PRC Economy - New Reflections : Dec 15 2011

[subhamoy.das]

Agreed that sales is the barometer of economy of a country. But, like listed company in a stock market, it is the profitability or the margin which is more important than sales. China has little profitability from the sales it makes because most of the sales is based on contract manufacturing to MNC or is made by an MNC. So in essence the entire suppy chain is owned by MNC and the last node is by a CHINESE manufacturer. That is where the difference lies between Germany and China or the east asian model. Since the profitability is so low, the wealth created from the huge sales is actaully small or leaves the country and does not trickle down to the all the employees of the company ( read citizens ) resulting in 300m citizens living in abject poverty. If CHINA would have been German model, this would been the other way round.

Another factor which influences sales is culture. Chinese culture is to ape US style super consumerism - to the extent of selling their organ to buy Iphone - where as Indian tend to be follow more of the value based Eurporean model and would instead buy a SAMSUMG GALAXY and GOLD! So sales figures does not mean proportionate disposable wealth and it could very well be on borrowed wealth. This reminds me the Delhi culture visa ve Bengal culture. My neighbour in Delhi, would eat rice and rajma but would buy a maruti 800 ( this was in 80s ) at any cost including taking loans from Kabuli walas, where as my family would spend on fish and meat but not even buy a black & white TV, yet my father had a much bette paying job than my friend's father. Looking at it from consumer index it would give false impression of who had more disposable income. It always intrigued me that how come India, and not CHINA, was the largest consumer of gold in the world. Some thing did not add up.

Another anaylsis of this consumption could be in the fact that most Chinese famiies have 1 child. Each additional chilld eats into disposable wealth and hence drives down consumption of non essential items like phones, gadgets etc.

In the final analysis, i would say, high paying jobs - hence the buys - is the barometer and not sales. China does not have the buy side. They only have the sale side and that too at the least profitable end. India has, planned or unplanned, focused more on the buy side with service. Manufacturing cannot be the buy side as it is bound to get automated. Germany created both the buy side - service driven innovation in product R&D - and also the sale side.

[Abhijeet]

I'm not clear what you mean by buy side or sell side, but Chola is talking about the size of the Chinese consumer market above. Their consumer markets for multiple categories of goods are awfully large for a country where the wealth created is as low as you say.

[Abhijeet]

An interesting presentation about the future of mobile, worth reading fully:

http://www.businessinsider.com/future-o ... 12-12?op=1

Specifically relevant to this thread, China is now 25% of smartphone sales and 2x the size of the US market. The presentation doesn't talk about the price distribution of those handsets but even if (as is likely) most are low-end Android handsets, that's still a pretty large number.

[sanjaykumar]

It gets more problematic when gold is considered, India may have a hoard of $1.5 trillion of gold in private hands. Unfortunately the velocity of this money is close to zero. So there it is not producing demand for consumables that create the tools of production, silicon wafer fab labs, innovation in health care, etc.

Further it is not easy for the average Chinese to stash funds abroad (unlike the CCP), Indians through informal networks may well have substantial sums abroad.

The failure of Indian political culture is that fundamentally Indians are not confident in their nation (or its political leadership). So they will not invest in it.

[member_20292]

Another anaylsis of this consumption could be in the fact that most Chinese famiies have 1 child. Each additional chilld eats into disposable wealth and hence drives down consumption of non essential items like phones, gadgets etc.

In the final analysis, i would say, high paying jobs - hence the buys - is the barometer and not sales. China does not have the buy side. They only have the sale side and that too at the least profitable end. India has, planned or unplanned, focused more on the buy side with service. Manufacturing cannot be the buy side as it is bound to get automated. Germany created both the buy side - service driven innovation in product R&D - and also the sale side.

India has a pretty interesting model of growth. An entirely people driven economy, with a huge focus on services. Large amount of personal empowerment, and a lot of interpersonal interaction. Remittances from all over the world, to a larger extent than in China.

1. The one-child-limited-retarded-twisted-unhealthy-mentally populace, that China has engineered, is more than enough to drag them down in the future. (so don’t worry about about it)
2. As regards Dem/Commie. Yes, we are in a good position with respect to China. Yes, it takes much more time to engineer good politics, than it takes to engineer good economics. Yes, we are ahead. But, yes, we should not sit on our arses enjoying the philosophical moral victory that it entails.
3. We occupy, even in the “low end-high sweat-label-outsourcing” economy, a good position in the realm of the large margin-outsourcing contracts. The outsourcing business is still YOUNG, and it will get only bigger as time goes on. This means that we are better placed than the Chinese who are good at the wafer- thin-margin-making- wafer making-and-related industries.
4. We do not have confidence in our economic system. This is true...since we are a democracy, the rulers fundamentally and by design lag behind the ruled; i.e the state lags behind the society. This is true of all democracies from the US to the UK to us. That's why people recommend having a commie govt. early on in a countries economic rise; since it allows for a bourgeoisie upper class to enforce a smooth passage of a large number of reforms and economic progress.
Now, since we are a democracy, progress in the economic system has to come from us…only after we, the people do it, will the knowledge of the industry percolate up to the rulers, who then implement the laws to govern that newly made progress.
This is something like having a Microsoft or an IBM first get to rollicking success in IT, and then IT laws coming about to govern IT, in the US.
Or older, the East India company first tasting success in India, as a trader, before the UKs sent its armies to control the colonies that the East India company did its trading in, and passing the laws to deal with it.

Which means that since everything is up to the people of India (of course, we're a democracy damn it...the Govt. is but an extension of our collective minds) ...then we better make sure, that as a people, we are at the cutting edge of all technology, economics, politics etc.

Thus, a bottom up economy/society is BEST DRIVEN by giving the ruled, the largest amount of freedom that they can possibly have. This is the fundamental lesson that one should learn from the USofA, that one of the best ways to govern, is to NOT .

Thus, in India, from the central govt.s side; we DO NOT NEED MORE LAWS to deal with rape, economics, promotion in this that and the other, FDI, ShefDI capital inflows this and that. We need less laws, with a MUCH GREATER FOCUS ON COMPLIANCE with those laws.

We need LESS LAWS. and less governmental interference. And more laissez faire economics.
This is so freaking counter-intuitive, though. Because all of us think that the NEXT GREAT action of the government, the next great step, the next great action will lead us to economic glory.


In my opinion, the government in India is bloated way out of proportion to its reality. Its reality is that it needs to cut down and focus on one or two things. Like defense, internal security. It needs to get out of almost everything else. It has shown that it is shite at basic education---let it be--get out of education pronto--let private schools rule.

Can’t do infrastructure? GTFO of infra. Let the Indian Railways be privatized. Privatize Coal India. Sell the mines PERMANENTLY to private operators, and take an annual license fee and be done with land allocation for mines, forever. Allow gas prices to be free floating.

Basically, to get to a better level of growth, India, ironically, should, in my opinion, REDUCE legislation, and get rid of redundant laws. Which is thoroughly counter-intuitive to a lot of people.

[JE Menon]

^effing A1 post there boss!!!

[subhamoy.das]

I'm not clear what you mean by buy side or sell side, but Chola is talking about the size of the Chinese consumer market above. Their consumer markets for multiple categories of goods are awfully large for a country where the wealth created is as low as you say.

The buy side is the consumer. The sell side is the manufacturing which sells to the buyers. The mystry of the large buy side lies in the fact - IMO - is much larger spend per buyer indicating to a skewed consumption patter. I had given the example of credit card model where actual number of credit cards in circulation is much lower yet the amount of transactions is much higher. I think that is the model of chinese consumption - few folks funded by corruption and state money - consuming like cows come home - and in general will sooner or later lead to a social adjustment of some sort

[subhamoy.das]

Simply put - indian is a inovation driven sell side where as china is a repeat driven sell side. service/knowledge driven sell inheritly requires constant innovation, every customer request requires some kind of innovation to address. Give u an example. Every bug that a customer throws at you in a IT project requires innovation. Same is true let us say for a doctor as every case requires a lot of innovation to address. Contrast this with the Chinese model where the same process is repeated zillion times by the same person - zero innovation and very similar to let us say plough the field for the next crop. Service is difficult and hence higly paid where as manufacturing is low hanging fruit and lowly paid.

[svinayak]

India needs both, India needs investment in mfg to stock model factories which are nibmble and work with global supply chain

[Suraj]

Absolutely. Without the ability to make things in numbers, we cannot have a strong economy and a good quality of life. Why ? Because the things we need will be expensive, and if they're cheap, they will be of shoddy quality. All kinds of consumer goods in India are either cheap and shoddy (e.g. toys, furniture) or durable but more expensive than what they pay for the same in PRC (e.g. electronics/white goods). Both of these are imported from PRC. Mass production with low innovation, that employs hundreds of thousands, has its own virtue. It creates a large supply chain and ancillary industries to feed and drive the chain. It increases aggregate economic activity, even if that activity is low profit/low margin.

[member_20292]

^^^

But by so many things becoming virtual....there might be a scenario where we just circumvent the ruinious fixed asset investment that is present in making toy factories, and move to a more "virtual" world.

i.e kids playing 'angry birds' instead of 'monopoly'.......and apply this funda to MANY different industries.

[chola]

Chola ji,

another question. Lets say I am ;

Case 1; A 2000 employee firm making iron and steel from chrome ore, having 5 arc furnaces. I sell raw material that goes into steel making to POSCO. How do I attack the Chinese market? My hands are already full with the POSCO orders, and finishing what I have. I have electricity trouble in my neck of the woods, and expansion is tough because of lack of money. So I cant export to China that easy. What would you suggest, I do? Start a stab-in-the-dark Shanghai office and then explore opportunities and then expand...??

If you have your hands full with POSCO, then stick with POSCO. If your problem is electricity and capital you and you can't plan expansion then the question of attacking the Chinese market or any other market is moot.

Now if you have excess capacity and a growth plan for your company then you would any use one of the thousands of American or Britiish affiliated consulting agencies in Shanghai, Beijing Guangzhou or better yet Hong Kong and Singapore to gain entry. Japanese and Korean agencies would be less useful unless you want to communicate with broken English.

There is a paucity of Indian resources for China or the entire Far East for that matter. Except for desis in HK and Singapore, we are almost totally divorce from the Asian trade and supply chain. Even though we are Asian we have no weight or even ability to communicate with China, Korea or Japan. This inability hurts us because India as a strategic resource is nearly useless for the largest Asian economies. Currently we're only useful if a MNC is looking into Bangladesh or Pakistan (besides our own market.)

This is another reason why we need a thread like this to be rational. Unless we want to be grouped with insects like Bangladesh and Sri Lanka forever we need to understand the East Asian economies and China, for better or worse, is the largest and most important one.

Case 2; You are a young IIT +Ivy grad with a Materials Science (chips, nanotech) degree. You hear about the opportunities in China. How do you exploit them? By joining a company operating in China and asking to be posted there??? Learning CHinese online and then working in China by hook or crook?

TY.

If you are an IIT or Ivy grad you stay in the US and join an American firm with an operation in the China (basically every US company worth its salt.)

[chola]

I'm not clear what you mean by buy side or sell side, but Chola is talking about the size of the Chinese consumer market above. Their consumer markets for multiple categories of goods are awfully large for a country where the wealth created is as low as you say.

The buy side is the consumer. The sell side is the manufacturing which sells to the buyers. The mystry of the large buy side lies in the fact - IMO - is much larger spend per buyer indicating to a skewed consumption patter. I had given the example of credit card model where actual number of credit cards in circulation is much lower yet the amount of transactions is much higher. I think that is the model of chinese consumption - few folks funded by corruption and state money - consuming like cows come home - and in general will sooner or later lead to a social adjustment of some sort

I'm sorry but you are making economics far harder than it needs to be. There are buyers and sellers in every economy. Sales are the indicators of activity between buyers and sellers. The higher sales the greater the activity and the larger the size of that economy.

It is that simple.

Consumer sales correlate tightly with the size of the economy. This is economic law. The larger the economy, the more stuff they consume. The largest consumers from 1960 to 2000 were USA, Japan and Germany. The largest consumers today are the USA, China and Japan.

In order for the chini car market to be the size of the US's, the chini economy should be tackled and resourced as an US-sized economy in the corporate boardroom.

Besides which, credit in China is pathetically low. Most car and home purchases are done in cash. American companies are already planning for the day credit becomes widely available in China. That is the frightening part.

It is an inefficient, commie-led system where private companies have no access to capital and where private consumers have no access to credit. And yet they consume as much as the US.

I said time and again that if China ever democratizes or becomes more like HK or Taiwan, with a level playing for their private firms and consumers, then we will never catch up. With the communists holding to power then our chances are better.

[chola]

^^^

But by so many things becoming virtual....there might be a scenario where we just circumvent the ruinious fixed asset investment that is present in making toy factories, and move to a more "virtual" world.

i.e kids playing 'angry birds' instead of 'monopoly'.......and apply this funda to MANY different industries.

I'm sorry but that is a pipe-dream. The virtual world is for those wealthy enough to ignore the real one. The foundation is always grounded in the world you can touch and feel. Infosys and Tata is dependent on the infrastructure in the US which delivers work to them from US companies selling real things.

Now if we are truly globalized and we can depend on other nations to make our things then obviously it would great to be on top of the heap and simply use their infrastructure and products much like the outsourcing industry is doing now. It is workable for city-states like Hong Kong, Dubai and Singapore. It is impossible for a nation of 1.2 billion to do the same without condemning the vast majority to poverty.

The virtual world provides good jobs but bloody few of them since by nature it depends on the wealth of the physical world.

[member_20292]

Now if you have excess capacity and a growth plan for your company then you would any use one of the thousands of American or Britiish affiliated consulting agencies in Shanghai, Beijing Guangzhou or better yet Hong Kong and Singapore to gain entry. Japanese and Korean agencies would be less useful unless you want to communicate with broken English.

There is a paucity of Indian resources for China or the entire Far East for that matter. Except for desis in HK and Singapore, we are almost totally divorce from the Asian trade and supply chain. Even though we are Asian we have no weight or even ability to communicate with China, Korea or Japan. This inability hurts us because India as a strategic resource is nearly useless for the largest Asian economies. Currently we're only useful if a MNC is looking into Bangladesh or Pakistan (besides our own market.)

1. Thus there is a market to become a consultancy company that services countries from the english speaking world, trying to enter the Chinese market. I am sure, though that it is highly saturated and tough to work in , at this point of time.

2. One has to learn Chinese. I have dealt with researchers and academics from China...and ALL that research in international journals is in English and they STILL DO NOT SPEAK good or even passably fluent english.

SO, yes, this is kind of a to do list for me; create a website for indians to export to the chinese, and to learn chinese myself.

[member_20292]

The virtual world provides good jobs but bloody few of them since by nature it depends on the wealth of the physical world.

Saar. My humble suggestion is to hold your horses on the judgement on that one. I think that the virtual world is our "Hand of God Goal" type of edge that we have over the Chinese...but that is just my intuition. I suggest you watch this space/industry/trend.

[Christopher Sidor]

The Gandhi clan was Soviet oriented and deliberately kept us out of the global supply with all the consequences we see today. The GOI can at least begin to alleviate that by opening up to FDI and supporting better infrastructure.

Apart from your dig at the Gandhi clan, why would we want to become the sweat shop for the North Atlantic countries?

We crave FDI because of one reason only. Our government, including our provincial level governments, spend more than they earn. They are like the spoiled brat of the house who has never grown up and cannot live within his or her means. The recent FDI in retail was done so that the current ruling dispensation, can balance the current account and continue to spend like there is no tomorrow. Otherwise we would have had a balance of payment crisis which would dwarf that of 1990s and this time there would be on Saddam or Soviet collapse to pin the blame on. Otherwise our private sector is perfectly capable to modernizing our agriculture supply chain.

[Suraj]

^^^

But by so many things becoming virtual....there might be a scenario where we just circumvent the ruinious fixed asset investment that is present in making toy factories, and move to a more "virtual" world.

i.e kids playing 'angry birds' instead of 'monopoly'.......and apply this funda to MANY different industries.

That is fanciful nonsense. Maybe we should all just pretend to consume, rather than actually consume then ?

In your example, Angry Birds is not just the game, nor the sum total of the economic activity. It's the phone, the cellphone connection, the towers, the 3G/4G network, the power supply that runs it... everything. That is why the Angry Birds economy is so much wealthier than the Monopoly economy - because Monopoly means making cardboard boxes with a printed board and dice, to sell. Making Angry Birds means making the entire backend infrastructure and the phone. Only by making all that ourselves can we claim that the Angry Birds example is a viable one for us; most of the capital, time and effort goes into ensuring that the whole infrastructure is built out and run flawlessly, not into writing a game.

[Theo_Fidel]

I would also point out that the low quality Indian goods are far far cheaper than Chinese goods, at least in India. There is no guarantee that people will pay more for more 'efficiently' made equipment.
Right now I can't even get a large aspiring MNC company to buy high quality wire cut bricks because it is twice the cost of cheap Indian jugaad bricks.

Last week I bought (12) 3-way conversion plugs at Rs 20 a pop. Indian quality, quite shoddy but works.
Same Chinese cheapest was Rs 80 a pop but almost not quite USA quality.

I also bought a new UPS system, Indian quality Rs 22,000. Chinese quality, Rs 41,500. No ability to service as it is sealed unit.

Indian A/C Godrej, Rs 16,000, Chinese A/C Rs 30,000 plus.

[subhamoy.das]

Absolutely. Without the ability to make things in numbers, we cannot have a strong economy and a good quality of life. Why ? Because the things we need will be expensive, and if they're cheap, they will be of shoddy quality. All kinds of consumer goods in India are either cheap and shoddy (e.g. toys, furniture) or durable but more expensive than what they pay for the same in PRC (e.g. electronics/white goods). Both of these are imported from PRC. Mass production with low innovation, that employs hundreds of thousands, has its own virtue. It creates a large supply chain and ancillary industries to feed and drive the chain. It increases aggregate economic activity, even if that activity is low profit/low margin.

Things will be cheap if manufactured locally argument does not fly - look at US, Dubai, Singapore or the western word. The currency has to be strong and that can be strong in a service driven model.

Second myth, mass production is mass employment - factories are and will more me dominated by robots and not humans.

[subhamoy.das]

There is a paucity of Indian resources for China or the entire Far East for that matter. Except for desis in HK and Singapore, we are almost totally divorce from the Asian trade and supply chain. Even though we are Asian we have no weight or even ability to communicate with China, Korea or Japan. This inability hurts us because India as a strategic resource is nearly useless for the largest Asian economies. Currently we're only useful if a MNC is looking into Bangladesh or Pakistan (besides our own market.)

This is another reason why we need a thread like this to be rational. Unless we want to be grouped with insects like Bangladesh and Sri Lanka forever we need to understand the East Asian economies and China, for better or worse, is the largest and most important one.


If you are an IIT or Ivy grad you stay in the US and join an American firm with an operation in the China (basically every US company worth its salt.)

Now u are bordering on frenzy in praising China. Please post sales data and facts to support your argument. Mean while let me bust a few of your perceptions

Since India is not a manufacturing sweat shop for rest of the world, only the MNC who has a sizable market in India are attracted to India and then eventually they also start to service the global market. Example - Ford, Suzuki, Volkswagon, Nokia, Huyandai, Samsung, LG, Whirlpool need i go on. What is the Japanese govt doing in investing the industrial corridor between Delhi and Mumbai worth billion of dollars. Every MNC CEO speaks he speaks of India AND China in the same breath......

We are divorced from Asia trade and supply chain - wow then what all these Japanese companies and Korean companies doing in India. What is ASEAN - India summit last week in India for ...I personally know of small SME who regularly trade with China in the areas of machinery. I am not sure put look at the bilateral trade between India and China and India and ASEAN and thinks are picking up due to look EAST policy. Agreed that things could have been better but to say we have no engagement with ASEAN and CHINA is ....a gross under statement

IIT-an working in US are coming back to India and yes joining MNC but not for manufacturing but for service ( innovation ). I am sure u have heard that most major MNC has sizable innovation center in India and Indian MNC are also creating innovation jobs - TCS, Mahindra, Tata - etc to attract them back. I am an ex IIT and returned back to India and yes I will get my SSN payout in India.

[subhamoy.das]

I'm sorry but you are making economics far harder than it needs to be. There are buyers and sellers in every economy. Sales are the indicators of activity between buyers and sellers. The higher sales the greater the activity and the larger the size of that economy.

It is that simple.

Consumer sales correlate tightly with the size of the economy. This is economic law. The larger the economy, the more stuff they consume. The largest consumers from 1960 to 2000 were USA, Japan and Germany. The largest consumers today are the USA, China and Japan.

In order for the chini car market to be the size of the US's, the chini economy should be tackled and resourced as an US-sized economy in the corporate boardroom.

Besides which, credit in China is pathetically low. Most car and home purchases are done in cash. American companies are already planning for the day credit becomes widely available in China. That is the frightening part.

It is an inefficient, commie-led system where private companies have no access to capital and where private consumers have no access to credit. And yet they consume as much as the US.

I said time and again that if China ever democratizes or becomes more like HK or Taiwan, with a level playing for their private firms and consumers, then we will never catch up. With the communists holding to power then our chances are better.

I am not an economist but has spent significant amount of time in automating a few supply chain and agree that it is simple and boils down to supply chain, bank, buys ( demand ) and sell ( supply ).

Sales , not just to consumer ( both domestic and international ) but also to business ( both domestic and international ), IS the size of the economy or the GDP of a country.

Largest sales, by PPP, is China, US, India and JAPAN .........

In any authoritian regime, few at the top will consumer for the rest. That is true for China also. The few here is half the size of US and consumer same or more as a whole. That has been my point and u seem to be validating that by saying that average JOE in China has no money in the pocket.

I donot think Chinese govt model has anything to do with how India's economy size or sales. We need to just build the physical and social infrastructure and let the indian democracy and the indian private sector harness it. Today, this model has given us a USD100 Billion dollar IT industry and the same can be replicated in machines, automobiles, knowledge driven service industry etc where we have strength and rest we can import as we will have a strong currency.

[member_20292]

^^^

But by so many things becoming virtual....there might be a scenario where we just circumvent the ruinious fixed asset investment that is present in making toy factories, and move to a more "virtual" world.

i.e kids playing 'angry birds' instead of 'monopoly'.......and apply this funda to MANY different industries.

That is fanciful nonsense. Maybe we should all just pretend to consume, rather than actually consume then ?

In your example, Angry Birds is not just the game, nor the sum total of the economic activity. It's the phone, the cellphone connection, the towers, the 3G/4G network, the power supply that runs it... everything. That is why the Angry Birds economy is so much wealthier than the Monopoly economy - because Monopoly means making cardboard boxes with a printed board and dice, to sell. Making Angry Birds means making the entire backend infrastructure and the phone. Only by making all that ourselves can we claim that the Angry Birds example is a viable one for us; most of the capital, time and effort goes into ensuring that the whole infrastructure is built out and run flawlessly, not into writing a game.

^^ rather strong words.

What I mean is this;

You sell angry birds to a kid in Houston for 2.99$. This is coded in one of the European countries where Rovio is from. There is a market, to code, say "furious pigeons" and sell them to a kid in Moscow for 1$, and code it in Bangalore.

Rovio is NOT COLLECTING the 2.99$ for roads, railways, airfare, cellphone towers, etc....woh sab ho gaya hai.

Why does one need to go ab initio into the economic system to be successful at it? Thats my point Suraj.

[member_20292]

^^ Chola, you're right about the Chinese economic size part. Angus Maddison confirms;

http://www.ggdc.net/MADDISON/articles/C ... Feb_07.pdf

From this link;

"
In the past two decades, China has been the world’s fastest growing economy.
In 1982, it overtook Germany as the world’s third largest economy; in 1992, overtook
Japan as the second biggest economy. In 2003 its GDP was about 73 per cent of that
in the USA. It seems likely that it will overtake the USA, and become number one
before 2020."

^^ If this is true from Angus Maddison, then if the US economy was 100 units in 2003, and CAGR till 2012 was 2.5% (counting the recession) we get a GDP (PPP) of 125 units.

And the 73 units of the Chinese economy in 2003, is now, taking a CAGR of 8% as per Angus Maddison, we get a GDP (PPP) of 146 units.

So, yes, Cholaji, you're right!; the Chinese economy IS THE SIZE of the US economy. And we should look at it like so.



More from the Angus Maddison paper above ;

"

Major Conclusions
1) As the Chinese currency is greatly undervalued, it is particularly important to
measure its GDP level using a purchasing power (PPP) converter. In 2003, its GDP
was about three-quarters of the US level. With exchange rate conversion, it was only
15 percent. In fact, all valid cross-country, regional or world GDP comparisons
require PPP converters.
2) Chinese official statistics exaggerate the pace of growth by use of dubious deflators.
Our revisions show GDP growth of 7.85 per cent a year 1978-2003, compared with
the official rate of 9.59 per cent. In making adjustments for China, we follow normal
practice in eliminating idiosyncrasies in official statistics to enhance the validity of
inter-temporal and cross-country comparisons.
3) The two major areas where we amended the official estimates were industry and
the measurement-resistant part of the service sector. The alternative Wu measure of
industrial performance is based on quantitative indicators. It is specified in great detail
and seems clearly superior to the official estimates for this sector, which accounted
for 55 per cent of official GDP in 2003. We feel that NBS should give serious
consideration to using the Wu approach to improve its estimate for this sector.
4) Our second major adjustment, for “non-material” services, is much cruder than our
industry adjustment. This sector represented 15.6 per cent of official GDP in 2003.We
assumed that there was no productivity growth in this sector and used employment as
an indicator of the growth of value added. The implicit official estimate for labour
productivity in this sector was 5.1 per cent a year for 1978-2002, which is higher than
the rate for other services (transport and commerce combined) where productivity
grew 4.8 per cent a year, and for agriculture, where productivity rose 4 per cent a year.
The relative pace of growth seems implausible and out of line with the experience of
other countries (see Table 5). It would be very useful to have more detail on the
official deflation procedures for this sector. At the moment it is something of a pariah
in the official accounts; it is not shown explicitly, but as a residual in the official
estimate for the tertiary sector.
5) We strongly recommend that the official statement of the GDP accounts in the
China Yearbook be expanded. At the moment information is provided on GDP in
current prices and volume movement. It would be very useful to have a table showing
GDP and its six component sectors in constant prices (as in Tables 8 and 9). Such a
change would require no research, but add considerably to the transparency of the
accounts.
6) Our estimates suggest quite strongly that official GDP statistics were subjected to a
smoothing procedure to disguise a significant slowdown of output growth in 1996-1998 (see Table 2).
7) The official estimates of employment in the China Yearbook have deteriorated
significantly in the last four years. The 16 sector breakdown which was available for
1978-2002 has been discontinued, and in its place there is only a rough 3 sector
breakdown. The large discrepancy between them has been disguised instead of being
explained. In the present situation, meaningful measurement of labour productivity is
no longer possible.
"

[ArmenT]

[quote="mahadevbhu" ^^^^

But by so many things becoming virtual....there might be a scenario where we just circumvent the ruinious fixed asset investment that is present in making toy factories, and move to a more "virtual" world.

i.e kids playing 'angry birds' instead of 'monopoly'.......and apply this funda to MANY different industries. /quote]
That is fanciful nonsense. Maybe we should all just pretend to consume, rather than actually consume then ?

In your example, Angry Birds is not just the game, nor the sum total of the economic activity. It's the phone, the cellphone connection, the towers, the 3G/4G network, the power supply that runs it... everything. That is why the Angry Birds economy is so much wealthier than the Monopoly economy - because Monopoly means making cardboard boxes with a printed board and dice, to sell. Making Angry Birds means making the entire backend infrastructure and the phone. Only by making all that ourselves can we claim that the Angry Birds example is a viable one for us; most of the capital, time and effort goes into ensuring that the whole infrastructure is built out and run flawlessly, not into writing a game.

^^ rather strong words.

What I mean is this;

You sell angry birds to a kid in Houston for 2.99$. This is coded in one of the European countries where Rovio is from. There is a market, to code, say "furious pigeons" and sell them to a kid in Moscow for 1$, and code it in Bangalore.

Rovio is NOT COLLECTING the 2.99$ for roads, railways, airfare, cellphone towers, etc....woh sab ho gaya hai.

Why does one need to go ab initio into the economic system to be successful at it? Thats my point Suraj.

[/quote][/quote][/quote][/quote][/quote][/quote]
Probably not the best example though. The trouble is that there aren't exactly many Indian game publishing companies around. There *are* development houses in India but they are generally paid on a per-job basis for developing some stuff (e.g. I know a guy whose company was a subcontractor to do some graphics modelling for a popular video game series), and all of the sales profits go to the game publisher. So, while the Indian company gets paid a one-time fee of, say $20,000, for doing the graphics modelling work for the game, the publishing company makes millions by selling the game at $20 each and selling something like 15 million copies. And of the 15 million copies sold, the CDs or game cartridges are made in China and the Chinese company makes a decent amount of money even with low profit margins (say they get $0.10 profit margin per cartridge, they still make more money than the Indian company because 15 million copies got sold).

Until the Indian companies get out of subcontracting and get into where the real money is at (IP, publishing and royalties), virtual worlds aren't exactly big money spinners.

[Sri]

^^^ Not all games are going to sell a million units. A company will make and develop atleast 7 to 10 concepts. It can hope for only one or 2 to succeed. But production cost of developing all the 7 to 10 games is the same. The Indian developer makes money any which way.

Making of CD is really not a bottleneck on supply as it effects on the elasticity is very low. Chinese guy will only make money on successful games.

Difference is where you fit in the supply chain. Indian generally fit in it before the product is launched. Chinese fit into things when the product has already established demand.

Of course largest piece of pie goes to the guy who risks money first... that 'risk' money goes to Indians...

So Chinese get the cost low so that you make the most of your successful products... Indians get price (risk) of failure under control....

[Abhijeet]

There are actually quite a few Indian companies, some of which I know fairly well and are venture-funded, in the software products space. With the rise of distribution channels like the app stores, which don't require a large budget to publish a game (though marketing it is still expensive), there are also apps developers who build their own IP, in addition to or without an outsourcing arm.

Since the outsourcing story is so well played-out, the number of new pure-play outsourcing companies being started has probably peaked, or are lifestyle businesses only (generating enough income for a handful of people) at this point.

The main issue with the Indian software industry is that there are too many producers and not enough consumers. People are still too poor to spend much on technology, so product companies have to focus on foreign markets, primarily the US, which is hard to do from half a world away. China has a huge advantage in that they actually have a large internal market for tech products, leading to the building of very large tech companies focused exclusively on China. In India that's at least several years away.

[Abhijeet]

This whole buy side/sell side, virtual vs physical etc discussion is just a weak rationalization of India's inability to execute on what should be fairly simple goals. Build basic infrastructure. Educate everyone to a minimum level. Keep citizens safe. Make businesses easy to start and run (and perhaps even shut down).

Going virtual will not prevent India from having to deal with these issues sooner or later. In the meantime, we can keep telling ourselves that our huge advantage is that we add so much more value in IT than in manufacturing.

[Theo_Fidel]

Make businesses easy to start and run (and perhaps even shut down).

I dunno about others but this part has definitely been fixed in TN for small businesses. My dad says 3 day and 2-3 forms is all it takes now for small businesses. The UPS company owner said it took him 2 days. Larger enterprises still have to go through the land/environmental/utility approval route.

One of the amazing things about India that has creeped up without anyone realizing is that IMO it is one of the most efficient consumer markets I have run into anywhere in the world. Note I did not say organized. If you have money and the cellphone numbers of the businesses you are dealing with, everything will happen like a dream. I'm increasingly very impressed by this. Need an electrician, call a cellphone and he will be there and fix your problem 2 hours later. Even in the wilds of Chattisgarh, a grocer delivered baby wipes to us at 11 PM on a Friday. In Theni, our hotel owner called a Indica to drive us to Chennai at 1 AM. Our hotel itself was quite modern A/C and only cost us Rs 1,400 for the night. In all of Kerala we never paid more than Rs 1,500 per night for a room, All A/C. But I tend not to go for the fancy 5 star name hotels.

India's main failure is in organization. I suspect that has everything to do with the lack of money generally. Where the Chinese beat us in being organized about what they have to do. India is organic.

[member_20292]

^^

Theo fidel ji. Read my earlier long post on this page (or the previous page) .

You're right that we do need organization.

But deal is this.

Either we expend time money capital on organizing our things up.

Or we wing it. Say..."we are like this only" ...and save our time money effort into breakneck jugaad economic expansion, sales expansion etc. Organization ki maa ka this and behen ka that.

I think organization, straight and narrow roads and stuff is over rated.

No need for organization. PLUS; let's remove the straight jackets that our govt. puts on us, in the name of organization and rules and licence raj and permission raj. We need less laws, and less licenses, and less government in general.

[Suraj]

Things will be cheap if manufactured locally argument does not fly - look at US, Dubai, Singapore or the western word. The currency has to be strong and that can be strong in a service driven model.

Second myth, mass production is mass employment - factories are and will more me dominated by robots and not humans.

The US and western world DO manufacture a lot! The US is the largest, or second largest, manufacturer in the world. The EU as a single entity is probably a larger manufacturer than both US and PRC. Even Dubai - ignoring that it is nothing more than a city state that bears little comparison to a subcontinental-sized India - was a transhipment hub and business center for the middle east. The US and EU both produce trillions in merchandise exports each year (excluding more in services exports), besides feeding their domestic industry.

Take any one western European member of the EU as an example - Belgium - and check out their trade volume. Exports: $330 billion - larger than that of India's $310 billion last year. They have a population of what - 10 million ? They may not manufacture plates and mugs, but they did at one time - they moved up the value chain to their current manufacturing level. We can barely even make the steel to feed our warship building effort.

How is mass production => mass employment a myth ? Do you have numbers for the robot utopia ? Price per robot ad who pays for the robots ? Number of robots ? Price of uninterrupted electricity distribution ? Who pays for the electricity ? Who makes the robots ? My point is that automation on such a scale has significant upfront capital costs and constant maintenance load and energy requirements that our economy is not capable of supporting today. Instead we depend on cheap labour to build our capital base to be able to do that.

[Suraj]

^^ rather strong words.

What I mean is this;

You sell angry birds to a kid in Houston for 2.99$. This is coded in one of the European countries where Rovio is from. There is a market, to code, say "furious pigeons" and sell them to a kid in Moscow for 1$, and code it in Bangalore.

Rovio is NOT COLLECTING the 2.99$ for roads, railways, airfare, cellphone towers, etc....woh sab ho gaya hai.

Why does one need to go ab initio into the economic system to be successful at it? Thats my point Suraj.

But you are arguing this as the basis of overall economic prosperity. It is not. It is just one small industry that exists due the massive investments made elsewhere. it cannot by itself serve to pay for the infrastructure, or be any way towards prosperity for India, or even for any significant number of Indians. Didn't you once talk about 100s of millions of software engineers ? In the absence of the manufacturing scale, skilled workers or the hard currency to pay for it, who pays the upfront cost for and makes 100s of millions of computers they use ? For the offices ? The electricity generation and distribution system ? The presumption that India can jump from what is still a significant pre-industrial economy to a post-industrial one without first educating and employing its vast population in building an industrial infrastructure in the official economy is farfetched.

[subhamoy.das]

Things will be cheap if manufactured locally argument does not fly - look at US, Dubai, Singapore or the western word. The currency has to be strong and that can be strong in a service driven model.

Second myth, mass production is mass employment - factories are and will more me dominated by robots and not humans.

The US and western world DO manufacture a lot! The US is the largest, or second largest, manufacturer in the world. The EU as a single entity is probably a larger manufacturer than both US and PRC. Even Dubai - ignoring that it is nothing more than a city state that bears little comparison to a subcontinental-sized India - was a transhipment hub and business center for the middle east. The US and EU both produce trillions in merchandise exports each year (excluding more in services exports), besides feeding their domestic industry.

Take any one western European member of the EU as an example - Belgium - and check out their trade volume. Exports: $330 billion - larger than that of India's $310 billion last year. They have a population of what - 10 million ? They may not manufacture plates and mugs, but they did at one time - they moved up the value chain to their current manufacturing level. We can barely even make the steel to feed our warship building effort.

How is mass production => mass employment a myth ? Do you have numbers for the robot utopia ? Price per robot ad who pays for the robots ? Number of robots ? Price of uninterrupted electricity distribution ? Who pays for the electricity ? Who makes the robots ? My point is that automation on such a scale has significant upfront capital costs and constant maintenance load and energy requirements that our economy is not capable of supporting today. Instead we depend on cheap labour to build our capital base to be able to do that.

I stand corrected on US and INDIA regarding manufacturing. Both INDIA and US are in the top 10 list. Boy, what can media do to your judgement.

I was looking closely at this http://en.wikipedia.org/wiki/List_of_co ... omposition and some interesting things are coming out.

Both US and INDIA have around 20% of GDP in manufacturing while CHINA has around 46%. CHINA has about 40% in service while INDIA has about 60% ( 10% in agri ) and US about 70% and as the share of agri continues to go down we will be looking more like US. So INDIA is following the US model rather than CHINA and that is where the good paying MASS jobs are to make a large sustainable consumer base. It is common sense that manufacturing cannot sustain a large job market of 200million and with the increasing improvement in productivity, it will continue to go down. Automation does not mean only robotized factory floors - and yes Indian companies like Tata and Mahindar are already doing it. Automation means improving productivity by replacing humans with machines of all kinds. Take an example - by wife runs a bakery.She used to employ 5 manual hands to manufacture breads and biscuits. Later she wanted to increase productivity and she installed bread making machines and now the entire operation is fully mechanised and number of manual hands dropped to 2 a loss of 60% of the jobs!

NEXT time donot write off INDIA in manufacturing. And SERVICE is the only WAY forward with some selective manufacturing for inclusive job creation for the 100s of millions.

[subhamoy.das]

^^ rather strong words.

What I mean is this;

You sell angry birds to a kid in Houston for 2.99$. This is coded in one of the European countries where Rovio is from. There is a market, to code, say "furious pigeons" and sell them to a kid in Moscow for 1$, and code it in Bangalore.

Rovio is NOT COLLECTING the 2.99$ for roads, railways, airfare, cellphone towers, etc....woh sab ho gaya hai.

Why does one need to go ab initio into the economic system to be successful at it? Thats my point Suraj.

But you are arguing this as the basis of overall economic prosperity. It is not. It is just one small industry that exists due the massive investments made elsewhere. it cannot by itself serve to pay for the infrastructure, or be any way towards prosperity for India, or even for any significant number of Indians. Didn't you once talk about 100s of millions of software engineers ? In the absence of the manufacturing scale, skilled workers or the hard currency to pay for it, who pays the upfront cost for and makes 100s of millions of computers they use ? For the offices ? The electricity generation and distribution system ? The presumption that India can jump from what is still a significant pre-industrial economy to a post-industrial one without first educating and employing its vast population in building an industrial infrastructure in the official economy is farfetched.

The more I analyze, the more I feel that India DOES not believe in following others and tends to keep its IDENTITY or let us say we work ONLY under pressure and hence do not follow a PLANNED approach. We build factories and then the roads, we build the SAT launchers and then the long range missiles, we build local consumer and then focus on exports, we build service industry and then focus on manufacturing, we have democracy and then autocracy.

India's core strength is its national obsession with KNOWLEDGE. INDIA may be the only country where the GODDESS of KNOWLEDGE is worshiped all the way from the elementary schools to the Engineering schools. In schools, we are obsessed with GK and then we have nation wide GK contest in the name of QUIZ. Even AB says that "GYAN HE APKO APKA HAK DILATA HAI" in Who Wants to Be a Millionare. It is this quest for KNOWLEDGE which is driving us towards service driven model and innovation. It is this core element which is missing from CHINA. One of my ex-boss was a CHINESE and he said to me that CHINA will never be able deliver in industry where a touchable OUTPUT is not produced because a CHINESE cannot think of a virtual OUTPUT. INDIA mindset is already engraved in virtual world "MAYA". No wonder we are excelling in service where the output is a smile on the face of the customer - a VIRTUAL thing which cannot be touched but can only be SEEN and felt.

Sorry for becoming more India centric than CHINA.But the difference in the two civilizations and in what they excell is clear like a crystal.

[chola]

Things will be cheap if manufactured locally argument does not fly - look at US, Dubai, Singapore or the western word. The currency has to be strong and that can be strong in a service driven model.

Locally made things are expensive in US, Dubai, Singapore or the western word because they are wealthy. Until you are wealthy, locally made things are cheaper simply because of transportation alone.

As to your second point. IT sits on top of infrastructure and manufactured goods made elsewhere. It does nothing but audits, tracks and organize physical wealth. It will always employ fewer people than the manufacturers.

[chola]

There is a paucity of Indian resources for China or the entire Far East for that matter. Except for desis in HK and Singapore, we are almost totally divorce from the Asian trade and supply chain. Even though we are Asian we have no weight or even ability to communicate with China, Korea or Japan. This inability hurts us because India as a strategic resource is nearly useless for the largest Asian economies. Currently we're only useful if a MNC is looking into Bangladesh or Pakistan (besides our own market.)

This is another reason why we need a thread like this to be rational. Unless we want to be grouped with insects like Bangladesh and Sri Lanka forever we need to understand the East Asian economies and China, for better or worse, is the largest and most important one.


If you are an IIT or Ivy grad you stay in the US and join an American firm with an operation in the China (basically every US company worth its salt.)

Now u are bordering on frenzy in praising China. Please post sales data and facts to support your argument. Mean while let me bust a few of your perceptions

How the hell is saying there is a paucity of Indian resources for China and the Far East "frenzy praise for China"?

As for data, I've posted them ad nauseum here. Look what I wrote before in this thread or simply call up GM, VW and Fored sales figures for China and India. For GM it's 2,600,000 vehicles sold in China versus 160,000 in India.

The multiples are between 10 to 20 on the chini side over the Indian market. It would be the same for Procter and Gamble, General Electric. Boeing or practically every other MNC I can think of.

Since India is not a manufacturing sweat shop for rest of the world, only the MNC who has a sizable market in India are attracted to India and then eventually they also start to service the global market. Example - Ford, Suzuki, Volkswagon, Nokia, Huyandai, Samsung, LG, Whirlpool need i go on.

You see the same companies in Nigeria or Peru. They are there for the local market. It still doesn't change the fact they are outside of the trade and supply chain.

Again, India is worthless as a pre-popositioning resource for any market outside SAARC because we don't have the knowledge resources and connections to the largest economies in Asia to our East. No one uses India to supply parts for Chinese, Korean or Japanese markets which constitute the third pole outside the US and Europe as the main consumer markets for MNCs.

[chola]

India's core strength is its national obsession with KNOWLEDGE. INDIA may be the only country where the GODDESS of KNOWLEDGE is worshiped all the way from the elementary schools to the Engineering schools.

Fine and poetic words which do us no good in this thread. Every country in the world, especially those in the developed world and the Far East is obsessed by KNOWLEDGE. Who are we kidding? In fact, we score nowhere close to what the chinis, the Japanese and the rest of the Far East in world wide exam studies.

I'm sorry but you can see in this thread those who understand cold hard economics, and Suraj is one of them, and those who depends on some wonderful exceptions that can push us forward. Sorry, when we identify the facts and understand the problem that is when we can move forward.

Again, the world is real and real wealth is dependent on things you can touch and feel. The virtual world that our IT industry depends on is firmly rooted in infrastructure and economic activity created in the US. Remove the US network infrastructure and the Fortune 500 and you have no work.

Sorry for becoming more India centric than CHINA.But the difference in the two civilizations and in what they excell is clear like a crystal.

We are all India centric. But for this thread to be more useful than a dung pile to bait 50-cent trolls then we need to at least understand the basics of the chini economy. Sales figures from the MNCs are one of the few things we can look at independent of the commie mouthpiece that we can look at to figure out something as simple as its size.

[member_20292]

^^^ Chola ji. Okay.

So, lets look at the sales figures for GM for the past 10 years in China. Where do we get the raw data from? Is there a breakup by model, price, profit earned per model?

Please give some way to obtain raw data. Else we only try to do shadow play with market opinions and not have hard numbers of our own to give out.

cheers

[Suraj]

I stand corrected on US and INDIA regarding manufacturing. Both INDIA and US are in the top 10 list. Boy, what can media do to your judgement.

I was looking closely at this http://en.wikipedia.org/wiki/List_of_co ... omposition and some interesting things are coming out.

Both US and INDIA have around 20% of GDP in manufacturing while CHINA has around 46%. CHINA has about 40% in service while INDIA has about 60% ( 10% in agri ) and US about 70% and as the share of agri continues to go down we will be looking more like US. So INDIA is following the US model rather than CHINA and that is where the good paying MASS jobs are to make a large sustainable consumer base. It is common sense that manufacturing cannot sustain a large job market of 200million and with the increasing improvement in productivity, it will continue to go down. Automation does not mean only robotized factory floors - and yes Indian companies like Tata and Mahindar are already doing it. Automation means improving productivity by replacing humans with machines of all kinds. Take an example - by wife runs a bakery.She used to employ 5 manual hands to manufacture breads and biscuits. Later she wanted to increase productivity and she installed bread making machines and now the entire operation is fully mechanised and number of manual hands dropped to 2 a loss of 60% of the jobs!

NEXT time donot write off INDIA in manufacturing. And SERVICE is the only WAY forward with some selective manufacturing for inclusive job creation for the 100s of millions.

Economic imperatives should be compared on the basis of level of development, not size of economy. The US may be a services driven economy today, but in the early/mid 1900s, when they were at our level of development, they were the largest manufacturer on the planet. It's what helped them win World War 2 - the ability to outproduce Japan and Germany. They have just matured over time as an economy, into a services driven one that also happens to be the largest (or 2nd largest) manufacturer in the world. I'm surprised it is not obvious - they make everything from Boeing civilian aircraft to their vast military arsenal.

All this talk about automation doesn't acknowledge WHY the developed economies do it. They do it because their manpower is expensive, because they are wealthy. They have a huge base of capital and technology, due to which automation is comparatively cheaper and much more efficient than largescale manpower involvement in manufacturing.

India on the other hand does not have the capital or technology to build such automation. Automation costs money. Lots of money. We use relatively cheaper and inefficient manpower because that's the fastest way to employ our population and build our capital base, with which we can then progressively automate our economic production as more of our population becomes skilled and involved in higher end service occupations. But today, that is not our imperative.

Our imperatives should not be dictated by the cool things done in developed economics, but what fulfils our economic needs. We need to educate and gainfully employ over half a billion people. Talking of solutions to the developed world's problems is not the answer.

[vina]

Nicholas Kristof's opinion on China.. Looking for a Jump-Start in China

First off, contrary to what our dear drones have been saying here, it seems that Hu Jintao is widely regarded as a failure!

Now his predictions.

The new paramount leader, Xi Jinping, will spearhead a resurgence of economic reform, and probably some political easing as well. Mao’s body will be hauled out of Tiananmen Square on his watch, and Liu Xiaobo, the Nobel Peace Prize-winning writer, will be released from prison.

It helps that the bar is low for Xi: he follows President Hu Jintao, who is widely regarded in China as a failure. Even government ministers complain that he squandered his 10 years as leader. Today there is pent-up demand for change.

President Hu, who always reads speeches from texts, is a robot who surrounds himself with robots. One such robot aide is Ling Jihua, whose 23-year-old son was driving a Ferrari one night last March with two half-naked women as passengers. The car crashed on a Beijing road, killing the young man and badly injuring the women, one of whom later died.

Ling feared a scandal and reportedly began a cover-up. He went to the morgue, according to the account I got from one Chinese official, and looked at the body — and then coldly denied that it was his son . He continued to work in the following weeks as if nothing had happened. The cover-up failed, and the episode underscored all that was wrong with the old leadership: the flaunting of dubious wealth, the abuse of power and the lack of any heart.

How Crash Coverup Altered China's Succession

Thank you. I’m well. Don’t worry,” read the post on a Chinese social networking site. The brief comment, published in June, appeared to come from Ling Gu, the 23-year-old son of a high-powered aide to China’s president, and it helped quash reports that he had been killed in a Ferrari crash after a night of partying.

It only later emerged that the message was a sham, posted by someone under Mr. Ling’s alias — almost three months after his death.

Ahh.. In china , dead men post in social networking sites, photos of Al-31F are passed off as latest WS-DingDong XX .....

But Mr. Hu suffered a debilitating reversal of his own when party elders — led by his predecessor, Jiang Zemin — confronted him with allegations that Ling Jihua, his closest protégé and political fixer, had engineered the cover-up of his son’s death