China 1992, India 2012

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Above: Shanghai c. 1990, Below: Mumbai c. 2008

The development similarities are striking, says Chris Devonshire-Ellis

Op/Ed Commentary: Chris Devonshire-Ellis

Jan. 31 – A little over 20 years ago, I was sitting in the offices of Asia Law & Practice in Hong Kong, with their managing director at the time who said, “Don’t go to China, Chris. It’s dirty, communist, nothing works and they’ll rip you off.”

Perhaps foolishly, I didn’t listen to that advice, resigning my position (I’d been working on a book called “The Life and Death of a Joint Venture in Shanghai”) and decamping to Shenzhen to start what was then a very embryonic Dezan Shira & Associates. The MD’s words of advice have stayed with me ever since, not because they were wrong – in fact he was fairly accurate – but because they totally discounted the point that China wouldn’t remain in that anti-commercial state of existence for very long.

As we fast forward 20 years, where we can now order bottles of vintage Margaux in Jean Georges (a Michelin-starred restaurant in Shanghai), conduct billion dollar acquisitions, and see the bulk of global profits emanate from China, it is easy to forget just how far China has come.

As I was warned, it wasn’t always like that. China in 1992 was dirty – partly because the first rash of construction had begun, meaning dust everywhere – and sanitary conditions were far from perfect. A wry phrase in Hong Kong at the time illustrated this: “How do you tell if your dinner guest comes from the mainland?” it half-jokingly suggested; “He sterilizes his chopsticks in hot tea before eating.”

The infrastructure was also poor, often a point lost among today’s young bright things as they marvel at hotels with restaurants on the 100th floor and drive around in a Mercedes Coupe. In 1992, a drive to Beijing Airport meant dodging donkeys and carts on the highway, minimal road lighting at night, and only hot water and dry noodles in the departure lounge. Today, China buys the latest double-decker Airbus A380s and operates out of a Norman Foster designed architectural palace. Meanwhile, back in Shanghai, the city was closed by 9 p.m. and I couldn’t always be guaranteed a seat in a restaurant. “You can’t come in,” said one angry matriarch of a local joint on Nanjing Lu, “You’re a Western Capitalist!”

Such anecdotes are fun to relate as they remind us of where China has come from. Yet they are also of increasing relevance when looking back to see what lies ahead for India. I began our firm’s India adventures six years ago, sometime before the Global Financial Crisis, and the same attitudes prevailed. “It’s dirty, poor and nothing works!” (Not many mentioned the political system, apart to say that Indian democracy was messed up when compared to China’s one-party do-what-it -wants-to state).

Of course, they too were completely right, at least in their perceptions. Parts (but not all) of India are very poor. Much of it is dirty, at least in the sense that Westernized economies regard filth. And much of the infrastructure is degenerate. Just four years ago, waiting for my luggage at the carousel at Bombay International Airport, a huge brick crashed through the ceiling and hit the floor just a yard away from where I was standing (no doubt certain competitors would rather it had been more accurate in aim). The main airport roads were potholed tarmac Emmantal, with – I recognized them immediately – the same donkeys and carts I’d seen at fast trot along the Beijing expressway all those years before. I felt curiously at home.

However, as we learned from China, such periods in massive, emerging economies do not last long. Nor will it in India, whose democratic population is getting anxious about why their country has been slipping behind China in terms of quality and service. An Indian politician who promises (and delivers) new and improved infrastructure projects will get re-elected, while those that paff and talk about exploitation of the poor – puffing away on a cheroot while patting their belly knowledgeably as many once did – will not.

The changes are already happening. The airport terminal I nearly got decapitated in is now a world class operation – I even prefer it to Beijing (Capital Airport is just too big for comfort). The airport expressways are now toll roads – therefore keeping off the livestock and carts – and bridges are now built across ocean bays, linking areas of Bombay (its name means “eight bays”) instead of having to drive around the coast. The Bandra-Worli Sealink is a contemporary equivalent to the Shanghai-Ningbo Bridge – both cutting hours off what used to be three-four hour journeys.

China also taught us not to worry too much about political systems within commerce – as long as they work, are business-friendly, and are sustainable. The world has long learned to live with, if not love, a single-party state in China, and India’s politicians are now also starting to deliver in that most chaotic of democracies.

A flurry of recent developments have showcased India’s determination to move ahead, ranging from the complete removal of investment barriers to single brand retailers to the recent Supreme Court ruling in Vodafone’s favor over a tax dispute. India has even moved ahead of China by permitting, for the first time, foreign individual purchases of Indian stocks – something still off limits to foreigners wanting to acquire Chinese stocks in Shanghai or Shenzhen. All are landmark developments, and all bode well for the sustainability of India as a top grade investment destination.

The timing too is pertinent, even to the point of potentially having been carefully stage-managed. Conveniently, just as China’s gigantic workforce dividend begins to wane (the average age of a Chinese worker is now 35), India’s population dividend among its workforce (average age 23) is stepping into the breach. Cheap labor is now a benefit that belongs to India, and it’s an important demographic shift. But the benefit does not just relate to labor costs. One aspect of the economic picture of India in 2012 that China did not possess in 1992 is the wealth of the middle class. China has grown its middle class, essentially from grassroots academia over the past 20 years, whereas India has long possessed old money. That immediately kick-starts consumer potential in India that did not exist in China to begin with. Coincidentally, as of today both have about the same levels of middle class citizens – a reasonable figure would put them both at about 250 million able to spend on overseas education and holidays, and locally sourced luxury goods. This means that while China had to concentrate solely upon export-driven manufacturing to develop its policy of reform, today’s India can provide both cheap manufacturing solutions as well as a burgeoning consumer market. Arguably, India’s may be easier to reach than China’s – being more concentrated in specific cities, less prone to language and cultural sensitivities, and far less protected from the might of state-owned enterprises – which in China remain both a curse and a blessing in terms of being highly profitable, but at the cost of market force determinants. India, quite simply, is ready to buy and to produce for export.

Much, of course, has been said about India when compared with China over the years, not least by our own media outlets, as our firm has been banging the China-India drum due to our own investments there for some time. It’s entirely possible in fact that I gave the very first Indian Investment Seminar in China back in 2006 with the then-Indian Ambassador to China, Madame Nirupama Rao (she subsequently moved on to become the Indian Foreign Secretary, and is now the Indian Ambassador to the United States).

Clearly, we’ve been in the China-India market for some time, and our practice has developed there. Rather like China in 1992, it’s not always been smooth, but it is the job of the consultant to have experience – often from mistakes made in-country (one reason to avoid out-of-country consultants and law firms) in order to pass that wisdom onto others that they may avoid the same mistakes. But with both markets, the single factor uniting them is the certainty of development. The recent signals from India in liberalizing foreign investment laws, doing away with burdensome taxes, and making the investment environment easier is exactly what China began doing in 1992.

Ernst & Young have recognized this of India today as well. At the Davos World Economic Forum this past weekend, they produced a 252-page investment summary of why it is good for MNCs to be in India right now. E&Y’s report and our comments on it can be found here, and to cite the experiences of several hundred CEOs, many stated they were “very confident” of revenue growth from India within the next 12 months. They should be – India’s GDP growth reached 7.7 percent last year, and is expected to top 8 percent in 2012. An increasingly liberal, tax-friendly environment makes the country if not a successor to China, then definitely an equally important partner for achieving growth and profits in MNC bottom lines; especially when compared to the meager pickings on offer in North America and Europe.

Indeed, the situation for multinational investors has come full circle. Just as those who entered the China market 20 years ago found difficulties and problems, they also found profits and opportunities.

India offers much of the same, and investors able to look beyond perennial issues such as a lack of transparency and poor infrastructure in their search for growth should be able to add value to their global operations by investing now in India. Like China, India’s time has come, and global corporate strategies should declare them mutually inclusive.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates. The firm was established in 1992 and provides foreign direct investment corporate establishment, legal and regulatory advice, tax planning, due diligence and business advisory services throughout China and India. Please visit the practice at, download the firm’s brochure, or email for enquiries concerning the India market.

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