A

GLOBAL / COUNTRY STUDY AND REPORT

ON

“Information & Communication Technology of China”

Subtitled: “Foreign trade of the peoples of Republic of china”

Submitted to

K.P. PATEL SCHOOL OF MANAGEMENT AND COMPUTER STUDIES, KAPADWANJ

IN PARTIAL FULFILLMENT OF THEREQUIREMENT

OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

In

Gujarat Technological University

Under the Guidance of Miss Disha Bhagat

Asst. Professor

Submitted by

Tejas Joshi 107240592001

Zalak Brahmbhatt 107240592041

Kinjal Soni 107240592052

Darpan Patel 107240592030

Rohit Ila 107240592044

Harishchandra 107240592017

MBA SEMESTER III

K.P.PATEL SCHOOL OF MANAGEMENT AND COMPUTER STUDIES KAPADWANJ

Affiliated to Gujarat Technological University Ahmedabad November, 2011

i

Students’ Declaration

We TEJAS, ZALAK, KINJAL, DARPAN, ILA, HARISH , hereby declare that the report

for Global/ Country Study Report entitled “Foreign trade of the peoples of Republic

of China “is a result of our own work and our indebtedness to other work publications,

references, if any, have been duly acknowledged.

Place: KAPADWANJ (Name & Signature of Student)

Date: 23-11-2011 TEJAS JOSHI

ZALAK BRAHMBHATT

KINJAL SONI

DARPAN PATEL

HARISH CHANDRA

ROHIT ILA

ii

Institute’s Certificate

iii

PREFACE

Being an M.B.A. student, it is necessary to prepare a global country report. Their object

of practical training & knowledge is to develop atmosphere and all other business

practices.

The preparation of the whole report was a great opportunity for us to explore ourselves

to the practical field. All analysis done by us regarding the CHINA country could make

us all confident enough & prove ourselves. We could come out of the bookish

knowledge.

Preparation of such type of report calls for intellectual nourishment, professional help

and encouragement. Due to report, we are exposed to the method and practices being

use in the field of applications.

With the help of country CHINA’s information, we are come to know of style of

functioning & operating activity of CHINA. We also know how our knowledge is to be

transformed to venality inform of country. It is indeed a golden opportunity for every in

management.

iv

ACKNOWLEDGEMENT:

Preparation of such type of report calls for intellectual professional help and

encouragement. So, During the preparation of this report many people had helped us

and we very much thankful to them all.

We are highly thankful to our faculty to taking knowledge of finance. We are also highly

thankful for helping me in our practical studies of finance in M.B.A.

We are indented to our director sir, Prof. M. S. Tridevi for giving us a guidance of

practical unit in different areas.

We are also thankful to our faculty guide Ms.Disha Bhagat. All gave valuable time and

provide us with essential information.

PLACE: Kapadwanj DATE: 20 –12 –2012

v

INDEX

NO. PARTICULARS PAGE NO.

Import-Export of China

1 History Of Import Export china 1

2 Trade Relation With China 5

3 Import Export License system 6

4 Import Requirement of China 8

5 Logistic services 12

6 India-China Comparison 14

7 Exim Policy 2009 to 2014 Highlights 16

8 Completive Position of India & China 17

9 Tax Regime 19

10 Company Development & Mgmt. Capabilities 20

11 Bibliography 22

Graphs & Tables

1. Logistic services

13

2. Competitive positions of India and china

17

3. Comparison G.D.P

17

4. Comparison of Import

18

5. Comparison of Export

18

6. Tax regime

19

1

Foreign trade

History of Chinese foreign trade

Chinese foreign trade began as early as the Western Han dynasty (206 BCE-9 CE),

when the famous "Silk Road" through Central Asia was pioneered by Chinese envoys.

During later dynasties, Chinese ships traded throughout maritime Asia, reaching as far

as the African coast, while caravans extended trade contacts in Central Asia and into

the Middle East. Foreign trade was never a major economic activity, however, and

Chinese emperors considered the country to be entirely self-sufficient. During parts of

the Ming (1368–1644) and Qing (1644–1911) dynasties, trade was officially

discouraged. In the mid-eighteenth century, the government restricted sea trade by

setting up the Canton System.

In the nineteenth century, European nations used military force to initiate sustained

trade with China. From the time of the Opium War (1839–42) until the founding of the

People's Republic in 1949, various Western countries and, starting in the 1890s, Japan

compelled China to agree to a series of unequal treaties that enabled foreigners to

establish essentially autonomous economic bases and operate with privileged status in

China. One classic account of this period is Carl Crow's 400 Million Customers, a

humorous but realistic guide which has lasting insights.[1] Foreign privileges were

abolished when the People's Republic came into being.

Foreign trade did not account for a large part of the Chinese economy for the first thirty

years of the People's Republic. As in most large, continental countries, the amount of

commerce with other nations was small relative to domestic economic activity. During

the 1950s and 1960s, the total value of foreign trade was only about 2 percent of the

gross national product (GNP). In the 1970s trade grew rapidly but in 1979 still amounted

to only about 6 percent of GNP.

2

The importance of foreign trade in this period, however, far exceeded its volume.

Foreign imports alleviated temporary but critical shortages of food, cotton, and other

agricultural products as well as long-term deficiencies in a number of essential items,

including raw materials such as chrome and manufactured goods such as chemical

fertilizer and finished steel products. The acquisition of foreign plants and equipment

enabled China to utilize the more advanced technology of developed countries to speed

its own technological growth and economic development.

During the 1950s China imported Soviet plants and equipment for the development

program of the First Five-Year Plan (1953–57). At the same time, the Chinese

government expanded exports of agricultural products to repay loans that financed the

imports. Total trade peaked at the equivalent of US$4.3 billion in 1959, but a sudden

decline in agricultural production in 1959-61 required China's leaders to suspend further

imports of machinery to purchase foreign grain. Under a policy of "self-reliance," in 1962

total trade declined to US$2.7 billion. As the economy revived in the mid-1960s, plants

and equipment again were ordered from foreign suppliers, and substantial growth in

foreign trade was planned. But in the late 1960s, the activities of the Cultural Revolution

(1966–76) caused trade again to decline.

3

The pragmatic modernization drive led by party leaders Zhou Enlai and Deng Xiaoping

and China's growing contacts with Western nations resulted in a sharp acceleration of

trade in the early 1970s. Imports of modern plants and equipment were particularly

emphasized, and after 1973 oil became an increasingly important export. Trade more

than doubled between 1970 and 1975, reaching US$13.9 billion. Growth in this period

was about 9 percent a year. As a proportion of GNP, trade grew from 1.7 percent in

1970 to 3.9 percent in 1975. In 1976 the atmosphere of uncertainty resulting from the

death of Mao and pressure from the Gang of Four, whose members opposed reliance

on foreign technology, brought another decline in trade.

Beginning in the late 1970s, China reversed the Maoist economic development strategy

and, by the early 1980s, had committed itself to a policy of being more open to the

outside world and widening foreign economic relations and trade. The opening up policy

led to the reorganization and decentralization of foreign trade institutions, the adoption

of a legal framework to facilitate foreign economic relations and trade, direct foreign

investment, the creation of special economic zones, the rapid expansion of foreign

trade, the importation of foreign technology and management methods, involvement in

international financial markets, and participation in international foreign economic

organizations. These changes not only benefited the Chinese economy but also

integrated China into the world economy. In 1979 Chinese trade totaled US$27.7 billion

- 6 percent of China's GNP but only 0.7 percent of total world trade. In 1985 Chinese

foreign trade rose to US$70.8 billion, representing 20 percent of China's GNP and 2

percent of total world trade and putting China sixteenth in world trade rankings.

4

The table below shows the average annual growth (in nominal US dollar terms) of

China’s foreign trade during the reform era.

Period Two-way trade

Exports Imports

1981-85 +12.8% +8.6% +16.1%

1986-90 +10.6% +17.8% +4.8%

1991-95 +19.5% +19.1% +19.9%

1996–2000 +11.0% +10.9% +11.3%

2000-05 +24.6% +25.0% +24.0%

2006 +27.2% +19.9% +23.8%

2007 +25.6% +20.8% +23.4%

2008 +17.9% +17.4% +18.5%

5

Trade relation data with china

Here is Trade related data between India & China. The below table indicates the Indian

Import Export with China.

India-China trade (2001-2008)

Year Indian Imports Indian Exports Trade Volume

2004 5925.58 7672.51 13,598.09

Growth 2005

77.15% 8934.64

80.41% 9768.34

78.99% 18702.98

Growth 2006

50.5% 14588.04

27.2% 10469.18

37.4% 25057.22

Growth 2007

63.23% 24036.44

7.05% 14658.79

33.87% 38695.64

Growth 2008

64.7% 31500 (approx)

31%

40.02% 20300 (approx)

39%

54.42% 51800 (approx)

34%

6

Import / Export License System

The import and export license system is an important administrative measure in China's

foreign trade management.

In 1950, the Central People's Government issued the "Interim Regulations on Foreign

Trade Management,'' in which it was stated, " While importing and exporting any goods,

the importer and exporter must apply to their local foreign trade administrative

department for an import and export license." This represents the beginning of the

import and export license system after the founding of the People's Republic.

From 1959 to 1979, all imports and exports were put in the hands of the special national

import and export companies under the former Ministry of Foreign Trade and their

branch companies. These companies handled imports and exports in strict accordance

with state plans, thus the role of import and export licenses was reduced. During this

period, the import and export license system was mainly directed at those departments

outside of foreign trade enterprises, which, with the approval of the state, wanted to

import a small amount of equipment and goods for scientific research, educational,

cultural, sport and publish health purposes, and export a small amount of non-trade

commodities.

Since adopting the policy for reform and opening to the outside world, China's foreign

trade has witnessed continuous development, and the operation of import and export

business had expanded the specific national import and export companies under of

Ministry of Foreign Trade and Economic Relations to the foreign trade companies in

various localities and under various ministries. While bringing some vitality to the work

of foreign trade, this had also resulted in some confusion in the normal order of foreign

trade and incurred certain losses to the state. Therefore, the government again decided

to re-institute and strengthen the import and export license system.

7

In June 1980, the Ministry of Foreign Trade and Economic Relations enacted the

"Interim Rules on the Export License System." The document stipulated that firms that

engage in export business must file in advance applications to the Ministry of Foreign

Trade and Economic Relations or the foreign trade administrative departments under in

the various provinces, autonomous regions and municipalities directly under the central

government that have been authorized by Ministry of Foreign Trade and Economic

Relations. Having been approved, they must register with the local foreign trade

administrative departments and the relevant customs houses while presenting the

documents of approval. Only then could they engage in export business.

In January 1984, the State Council issued the "Interim Regulations of the People's

Republic of China on License System for Imported and Exported Goods." It stated that

for the import of all goods that need licenses to import according to state regulations, it

is necessary to apply for import licenses beforehand and only then orders could be

placed with the relevant foreign trade companies. It also stipulated that that the Ministry

of Foreign Trade and Economic Relations was responsible to draft and adjust the list of

goods whose import calls for licenses. In this period, the control was enforced on all

foreign trade enterprises dealing with import and export business.

Since 1992, China gradually relaxed the control over import. For instance, it abolished

or reduced the range of import licenses, import quotas as well as import control.

In January 1994, the Ministry of Foreign Trade and Economic Relations again issued

the "Interim Provisions Regarding Import Quota Control over Commonplace

Commodities." It marked that China's import management system was reformed in line

with the relevant regulations of GATT.

In 1998, China removed control by import licenses and import quotas over the

overwhelming majority of commodities that needed licenses to be imported formerly,

while only continuing to enforce import license control over the products of a small

number of infant industries that call for special protection.

8

China Import Requirements

As a move to liberalize trade, China has continued to reduce administrative barriers to

trade. By end-1997, the categories of import commodities subject to licensing controls

were reduced to 35 (including 374 items), and most commodities, except 16 crucial

ones which are currently under state monopoly, were open to all enterprises given the

import & export rights.

The Chinese government has also gradually abolished the state monopoly of foreign

trade and liberalize its foreign trading system. By end-June 1999, China had more than

185,000 foreign trade enterprises, including 13,224 foreign trade and economic

cooperation companies, 12,143 local manufacturing enterprises and scientific research

institutes, and 160,000 foreign-invested enterprises having import & export rights. In

January-February 1999, 61 private-owned enterprises were given the import & export

rights.

According to the Chinese government, the average tariff on imports of industrial

products will be lowered to 15% by year 2000 and 10% by year 2005. At present, the

average tariff rate is less than 17%.

In April 1997, China announced its first anti-dumping and anti-subsidy regulations

enacted to maintain order and fair competition in foreign trade and protect relevant

domestic industries. Under the new regulations, China can impose anti-dumping duties

on foreign goods if there is evidence showing that they are sold at dumping prices.

9

China uses both tariff and non-tariff measures to regulate imports. Tariffs imposed

include import duty (applied on the import CIF value and a few specific and compound

duties on the volume imported), value added tax (VAT) and consumption tax; non-tariff

measures include import licenses, quota control, restricted import list, etc. In general,

tariff rates on raw materials and industrial supplies are relatively low, less than 20% (in

most cases), higher on consumer goods mostly 20-50% and can reach 100% in a few

selected luxury items. The specific duties are calculated by multiplying the number of

units of the imported goods by tax payable per unit; while the compound duties are a

mixture of ad valorem tariff and specific duty.

Both Hong Kong and countries which have concluded trade treaties or reciprocal

favourable tariff treatment agreements with China can enjoy the preferential rate tariff

duty; while other the general rate.

Value added tax (VAT) is imposed on all commodities in addition to import tariffs. The

basic rate is 17% and 13% on the following commodities: food and edible vegetable oil;

drinking water, heating, natural gas, coal gas, liquefied petroleum gas; books,

newspapers and magazines; feedstuffs, chemical fertilizer, pesticides, agricultural

machinery and agricultural plastic sheeting.

In addition, 11 categories of goods are also subject to consumption tax when entering

China. These include: cigarettes, liquor, cosmetics, skin- and hair-care products,

jewellery, firecrackers and fireworks, petroleum, diesel, motor vehicle tyres, motorcycles

and small motor vehicles. The tax rates range between 3% and 45%.

10

Current policies regarding imports of equipment by foreign-invested enterprises are:

For enterprises approved on or before 31 Mar 96, the original preferential policy

applies until contract expires. However, imports of 20 specified categories such

as vehicles and office supplies are subject to their relevant tariffs and regulations.

For enterprises approved between 1 Apr 96-31 Dec 97, as "encouraged" or

"restricted (II)" in the "Catalogue of Industries for Guiding Foreign Investment",

production equipment imported are exempted from import duties, except those

listed in "Catalogue of Non-Duty-Free Commodities to be Imported for Foreign-

Funded Projects"

As of 1 January 1998, equipment imported by foreign-invested enterprises which

are engaged in projects classified as "encouraged" or "restricted (II)" in the

"Catalogue of Industries Guiding Foreign Investment" as contribution to their

investment are exempted from import duties upon presentation of a letter of

project confirmation except for those listed in the "Catalogue of Non-Duty-Free

Commodities to be Imported for Foreign-Funded Projects".

Customs tariff, VAT and consumption tax may be imposed on the following 20

commodities if applicable, regardless of the form of trade, geographical location or entry

of imports, namely: television set, video camera, video cassette recorder, video cassette

player, hi-fi system, air-conditioner, refrigerator, washing machine, camera, copying

machine, programme-controlled telephone switch, micro-computer, telephone, radio

pager, fax machine, electronic calculator, typewriter and word-processor, furniture,

lighting fixture and foodstuffs.

Normally, documentation requirements are handled by the Chinese importer (agent,

distributor or joint venture partner). Necessary documents include the bill of lading,

invoice, shipping list, sales contract, an import quota certificate for general commodities

(where applicable), import license (where applicable), inspection certificate issued by

the State Administration for Import and Export Commodity Inspection (SACI) or its local

bureau (where applicable), insurance policy, and customs declaration form.

11

As for non-tariff measures, China has introduced the licensing system and the quota

system to control imports: at present, imports of 35 product categories (374 items) are

subject to import licensing control. Importers are required to obtain in prior the approval

and licence from the different government departments, namely the State Development

Planning Commission, the Ministry of Commerce (MOFCOM)--formerly the MOFTEC--

and the Mechanic and Electronic Products Import and Export Department. In addition,

certain imports into China are subject to both licensing and quota control. Imports into

China are classified into two major categories: 1. 15 machinery and electronic products;

and 2. 13 general commodities. The quota management system is enforced by the

State Development Planning Commission responsible for import quotas of general

commodities and MOFCOM responsible for import quotas of machinery and electronic

products as well as export quotas.

In principle, all import and export commodities are subject to inspection. Twenty

categories of import commodities are subject to mandatory inspection by the China

Commodity Inspection Bureau (CCIB) and 47 categories subject to safety control.

Applicable standards for inspection should normally be specified in the contract of sale,

including standards for quality, weight, quantity, packing and inspection methods. Such

standards must not be lower than the corresponding Chinese national standards. For

those products without the CCIB safety marking, they are forbidden importing into the

country.

Imports of wastes for dumping, stacking and disposal within its territories are prohibited.

Imports of wastes that can be used as raw materials are also restricted.

On 15 November 1999, China and the US signed a bilateral agreement on China's

accession to World Trade Organisation, paring its way for China to join this multinational

trade body. Substantial market access commitments cover the agricultural, industrial

and service sectors.

12

LOGISTICS SERVICES

International Transportation Logistics - China Global Freight

Shipping Service - Logistics Integrated

International logistics is an important element in China global trading. Proper

shipping logistics handling can avoid many unnecessary expenses, assure prompt

order deliveries and in the end, contributes to the success of international trade.

Whether you plan to import goods from China to other

countries or export products to China from where they are

manufactured, you must always consider how to deal with

the international transportation freight shipping logistics.

Even if you have Cost Insurance and Freight (CIF) as the

shipping term arranged with your freight logistics forwarder, you still needs to

understand the entire process in which your freight shipping and transportation are

handled in order to prevent possible losses and maximize your profitability. Any

international trades cannot succeed without help of high quality international

transportation and international logistics services.

International transportation and freight shipping may not be as easy as one would think.

International logistics is much more complicated than shipping goods domestically.

International logistics services must deal with many different originations including

ocean and land carriers, ports, transit warehouses, customs clearing houses and

government inspections agencies. China global logistics is of no exception. Whether

you plan to use our one stop import from china service and export to china services, or

decide to deal directly with supplier or manufacturer in China, you are always welcome

to use our third party international logistics integrated services. In the past two decades,

Amlink has done large amount of business and established strong relations with leading

international shipping logistics handlers, freight forwarders, ocean carriers, warehouses

and customs clearing houses in China and in many major cities across the world, which

enables us to provide you with quality essential, cost effective, time efficient

international shipping freight handling and other logistics integrated services

13

Flow Chart of International Logistic Services - China Global Shipping Logistics Integrated

14

INDIA AND CHINA - LOOKING BELOW THE SURFACE TO COMPARE THESE TWO

RISING ASIAN BUSINESS GIANTS

India has emerged as a trading superpower and as an increasing magnet for FDI. Its

role in the international economy to this point has been less remarked than the rise and

dominance of China but increasingly India will be appreciated for the opportunities it is

creating for its citizens, employers and foreign and domestic firms. At first glance, India

doesn’t look like a major trading superpower or a place where your company should be

considering siting a factory. Major complaints heard by visit execs often involve the

poor state of infrastructure, the chaotic traffic, that the democratic process hinders

development, that corruption is endemic and that bureaucracy is rampant. To this,

many manufacturers must factor in that relations between China and India are formal

but not warm and that apparently neither side trusts the other, which to this point has

limited either location from generally serving the other for exports.

To better understand what India is and what it is not, lets compare it to China. First,

forget the hype about both China and India. Keep in mind that despite all the talk of

China or India’s rising status, both China and India are still desperately poor countries

with large disparities in incomes across each country. In China nearly half of the

country's labor force remains in agriculture (about 60 percent in India). Also, despite all

the talk about Indian software engineers and Nobel laureates and Chinese engineering

whizzes, India has the largest number of illiterate people in the world and China also is

burdened with a large number of rural poorly educated who will offer continued

challenges for economic development. (India’s illiteracy rate is nearly 40 percent and

China’s is nearly 10 percent according to World Bank statistics.) Of the total of 2.3

billion people in these two countries, nearly 1.5 billion earn less than US$2 a day,

according to World Bank calculations. The opportunities in both countries are

substantial; the challenges are also large.

15

With this in mind, lets compare the two countries by size: China is the world’s third-

largest country after Russia and Canada and is the second largest country by land

area. India is about a third of China’s size. In terms of population, China tops India at

1.3 billion people compared to India at just over 1 billion but India is growing at a faster

rate and has a younger population. In terms of political systems, China is a communist

country which economically is following market reforms that encourage free trade and

capitalist-based business models. India, by comparison, is the world’s largest

democracy, but with a system of commerce that until the 1980s was based on the

Soviet model and has since been reforming itself to follow more free trade and

capitalist-based models. China has been reforming its economy since 1978; India has

been working since 1991 but at a faster rate of speed.

Am link provides the following third-party international transportation China global trade logistics integrated services: Source reliable China shipping logistics company and freight forwarder that specialize in international transportation Service of your product category, in China, America and Europe. Plan a complete logistics integrated service. Coordinate between shipping logistics freight forwarders, importers and exporters in China throughout the entire shipping, transportation and other logistics integrated process. Coordinate customs clearing and logistics warehousing at port, including the duty bond application. Coordinate government freight inspections when they becomes necessary. Coordinate transportation, warehousing and distribution of the goods either imported from or exported to China. Locate proper domestic and local land or rail carriers; arrange inland freight shipping logistics and final delivery. Provide compliance consulting services of international logistics related documentations.

16

Coordinate purchasing proper types of insurance policies for international transportation. Coordinate resolutions of the issues that may encounter during the shipping logistics process, such as freight delays, service controversies, loss and damages claims and settlement

EXIM Policy 2009 to 2014 Highlights Some key highlights of this EXM policy 2009 to 2014 revisions are:

•Market Access and Export Market Diversification Incentive schemes have been expand to cover new markets and new product categories. New markets, sixteen from Latin America and ten from Asia-Oceania have been added as part of the Focus Market Scheme. The incentives available have increased from 2.5% to 3% for these new markets. •New Product Incentive Scheme This covers a wide variety of products ranging from engineering, plastics, textiles, Green technology, Jute & Siscal, technical textiles, project goods, vegetable textiles and some electronics. The incentives increased from 1.25% to 2%. •Technology Upgrades For companies in certain sectors such as engineering and electronic products who want to upgrade their technology, zero duty will be assessed. •Gems & Jewelry Sector Gold Jewelry exports will be permitted to receive Duty Drawbacks. This is where the duty collected on the export will refunded. •Value added Manufacturing To increase Value added Manufacturing exports, a 15% minimum value addition on imported inputs has now been prescribed. •Procedure Simplification Increase from 15 to 50, the number of sample pieces allowed to be imported by exporters at duty free rates.

17

Further, in terms of manufacturing China’s lead over India in terms of manufacturing is considerable. China is the world’s third largest nation in terms of manufacturing after the U.S. and Japan. India is a still impressive, but much further back 12th place in the same list according to Global Insight and the Financial Times. This points out the fact that to this point, India’s success in expanding its service industry has yet to be as firmly demonstrated in the manufacturing sector. In terms of performance, here are some charts comparing and contrasting the two economies in terms of first GDP, then exports and finally imports

Top 15 Comparative Position of India & China

:

2006 2025

1 US 1 China 2 Japan 2 US

3 China 3 Japan 4 Germany 4 Germany 5 France 5 South Korea

6 UK 6 France 7 South Korea 7 India 8 Italy 8 UK

9 Brazil 9 Italy 10 Canada 10 Brazil 11 Russia 11 Russia

12 India 12 Indonesia 13 Spain 13 Mexico 14 Mexico 14 Taiwan

15 Indonedia 15 Canada

18

As can be seen, China is by far the bigger economy, the bigger exporter and the bigger

importer but don’t assume that all the advantages go to China. Here are some

differences to consider:

19

Tax Regimes

China:

India:

Corporate Income Tax: 24%

Tax-Incentives for high-tech

industries: 15%

Tax Holidays for manufacturing

industries:

Initial two years of profitability: 0

percent tax

Next three years of profitability:

50% of tax rate (This is assumed

to be 12%)

India’s tax system is being

reformed as we write this.

Following is the tax system for

India’s “Special Economic Zones”:

Corporate Income Tax: 15%

First five years of profitability: 0%

tax

Second five years of profitability:

50% tax (This is assumed to be

7.5%.)

Third five years of profitability:

50% of tax rate for any invested

dividends that are invested back

into India

As can be seen, India has introduced a tax regime that is vastly more advantageous in

the Special Economic Zones than China. Another benefit of India over China with

respect to locating in the Special Economic Zones is that India does not discriminate

between manufacturing and services and either can offer the above incentives, which is

not the case in China. (Service companies are treated less favorably in China for

incentives.)

20

COMPANY DEVELOPMENT

Tax incentives are not the only area that India is ahead of China in. Generally, Indian

capital markets far exceed their Chinese counterparts in terms of transparency and

predictability. Indian companies can list domestically on the Bombay Stock Exchange,

Asia’s oldest exchange.

China has both the Shanghai and Shenzhen stock exchanges. Shanghai is larger than

Bombay in terms of capitalization (Bombay has US$1 trillion with 4,833 companies and

Shanghai has US$1.7 trillion with 849 companies) but what differs the two exchanges is

not just their size but that Bombay is run to international standards and has tremendous

stability in the quality of its companies.

On the other hand, China’s Securities Commission has no powers to impose

punishments, which must be imposed by the courts. Further as the government is the

major stockholder of its State-owned enterprises all these firms are not subject to

independent policing and true financial analysis meaning that the value of many of

these firms is suspect. This means that generally India has the more transparent

economy.

Company Management Capabilities

India, however, is not only ahead in financial transparency. Although there are many

excellent Chinese companies, generally the management abilities of many Chinese

businesses is not as strong as their Indian counterparts. Part of this is due to the fact

that reform in China started barely 30 years ago and that management training has not

become of interest till recently. Also, it is a factor that in many respects it is the rest of

the world that came to China to produce in the last decade and not China’s homegrown

export industry that has driven exports.

21

In fact, if one looks at cross-border activity, China has yet to become active in

acquisitions to-date, although there is indications this is starting to change. On the other

hand, Indian companies have been on a tear building up international assets and

expanding throughout the world. Recent examples:

Tata Steel’s $13.6 Billion Acquisition of Corus

Mittal Steel’s even larger $31 billion purchase of Arcelor

Tata Group’s acquisition of U.S.-based Glaceau, a health drinks and water

manufacturer, for US$677 million

Tata Tea’s purchase of a controlling stake in Britain’s Tetley for US$407 million

India’s wind energy firm Suzlon’s acquisition of Hansent Transmission for $324

million

Infosys’s $28 million acquisition from Phillips of BPO centers in Chennai; Lodz,

Poland and Bangkok, Thailand.

Indian Phamaceutical giant Ranbaxy’s acquisition of Romania’s Terapia

Ballarpur Industries (an Indian Paper and Pulp company) and JP Morgan’s

acquisition of Malaysia’s Sabah Forest Industries

As can be seen from the above examples, Indian companies are actively becoming

world players. Chinese companies really can’t match the breadth or the depth of

acquisitions and this is giving Indian companies a lead over their Chinese

counterparts.

22

Bibliography

www.chinainfo.com

www.ictmarket.com

www.comparativedataofchina.com