Inside the lobby of a Beijing luxury hotel favoured by visiting Indian politicians, a Chinese academic moved to the edge of his chair and said, “Indians have this unbelievable idea of China. I tell them not to take it too seriously".
On Monday, while India was cheering signs of an economic recovery, the Chinese stock markets were in nosedive again.
But it’s rare to hear such frank talk from someone born in Beijing, a person who goes on to say that the near-empty skyscrapers in the world’s third-largest economy are “time-bombs” India shouldn’t copy.
When Yasheng Huang, professor of political economy at the Massachusetts Institute of Technology, recently visited New Delhi he asked Indian planners how they could explain years of steady growth in a nation whose infrastructure compared so poorly to China’s.
Huang last year wrote Capitalism with Chinese Characteristics, a critique of the communist nation’s economic miracle.
Last year, he started the India Lab to help select entrepreneurs improve their business management. He also runs an older China Lab, which partly funds the India operations.
“As a whole, I favour India. The challenges in India are not the ones people are obsessed with, like infrastructure, but education and social sector development," he said. “Indians are very impressed by China’s GDP figures. But the GDP data tells only part of the story."
Indian planners may envy China’s $ 585 billion dollar stimulus, about 20 times the size of India’s, Huang is unimpressed.
Its about the worst kind of stimulus package you can get, he said. “I was surprised by the scale of the bad decision, not the bad decision per se."
Since early August, the Chinese stock market is tumbling amid fears of curbs on official credit. In the first half of this year, Chinese banks issued more long-term loans than they did all of last year and have already exceeded this year’s
lending target. Most of the stimulus will finance new infrastructure but Huang says that isn’t what China needs. “China is clearly overbuilding. Very little real value is being created. We’re not talking of new technology, innovation...essentially more of the same.”
The stimulus is only delaying reforms, says Huang. “The state sector is advancing and the private sector is retreating. It’s creating an asset market bubble on top of a bubble that has not been burst."
China’s economy grew from 6.1 per cent in the first quarter to 7.9 per cent in the second quarter, but the nation is still short of 12 million jobs. Foreign direct investment has fallen for 10 straight months. China’s cabinet is now moving to curb overcapacity in key sectors like steel.
A stronger private sector gives India an edge over China, says Huang. “India needs to plod ahead on the existing course of privatisation and deregulation. China needs to actively reverse what it has been doing, which is harder."
Glancing around the lobby flanked by Beijing’s most expensive stores, the professor shook his head over the Chinese obsession with luxury brands.
“India’s income growth is very respectable. The middle-class is buying appropriate purchases like Nano cars. In China, there is a sudden burst of wealth. Nobody knows how they made the money”.