justice, political risk, income disparity etc.)

51 33 44

Business sector Productivity, efficiency 31 10 33 Labor market (Wage level, worker quantity & quality etc.)

19 9 5

Finance (Efficiency of bank/stock market)

15 39 23

Management practices (Corporate governance)

28 50 29

Directionality (Nationality, need for structural reform)

30 35 11

Infrastructure sector Basic infrastructure (Country area, population, roads, railroads)

18 16 40

Technology (Investment in IT etc.)

16 32 41

Science (R&D expenses etc.) 2 10 29 Welfare/environment 9 49 51 Education 22 42 54 General 22 17 29

Source: Created from “World Competitiveness Yearbook 2008”, IMD.

35

Attached table: Major events in political and economic aspects in China and India

India Year China Bombay Stock Exchange (Mumbai Stock Exchange) 1875 Became independent 1947 1949 National foundation 1959 15 million starved to death 1966 Start of Great Cultural Revolution 1976 End of Great Cultural Revolution 1978 Economic liberalization, active invitation of foreign direct

investment 1979 Start of the “one-child policy”

Deregulation policy centering on automobile industry 1980 Decided establishment of special economic zones (Shenzhen, Zhuhai, Shangtou, Xiamen) First financial reform Start of “generation production contract system”

1981 1982 Start of agricultural reform (Introduction of farm management

contract system) Modernization and deregulation in the consumer electronic equipment and software sectors 1984

1985 Opened up major coastal cities to foreign capitals and constructed economic and technical development zones

1986 Introduction of contract management system aiming at separation of possession and management of state enterprises

1989 Tiananmen Square incident 1990 Establishment of Shanghai Stock Exchange Economic reconstruction, deregulation to foreign investment Step-by-step abolition of import license and reduction of custom tariff Deregulation of inflow of foreign capital

1991

Liberalization of foreign exchange transaction Institutional reform of commercial banks Deregulation of interest rate Establishment of NSE (National stock exchange of India)

1992 Nanxun Jianghua by Deng Xiaoping led to economic reform and liberalization and economic growth acceleration policy Determination of the policy of “Socialist market economy”

Approved transaction of stock of listed companies to foreign institutional investors Abolished double exchange rate

1993 Start of turning state enterprises into stock corporations

Established National Stock Exchange (NSE) 1994

Secondary financial reform Implementation of foreign exchange system reform (reduction of official rate of yuan by 50%, shift to free-floating exchange rate system) Favorable balance of payment to become constant

Joined WTO 1995 Enforcement of Commercial Bank Law

Complete deregulation of interest rate, disposition of bad loans of banks 1997

Start of transaction of yuan by foreign banks (limited to Pudong area in Shanghai) Jul. Reversion of Hong Kong Sept. Full-blown introduction of stock system of state enterprises Oct. Custom tariff reduction (23%-17% on average for 4800 items)

Start of liberalization of foreign investment in securities 1999

Mar. Officially recognize private enterprises Nov. Decided development of the west Dec. Reversion of Macau

Active invitation of domestic direct investment Approval of more than half possession of stock by foreign capital in all fields except for bank, insurance, telecommunication and civil aviation. Approval of 100% possession by foreign capital in most business sectors

2000

2001 Mar. 2008 Beijing Olympic decided Dec. Joined WTO

2003 Began allowing foreign institutional investors to trade stocks of listed enterprises

Establishment of special economic zones. Approval of real estate development by 100% foreign capitals. Raised upper limit of foreign investment up to 74% in banking and telecommunications sectors. Significant simplification of foreign investment approval procedures.

2005

2006 Start of deregulation of foreign investment in stocks

Source: Created from various materials

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