2008年10月3日 星期五

Capitalism with Chinese Characteristics: Entrepreneurship and the State

From The Economist

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An excerpt from Mr Huang's book is available from Cambridge University Press.

Book details

Capitalism with Chinese Characteristics: Entrepreneurship and the State
By Yasheng Huang

Cambridge University Press; 368 pages; $30 and £15.99

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Chinese capitalism

The long march backwards

Oct 2nd 2008
From The Economist print edition

A surprising new book argues that China is becoming less, not more, of a capitalist economy


MOST people, particularly those living outside China, assume that the country’s phenomenal growth and increasing global heft are based on a steady, if not always smooth, transition to capitalism. Thirty years of reforms have freed the economy and it can be only a matter of time until the politics follows.

This gradualist view is wrong, according to an important new book by Yasheng Huang, a professor at Massachusetts Institute of Technology. Original research on China is rare, largely because statistics, though plentiful, are notoriously unreliable. Mr Huang has gone far beyond the superficial data on gross domestic product (GDP) and foreign direct investment that satisfy most researchers. Instead, he has unearthed thousands of long-forgotten pages of memoranda and policy documents issued by bank chairmen, businessmen and state officials. In the process he has discovered two Chinas: one, from not so long ago, vibrant, entrepreneurial and rural; the other, today’s China, urban and controlled by the state.

In the 1980s rural China was in the ascendancy. Peasants, far from being tied to the land, as has been assumed, were free to set up manufacturing, distribution and service businesses and these were allowed to retain profits, pay dividends, issue share capital and even a form of stock option. State banks rushed to provide the finance. Nian Guangjiu, a farmer from impoverished Anhui province, built up a business selling sunflower seeds (a popular snack), employed over 100 people and made a million yuan (nearly $300,000) in profit in 1986—just a decade after Mao’s death. Because most of this activity was set up under the misleading label of “Township and Village Enterprises”, Western academics largely failed to spot that these ostensibly collective businesses were, in fact, private.

But then, in 1989, came the Tiananmen Square protests. A generation of policymakers who had grown up in the countryside, led by Zhao Ziyang, were swept away by city boys, notably the president, Jiang Zemin, and Zhu Rongji, his premier. Both men hailed from Shanghai and it was the “Shanghai model” that dominated the 1990s: rapid urban development that favoured massive state-owned enterprises and big foreign multinational companies. The countryside suffered. Indigenous entrepreneurs were starved of funds and strangled with red tape. Like many small, private businessmen, Mr Nian was arrested and his firm shut down.

True, China’s cities sprouted gleaming skyscrapers, foreign investment exploded and GDP continued to grow. But it was at a huge cost. As the state reversed course, taxing the countryside to finance urban development, growth in average household income and poverty eradication slowed while income differences and social tensions widened. Rural schools and hospitals were closed, with the result that between 2000 and 2005 the number of illiterate adults increased by 30m. According to Mr Huang, the worst weaknesses of China’s state-led capitalism—a reliance on creaking state companies rather than more efficient private ones, a weak financial sector, pollution and rampant corruption—are increasingly distorting the economy.

But what about the growing cohort of Chinese companies starting to strut the world stage? Surely that is evidence of a healthy and expanding private economy. Mr Huang’s evidence shows that, on closer inspection, these firms are either not really Chinese or not really private. Lenovo, a computer group, has succeeded because it was controlled, financed and run not from mainland China but from Hong Kong (a happy legacy of the founder’s family connections there—not something enjoyed by most Chinese businessmen). The subsidiaries of Haier, a white-goods maker, were also put out of reach of mainland bureaucrats early on. Wahaha, a food producer, Galanz, a maker of microwave ovens, and many others all depended on foreign protection and capital to grow and escape state strictures.

Indeed one of the main, and underappreciated, functions of foreign investment in China has been to play venture capitalist to domestic entrepreneurs. As for Huawei, a telecoms group and one of China’s much vaunted “global” companies, its structure and links to the state are so convoluted that the most diligent China-watchers have little idea if it is a private or state firm. They do, however, agree that Huawei’s opacity is a microcosm of China’s distorted economy.

Could China genuinely embrace entrepreneurial capitalism again, as it did in the 1980s? Its current leaders under President Hu Jintao, who cut his teeth in Guizhou and Tibet, two of the poorest and most rural provinces, talk about supporting the countryside and reducing social inequality. But nothing much has been done. China’s deep problems demand institutional and political reform. Sadly, as Beijing’s heavy-handed control of the Olympics suggests, there is scant hope of that.



译自2003年7/8月号美国《外交政策》(Foreign Policy)
作者:黄亚声(yasheng Huang) 塔伦-卡纳(Tarun Khanna)
校者:张丽霞 (西雅图)



作者前言:促进经济发展的最快途径是什么呢?中国说:直接引进外资。大部分政策专家对此表示赞同。但与经济长期发展缓慢的印度相比较则说明,直接引进外资 并非繁荣的唯一途径。事实上,印度的民族企业家可能给这个国家带来长久的优势,而中国却被低效的银行和资金市场所挚肘。


走进沃尔玛超市,你就会发现琳琅满目的架子上压满了中国制造的商品,包括从鞋子、服装、玩具到电子产品的各种物品,这丝毫不令人惊奇。然而,随处可见的" 中国制造"标签却掩盖了这样重要一点:这些产品中极少是由中国本土公司制造的。事实上,几乎没有一家中国本土公司能够拥有全球性经营规模和市场,这一点未 免使人沮丧。


印度没能像中国那样大量引进外资。一方面,这一差异反映了国际投资者对中国前途的信心和对印度自由市场改承诺的怀疑。然而外资引进的差异也在叙述着两个拥 有大量海外侨民国家不同的故事。中国有大批富有的海外华侨,长期以来他们渴望能帮助祖国,他们的资金也受到热烈欢迎。形成鲜明对比的是,至少至今,印度海 外侨民的成功仍遭到憎恨,他们更不愿意回国投资。新德里对于海外印度人及其他外国投资持否定态度,相反,它给国内企业家提供了更加优厚的成长环境。

在此过程中,印度成功地发展了一批现在能与欧洲及美国最强的公司竞争的企业。此外,许多这种企业都属于尖端、知识密集型产业,比如软件业巨头 Infosys、Wipro,药业和生物技术方面的ranbaxy和雷得博士实验室等。去年,在福布斯世界小型企业200佳排行榜(每年评选一次)中, 13家印度公司榜上有名,而中国大陆却只有4家。


中国和印度都是世界的未来强国。它们同样提供了相抗争的发展模式。无疑,中国目前处于快速发展的轨道上,经济发展的数据可以证明这一点。"印度式的发展速 度"--带有轻蔑意味的词语,用来指印度无力使自己的经济增长速度赶上人口增长速度--虽然有可能成为过去,但就国内生产总值和其他一些重要数字而言,印 度仍然无法与中国相媲美。

然而,统计数据只能说明部分事实,即宏观经济事实。在微观经济层面上,事情就并非如此了,印度同中国一样具有活力。事实上,由于依靠自然增长 (organic growth,即不借助于外力的增长--译者注),印度更能充分利用其资源,与中国的外资驱动型途径相比,它已选择了一条可能是更为持续发展的路子。"印 度能否超越中国"不再是一个可笑的问题。如果事实证明印度下的赌注更为明智的说,对于中国未来的发展及决策专家如何从整体上认识经济发展而言,其意义将是 重大的。


印度的建设走的是自下而上的路子,而中国却采用自上而下的方式,这反映了两国不同的政治体制:前者是民主制国家,而中国却不是。然而,不同的策略也是不同 的历史造就的。中国共产党自1949年执政后,曾致力于消除私有经济,而且也迅速地做到了这一点。虽然中国进行自由市场改革已近30年,人们还在费力地处 理着那一时期的遗产,中国最近围绕允许资本家正式加入共产党的决定所引发的争论就证明了这一点。

另一方面,印度却在发展软牌(softer brand)社会主义,即费边社会主义,其目标不是消灭资本主义,而是缓解其所造成的社会弊端。其观点认为,政府资助的企业在经济中占居"制高点" (commanding heights)是至关重要的,"制高点"一词最初是由俄国革命家弗拉基米尔-列宁(Vladimir Lenin)提出的,不过印度第一任总理贾瓦哈拉尔-尼赫鲁((Jawaharlal Nehru))将其普及化。尽管如此,这一政策并不阻止私有制经济在国家长长的手臂伸不到的领域中蓬勃发展。

从微观经济的角度来看,中国的经济发展显示出其在历史和意识形态方面的不同。中国大刀阔斧地实行了对外开放的政策,却对本土私有企业施加了很多法律、法规 上的限制。实际上,仅仅在四年前私有企业才得到了那些外资企业在20世纪80年代初就得到的宪法保护。直到20世纪90年代末,国际金融公司 (International Finance Corporation)的研究显示,仍有20多个行业是不对私有企业开放的,包括银行、电信、公路和铁路等这些最重要和最挣钱的部门。


相反,政府竭尽全力地设法使国有企业免于竞争。20世纪90年代,很多中国企业家徒劳地试着绕过法规对经营范围的限制。有一些人把他们的企业注册成名义上 的国有企业(所有资金均来自私人,而企业亦由私人管理),结果当财政紧张的政府部门试图没收这些财产时,这些人只能陷入所有权纠纷当中。不少很有前途的企 业因此毁于一旦。

对私有企业的偏见是众所周知的。2000年,中国社科院发布的一份报告说:"由于长期存在的偏见和误解,私有和个体企业拥有很低的政治地位,并受到众多政 策、法规的歧视。法制、政策和市场环境对私有企业不仅不公平,而且前后不一,朝令夕改。"

由于对本地私有企业的限制政策,外国投资者成为最大受益者之一。在中国惊人发展的背后,外国投资者赚取了巨额收益,一个指标就是:1992年,外资在华股 份的收益为53亿美元,到今天,这个数字是200亿美元。(这些利润并一定会离开中国,而常常会用于对中国的再投资。)


在民主、后殖民地时代的印度,让外资在牺牲本地企业的基础上赚取巨额利润是根本不可能的。例如,回想一下10年前安然公司(Enron Corporation)计划在马哈拉施特拉邦(Maharashtra,位于印度东西部)投资29亿美元建发电厂所引发的广泛争论吧。针对外资及其在印 度经济发展中所处的地位进行了几年激烈辩论后,此工程才得以实施。

与中国对本土企业家设置障碍相反,印度为本土企业提供了很多便利。在过去10年中,印度政府逐步放弃对经济的微观管理。不错,私有化进程慢如冰山的移动步 伐,但是政府已不再垄断长途电话服务,关税也得以削减,官僚机构有所削减,一些行业已开始对私人和外资开放。

结果是,创业精神和自由企业正在蓬勃发展。其发展的衡量标准之一是:在最近《远东经济评论》(Far Eastern Economic Review)对亚洲主要企业的调查中,印度位居榜首,其平均得分高于这个地区包括中国在内的任何一个国家。(此调查对十几个国家的2500名经营主管人 员和专家进行问卷询问;被调查者对各公司的综合表现在1至7间评分)事实上,只有2家中国公司能与印度的前10名匹敌。很说明问题的是,所有印度公司都是 私有公司,而大多数中国公司都有政府相当程度的参与。

一些排名靠前的印度公司是名副其实的新兴企业(start-ups),特别引人注目的是信息系统技术公司(Infosys),在本次调查中位居榜首。也有 一些是传统企业的分公司,如Sundaram汽车公司,这是一家著名的汽车零件制造厂、通用汽车公司的主要供应商;其母公司T.V. Sundaram集团,是南部印度具有百年历史的的商业集团。

在印度,不光创业精神得到了发展,企业家也已成为民族英雄。尼赫鲁如果在世,一定会对公众对行业领袖毫不吝啬的恭维感到震惊。比如,信息系统技术公司的创 始人、56岁的纳拉亚那-穆尔蒂(Narayana Murthy),已成为受人崇拜的人物,并被常常与微软的比尔-盖茨相比。

如果印度没有必要的基础设施来支持穆尔蒂和未来的大亨,这些成功的故事不可能成为现实。但是民主制度、创业传统和良好的司法系统为自由企业的发展提供了必 要的基础。虽然印度法院的效率出奇地低下,但这个独立的司法系统至少还能运转。产权未能得到彻底的保障,但印度对私有财产的保护要比中国强得多。法治这个 英国统治的遗产在这个国家盛行。

事实已证明,这些传统和制度已成为印度资本市场形成和发展的跳板。虽然信息扭曲仍普遍存在,但有良好前景和声誉的企业一般都能从股票市场和债券市场筹集到 发展所需的资金。世界银行去年出版的一份报告说,在调查的所有印度公司中,只有52%报告说融资有困难,而在所调查的中国企业中相应的数字为80%。结果 是,印度企业较少依靠自身的资本积累:只有27%的资金来自经营利润,而在中国这个数字是57%。

公司管理水平也显著提高,这在很大程度上要归功于穆尔蒂,他的信息系统技术公司是诚实财会制度的模范,并为其他公司树立了榜样。里昂证券亚洲公司 (Credit Lyonnais Securities Asia )于2000年对25个新兴市场的调查中,印度在公司管理方面排名第6,中国名列19。投资者阶层的出现,以及以发展银行为代表的资金供应方日益以市场为 导向,这些都提高了印度市场的效率和信用。现在印度政府除实行宏观管理外,对私人企业的干涉已大大减少。

形成对比的是,在中国,政府官员监督着企业的一举一动(doorkeeper),紧紧控制着资本的流动,严格限制私有企业的上市条件以及其他筹措发展资金 的融资手段。事实上,中国政府利用金融市场主要是为了使国有企业能生存下去。这些金融政策严重地扭曲了市场运作,从而阻碍了中国市场的发展和成熟。(一般 认为中国股市的总市值为4000多亿美元,但如果扣除不上市交易的政府和国有企业持有的国有股,就只剩1500亿美元左右。)中国企业低下的管理水平和不 独立的司法系统更加重了这一问题。


如果印度在基础层面已明显超过了中国,为什么统计数据显示不出印度的优越性呢?为什么印度在国民生产总值和其他基本指标上与中国的差距如此之大呢?值得注 意的是,印度是从1991年才开始坚定不移地进行经济改革的,而这则是中国改革10多年后的事了。除了起步较晚之外,印度的储蓄率只有中国的一半,外国直 接投资仅相当于中国的1/10。还有,种族和宗教问题使印度这个随意发展、一团混乱的民主国家四分五裂,印度还与巴基斯坦在克什米尔地区长期存在着激烈的 领土纠纷。相反,除天安门事件外,中国在过去20多年享受着相对稳定的和平环境,这使它能够集中精力发展经济。

印度的年经济增长率只比中国低20%左右,这已是很了不起的成就。而且,中国的数据是否准确仍是一个问题。印度能以这样的速度紧随中国,是因为其资金分配 的高效和中国资金利用的低效,后者把所有的钱都浪费在国有企业上就是明证。中国资源配置不当的问题很有可能会在未来几年极大地拖累其经济发展。

20世纪90年代初,当中国经济以两位数增长时,中国政府对国有企业大量投资。很多这样的投资在经济上并不可行,结果造成了银行系统的巨额坏账--其总体 规模可能高达银行总资产的50%。总有一天,这些不良贷款要被消化掉,要麽从账面上钩销(这意味着由储户承担损失),要麽由政府对银行进行资本重组,将资 本从其他运用效益好的部门划拨过来。这将会大大限制中国未来的发展前景。

印度的银行虽不是什么执行放贷纪律的楷模,但它们的坏账远远没有达到这种规模。根据管理咨询企业安永国际会计公司(Ernst & Young)最近的研究,截至2001年,印度银行的坏账大约占其总资产的15%。所以说,印度经济的基础更为牢固。

当然,关键问题不是今天的中国和印度位于何处,而是两国明天的位置。这在很大程度上取决于双方对其资源的利用情况。在这方面,印度处于领先地位。印度的发 展之路是不是优于中国?很多年以后我们才能知道答案。但从现有的证据来看,印度采用的自下而上的政策或许更明智一些。具有讽刺意味的是,佐证恰恰来自中国 自己内部。

比较江苏和浙江的发展战略,这两个沿海省份的经济发展水平在改革初期大体相当。江苏依靠外资促进其发展,而浙江更看重当地的企业家和自然发展。在过去20 年中,浙江的年经济增长率比江苏要高1%。20年前,浙江相对江苏来说要穷一些;而现在,它无疑要比后者富裕 。

印度不久可能比这两种模式都要好:与现在已吸纳的外资相比,看起来它对在未来几年吸引更多的外资充满了信心。虽然印度几十年来一直拒绝侨民资本,而现在新 德里开始欢迎这些投资。在一些圈子里,NRI--"印度侨民"的缩写--过去被开玩笑地解释为"不需要的印度人"(not required Indians)。现在,这个词已恢复了其原意。今年年初,印度政府还举行了海外侨民大会,邀请了一些著名印侨,这足以证明了其对侨民态度的变化。

中国在吸引外资上的成功是由历史原因的,它拥有大量富有的华侨。在20世纪90年代,超过一半的外资来自海外华人。这些投资起码导致了这样一个未曾意料的 后果:当上亿美元的资金从香港、澳门和台湾涌来时,这些资金无意中帮助了中国政府推后了其政治上困难重重的内部改革。比方说,正因为海外投资者一直能够从 亏损的国有企业获得收益,中国政府才能拖延国有企业私有化进程。


印度侨民在知识密集型行业的成就众所周知,硅谷就是一个再好不过的例子。现在,印度的光明前景和对出国人员态度的转变吸引着许多海外工程人员和科学家回国 发展,而众多的印侨企业家则为之慷慨解囊。在华侨的帮助下,中国赢得了竞争,成为了世界工厂;在印侨的帮助下,印度可以成为世界的实验室。

中国和印度选择了截然不同的发展之路。总体上来说,印度并没有超越过中国,但在一些关键领域,它做得更好一些。这些优势有可能使印度赶上甚至超过中国。如 果真是这样的话,这将不光证明本土企业对经济长期发展的重要性,也将说明中国依赖外资实现经济发展的局限性。

注;黄亚声(yasheng Huang),麻省理工学院 斯隆(Sloan)商学院的副教授;塔伦-卡纳(Tarun Khanna) ,哈佛商学院教授。


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What's the fastest route to economic development? Welcome foreign direct investment (FDI), says China, and most policy experts agree. But a comparison with long-time laggard India suggests that FDI is not the only path to prosperity. Indeed, India's homegrown entrepreneurs may give it a long-term advantage over a China hamstrung by inefficient banks and capital markets.

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By Yasheng Huang and Tarun Khanna

Home Improvement: An Indian Tale

Walk into any Wal-Mart and you won't be surprised to see the shelves sagging with Chinese-made goods-everything from shoes and garments to toys and electronics. But the ubiquitous "Made in China" label obscures an important point: Few of these products are made by indigenous Chinese companies. In fact, you would be hard-pressed to find a single homegrown Chinese firm that operates on a global scale and markets its own products abroad.

That is because China's export-led manufacturing boom is largely a creation of foreign direct investment (FDI), which effectively serves as a substitute for domestic entrepreneurship. During the last 20 years, the Chinese economy has taken off, but few local firms have followed, leaving the country's private sector with no world-class companies to rival the big multinationals.

India has not attracted anywhere near the amount of FDI that China has. In part, this disparity reflects the confidence international investors have in China's prospects and their skepticism about India's commitment to free-market reforms. But the FDI gap is also a tale of two diasporas. China has a large and wealthy diaspora that has long been eager to help the motherland, and its money has been warmly received. By contrast, the Indian diaspora was, at least until recently, resented for its success and much less willing to invest back home. New Delhi took a dim view of Indians who had gone abroad, and of foreign investment generally, and instead provided a more nurturing environment for domestic entrepreneurs.

In the process, India has managed to spawn a number of companies that now compete internationally with the best that Europe and the United States have to offer. Moreover, many of these firms are in the most cutting-edge, knowledge-based industries-software giants Infosys and Wipro and pharmaceutical and biotechnology powerhouses Ranbaxy and Dr. Reddy's Labs, to name just a few. Last year, the Forbes 200, an annual ranking of the world's best small companies, included 13 Indian firms but just four from mainland China.

India has also developed much stronger infrastructure to support private enterprise. Its capital markets operate with greater efficiency and transparency than do China's. Its legal system, while not without substantial flaws, is considerably more advanced.

China and India are the world's next major powers. They also offer competing models of development. It has long been an article of faith that China is on the faster track, and the economic data bear this out. The "Hindu rate of growth"-a pejorative phrase referring to India's inability to match its economic growth with its population growth-may be a thing of the past, but when it comes to gross domestic product (GDP) figures and other headline numbers, India is still no match for China.

However, the statistics tell only part of the story-the macroeconomic story. At the micro level, things look quite different. There, India displays every bit as much dynamism as China. Indeed, by relying primarily on organic growth, India is making fuller use of its resources and has chosen a path that may well deliver more sustainable progress than China's FDI-driven approach. "Can India surpass China?" is no longer a silly question, and, if it turns out that India has indeed made the wiser bet, the implications-for China's future growth and for how policy experts think about economic development generally-could be enormous.

The Stifling State

The fact that India is increasingly building from the ground up while China is still pursuing a top-down approach reflects their contrasting political systems: India is a democracy, and China is not. But the different strategies are also a function of history. China's Communist Party came to power in 1949 intent on eradicating private ownership, which it quickly did. Although the country is now in its third decade of free-market reforms, it continues to struggle with the legacy of that period-witness the controversy surrounding the recent decision to officially allow capitalists to join the Communist Party.

India, on the other hand, developed a softer brand of socialism, Fabian socialism, which aimed not to destroy capitalism but merely to mitigate the social ills it caused. It was considered essential that the public sector occupy the economy's "commanding heights," to use a phrase coined by Russian revolutionary Vladimir Lenin but popularized by India's first prime minister, Jawaharlal Nehru. However, that did not prevent entrepreneurship from flourishing where the long arm of the state could not reach.

Developments at the microeconomic level in China reflect these historical and ideological differences. China has been far bolder with external reforms but has imposed substantial legal and regulatory constraints on indigenous, private firms. In fact, only four years ago, domestic companies were finally granted the same constitutional protections that foreign businesses have enjoyed since the early 1980s. As of the late 1990s, according to the International Finance Corporation, more than two dozen industries, including some of the most important and lucrative sectors of the economy-banking, telecommunications, highways, and railroads-were still off-limits to private local companies.

These restrictions were designed not to keep Chinese entrepreneurs from competing with foreigners but to prevent private domestic businesses from challenging China's state-owned enterprises (SOEs). Some progress has been made in reforming the bloated, inefficient SOEs during the last 20 years, but Beijing is still not willing to relinquish its control over the largest ones, such as China Telecom.

Instead, the government has ferociously protected them from competition. In the 1990s, numerous Chinese entrepreneurs tried, and failed, to circumvent the restrictions placed on their activities. Some registered their firms as nominal SOEs (all the capital came from private sources, and the companies were privately managed), only to find themselves ensnared in title disputes when financially strapped government agencies sought to seize their assets. More than a few promising businesses have been destroyed this way.

This bias against homegrown firms is widely acknowledged. A report issued in 2000 by the Chinese Academy of Social Sciences concluded that, "Because of long-standing prejudices and mistaken beliefs, private and individual enterprises have a lower political status and are discriminated against in numerous policies and regulations. The legal, policy, and market environment is unfair and inconsistent."

Foreign investors have been among the biggest beneficiaries of the constraints placed on local private businesses. One indication of the large payoff they have reaped on the back of China's phenomenal growth: In 1992, the income accruing to foreign investors with equity stakes in Chinese firms was only $5.3 billion; today it totals more than $22 billion. (This money does not necessarily leave the country; it is often reinvested in China.)

The Mogul as Hero

For democratic, postcolonial India, allowing foreign investors huge profits at the expense of indigenous firms is simply unfeasible. Recall, for instance, the controversy that erupted a decade ago when the Enron Corporation made a deal with the state of Maharashtra to build a $2.9 billion power plant there. The project proceeded, but only after several years of acrimonious debate over foreign investment and its role in India's development.

While China has created obstacles for its entrepreneurs, India has been making life easier for local businesses. During the last decade, New Delhi has backed away from micromanaging the economy. True, privatization is proceeding at a glacial pace, but the government has ceded its monopoly over long-distance phone service; some tariffs have been cut; bureaucracy has been trimmed a bit; and a number of industries have been opened to private investment, including investment from abroad.

As a consequence, entrepreneurship and free enterprise are flourishing. A measure of the progress: In a recent survey of leading Asian companies by the Far Eastern Economic Review (FEER), India registered a higher average score than any other country in the region, including China (the survey polled over 2,500 executives and professionals in a dozen countries; respondents were asked to rate companies on a scale of one to seven for overall leadership performance). Indeed, only two Chinese firms had scores high enough to qualify for India's top 10 list. Tellingly, all of the Indian firms were wholly private initiatives, while most of the Chinese companies had significant state involvement.

Some of the leading Indian firms are true start-ups, notably Infosys, which topped FEER's survey. Others are offshoots of old-line companies. Sundaram Motors, for instance, a leading manufacturer of automotive components and a principal supplier to General Motors, is part of the T.V. Sundaram group, a century-old south Indian business group.

Not only is entrepreneurship thriving in India; entrepreneurs there have become folk heroes. Nehru would surely be appalled at the adulation the Indian public now showers on captains of industry. For instance, Narayana Murthy, the 56-year-old founder of Infosys, is often compared to Microsoft's Bill Gates and has become a revered figure.

These success stories never would have happened if India lacked the infrastructure needed to support Murthy and other would-be moguls. But democracy, a tradition of entrepreneurship, and a decent legal system have given India the underpinnings necessary for free enterprise to flourish. Although India's courts are notoriously inefficient, they at least comprise a functioning independent judiciary. Property rights are not fully secure, but the protection of private ownership is certainly far stronger than in China. The rule of law, a legacy of British rule, generally prevails.

These traditions and institutions have proved an excellent springboard for the emergence and evolution of India's capital markets. Distortions are still commonplace, but the stock and bond markets generally allow firms with solid prospects and reputations to obtain the capital they need to grow. In a World Bank study published last year, only 52 percent of the Indian firms surveyed reported problems obtaining capital, versus 80 percent of the Chinese companies polled. As a result, the Indian firms relied much less on internally generated finances: Only 27 percent of their funding came through operating profits, versus 57 percent for the Chinese firms.

Corporate governance has improved dramatically, thanks in no small part to Murthy, who has made Infosys a paragon of honest accounting and an example for other firms. In a survey of 25 emerging market economies conducted in 2000 by Credit Lyonnais Securities Asia, India ranked sixth in corporate governance, China 19th. The advent of an investor class, coupled with the fact that capital providers, such as development banks, are themselves increasingly subject to market forces, has only bolstered the efficiency and credibility of India's markets. Apart from providing the regulatory framework, the Indian government has taken a back seat to the private sector.

In China, by contrast, bureaucrats remain the gatekeepers, tightly controlling capital allocation and severely restricting the ability of private companies to obtain stock market listings and access the money they need to grow. Indeed, Beijing has used the financial markets mainly as a way of keeping the soes afloat. These policies have produced enormous distortions while preventing China's markets from gaining depth and maturity. (It is widely claimed that China's stock markets have a total capitalization in excess of $400 billion, but factoring out non-tradeable shares owned by the government or by government-owned companies reduces the valuation to just around $150 billion.) Compounding the problem are poor corporate governance and the absence of an independent judiciary.

Dollars and Diasporas

If India has so clearly surpassed China at the grass-roots level, why isn't India's superiority reflected in the numbers? Why is the gap in GDP and other benchmarks still so wide? It is worth recalling that India's economic reforms only began in earnest in 1991, more than a decade after China began liberalizing. In addition to the late start, India has had to make do with a national savings rate half that of China's and 90 percent less FDI. Moreover, India is a sprawling, messy democracy riven by ethnic and religious tensions, and it has also had a longstanding, volatile dispute with Pakistan over Kashmir. China, on the other hand, has enjoyed two decades of relative tranquility; apart from Tiananmen Square, it has been able to focus almost exclusively on economic development.

That India's annual growth rate is only around 20 percent lower than China's is, then, a remarkable achievement. And, of course, whether the data for China are accurate is an open question. The speed with which India is catching up is due to its own efficient deployment of capital and China's inefficiency, symbolized by all the money that has been frittered away on SOEs. And China's misallocation of resources is likely to become a big drag on the economy in the years ahead.

In the early 1990s, when China was registering double-digit growth rates, Beijing invested massively in the state sector. Most of the investments were not commercially viable, leaving the banking sector with a huge number of nonperforming loans-possibly totaling as much as 50 percent of bank assets. At some point, the capitalization costs of these loans will have to be absorbed, either through write-downs (which means depositors bear the cost) or recapitalization of the banks by the government, which diverts money from other, more productive uses. This could well limit China's future growth trajectory.

India's banks may not be models of financial probity, but they have not made mistakes on nearly the same scale. According to a recent study by the management consulting firm Ernst & Young, about 15 percent of banking assets in India were nonperforming as of 2001. India's economy is thus anchored on more solid footing.

The real issue, of course, isn't where China and India are today but where they will be tomorrow. The answer will be determined in large measure by how well both countries utilize their resources, and on this score, India is doing a superior job. Is it pursuing a better road to development than China? We won't know the answer for many years. However, some evidence indicates that India's ground-up approach may indeed be wiser-and the evidence, ironically, comes from within China itself.

Consider the contrasting strategies of Jiangsu and Zhejiang, two coastal provinces that were at similar levels of economic development when China's reforms began. Jiangsu has relied largely on FDI to fuel its growth. Zhejiang, by contrast, has placed heavier emphasis on indigenous entrepreneurs and organic development. During the last two decades, Zhejiang's economy has grown at an annual rate of about 1 percent faster than Jiangsu's. Twenty years ago, Zhejiang was the poorer of the two provinces; now it is unquestionably more prosperous.

India may soon have the best of both worlds: It looks poised to reap significantly more FDI in the coming years than it has attracted to date. After decades of keeping the Indian diaspora at arm's length, New Delhi is now embracing it. In some circles, it used to be jokingly said that nri, an acronym applied to members of the diaspora, stood for "not required Indians." Now, the term is back to meaning just "nonresident Indian." The change in attitude was officially signaled earlier this year when the government held a conference on the diaspora that a number of prominent nris attended.

China's success in attracting FDI is partly a historical accident-it has a wealthy diaspora. During the 1990s, more than half of China's FDI came from overseas Chinese sources. The money appears to have had at least one unintended consequence: The billions of dollars that came from Hong Kong, Macao, and Taiwan may have inadvertently helped Beijing postpone politically difficult internal reforms. For instance, because foreign investors were acquiring assets from loss-making soes, the government was able to drag its feet on privatization.

Until now, the Indian diaspora has accounted for less than 10 percent of the foreign money flowing to India. With the welcome mat now laid out, direct investment from nonresident Indians is likely to increase. And while the Indian diaspora may not be able to match the Chinese diaspora as "hard" capital goes, Indians abroad have substantially more intellectual capital to contribute, which could prove even more valuable.

The Indian diaspora has famously distinguished itself in knowledge-based industries, nowhere more so than in Silicon Valley. Now, India's brightening prospects, as well as the changing attitude vis-à-vis those who have gone abroad, are luring many nonresident Indian engineers and scientists home and are enticing many expatriate business people to open their wallets. With the help of its diaspora, China has won the race to be the world's factory. With the help of its diaspora, India could become the world's technology lab.

China and India have pursued radically different development strategies. India is not outperforming China overall, but it is doing better in certain key areas. That success may enable it to catch up with and perhaps even overtake China. Should that prove to be the case, it will not only demonstrate the importance of homegrown entrepreneurship to long-term economic development; it will also show the limits of the FDI-dependent approach China is pursuing.