A Comparative Assessment on the Fdi Attractiveness of India and China for Australian Companies

Table of Contents

Introduction 2

Assessment methodology 3

Comparative assessment 3

Political 3

Legal 6

Economic 8

Infrastructure 11

Cultural 15

Conclusion 17

Recommendations 17

References 19

Appendices 22

Introduction

India and China are two of the world's biggest nations and the fastest growing economies in the world as seen from Table 1 below. China has the second largest economy after US, while India is fourth (Deloitte, 2006). However, Australian companies intending to invest in either or both countries need to be aware of the challenges and opportunities in both investment environments.

Table 1: Country quick facts

Indicators China India

Population 1.3 billion 1.1 billion

GDP (PPP) $6.1 trillion $2.7 trillion

11.1% growth 9.7% growth

10.1% 5-year annual growth 7.6% 5-year annual growth

$4,4644 per capita $2,469 per capita

Unemployment 4.00% 7.20%

Inflation (CPI) 4.80% 6.40%

FDI inflow $69.5 billion $16.0 billion

Source: Heritage foundation (2009)

This report aims to assess the challenges and opportunities guided by established framework and utilising empirical data from both countries. Recommendations to Australian companies are then made based on the assessment findings.

The next section of this report describes the assessment methodology. The comparative assessment of both countries' empirical data and findings are presented next. The report concludes with a summary of the assessment findings and recommendations to Australian companies.

Assessment methodology

The investment environments in China and India are assessed in the following five dimensions: political, economic, legal, infrastructure and cultural. These dimensions are adapted from Peng (Peng & W, 2006). Publicly available empirical data for both countries are compiled from each country as well as international bodies. A straight comparison of each datum for both countries is made and findings are drawn.

Comparative assessment

Political

Background. Political control of India was held by Britain by the 19th century. However, Mohandas Gandhi and Jawaharlal Nehru led the non violent movement to free India from the British rule, bringing India independence in 1947.India opened up to FDI in 1991 (The World Fact book, 2009).

To ensure China's sovereignty, the Communists under Mao Zedong established an autocratic socialist system which controlled the life and cost the lives of million people. However, after 1978, Deng Xiaoping and other leaders improved the living standards and personal choice. Output had quadrupled by 2000, yet tight political controls remain tight (The World Fact book, 2009).

Government. India has a democratic government. Bicameral parliament consists of the Council of States or the Rajya Sabha and the People's Assembly or Lok Sabha voted by general elections held every five years (The World Factbook, 2009).

The government type in china is communist state. Bicameral parliament consists of The National People's Congress or Quanguo Renmin Daibiao Dahui. There is no universal suffrage and no general elections. In China, communist Party is the only party in power.

Political stability. India's political stability has returned since 1999 (Investment Risks in India, n.d.). However, there are destabilizing factors like terrorism and national tensions with Pakistan (Mumbai terror attacks, 2009; Muni, 2008).

China faces separatism threats in Tibet and Xinjiang, but these regions are not near the centres' of economy development. Political threats are more on the outskirts of China.

Analysing the above, Chinas commercial centre is less vulnerable to political risk than India.

Attitude toward FDI. In 1996-97, the Indian government set up the Foreign Investment