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China-India Comparison
– An Examination of 2011
Direction and Developments
Moving China and India Forward
China - India Demographics
Legal Establishment Procedures and Taxes Compared
India as a Global Manufacturing Hub
India’s Growth to Outpace China’s
China’s Indian City Equivalents and the Reasons for Going
India vs. China Profitability
Business Cultural Differences

Essays and Observations by Chris Devonshire-Ellis, Principal of Dezan Shira & Associates
 Introduction - Moving
China and India Forward
O
ver the last few years
my firm, Dezan Shira
& Associates, has been
involved in China
and India and we
have commented many times on the
relationship between them. I personally
have been involved in the bilateral trade
space through the mutually beneficial
development of the firm into both markets
since 2005 – we now possess, between the
two countries, some fifteen offices and a
team of several hundred staff.
As the relationship starts to look at
maturing to a more trade based focus,
the announcement by Chinese Premier
Wen Jiabao in December of an expected
increase in bilateral trade to US$100
billion in volume by 2015 has begun
to concentrate minds on how these
two giants of Asia are to manage their
development. Indeed, the China-India
issue is not just a regional matter, it is
one that will affect global trade balances
and security. If China and India succeed,
2
global growth is almost assured for the
remainder of the century. Hundreds of
millions will be lifted out of poverty.
Fail, and the fallout may spark serious
conflict, possibly even nuclear. The stakes
may never have been higher in ensuring
that a dependable, secure and mutually
beneficial relationship emerges.
In this comparison I try and examine the
differences between the two nations, what
I see as the sticking points, and provide
clues as to why some of these may be
about to be removed to clear the path
for a more pragmatic, and commercial
minded relationship between the two
countries. That the relationship is highly
politicized is beyond doubt; matters
concerning especially the position of the
Dalai Lama and the Tibetan Government
in Exile, currently resident in India,
provide a case in point. China regards the
regime as subversive, and consequently
uses this to push India towards its point
of view by making claims on Indian
territory and making border incursions
[ By Chris Devonshire-Ellis ]
along disputed areas on a regular basis.
India’s military responds by requesting
budget increases along its territory with
China, delaying the construction of cross-
border highways that they suspect would
provide China with the opportunity to
“just march in,” and both use up resources
in addition to inhibiting development. For
a nation requiring massive infrastructure
development, such expense and deliberate
regional suppression comes at a huge
opportunity price.
China’s relationship with Pakistan too,
can be a thorn in India’s side – a failed
state, responsible for attacks in India’s
major cities, with a habit of antagonizing
India’s huge Muslim population causes
both a continuation of mistrust, but also
deflects Indian attention, finance, military
and resources towards its western border
and again prevents India from economic
growth that could potentially challenge
China’s bid for regional supremacy. It’s
hardly any wonder that the two sides view
each other from polar opposites.
However, against this backdrop is the
increasing need to develop bi-lateral
trade ties. China needs a huge, export
consumer market to sell too, India
provides this. So does China for Indian
businesses. What is happening therefore
is a rebalancing of the relationship, to try
and move it away from border disputes to
a more settled and reliable trade platform.
Depending upon the future plans of the
Dalai Lama, who one suspects, is well
aware of the problems caused to the
Indian government in hosting him, it is
possible the next Dalai Lama – and by this
I mean the Dharamsala appointed figure,
not the possible Beijing incarnation – may
be found born externally from India.
Such a scenario would provide India
with a get-out clause in its relations with
China, and lead the government in exile to
establish its operations elsewhere. There
are precedents – the fourth Dalai Lama
was born in Mongolia. It is not beyond
the bounds of imagination to perceive the
next incarnation being found there – the
Mongolian’s relationship with China is
tetchy at the best of times, and Mongolia
is largely interdependent from Chinese
trade. That scenario mentioned, it is also
possible that the current Dalai Lama
could find a way to agree with Beijing
to assume a reincarnation found in Tibet,
or China. Such issues require dialogue,
and are naturally highly sensitive. One
hopes such discussions are taking place,
at least informally. It would appear in
Beijing’s best interests not to preside
over a situation where two Dalai Lamas
are announced. That would only prolong
the conflict for much of the remainder of
the century.
China-India trade developments for the
time being then are very much interwoven
with the future of the Dalai Lama. If his
government leaves India, Indian relations
with China will massively improve.
Both sides understand each other on this
point, and both are mature enough to
determine – border dispute reminders not
withstanding – that time will tell.
Beyond this also lies a strong desire to
reconnect old trade routes and border
regions. Bangladesh and Myanmar lie
between China and India, it is in the
interests of both to see these nations
become better equipped, more able to
participate in global trade, and open up
their lands to the exploiting of valuable
resources. That will take a regime change
in Myanmar, however China is also
becoming frustrated with the lack of
progress made in the country. It too wants
access to resources and an increase in
trade. Continuing to support the generals
indefinitely while the potential for the
Burmese market in buying Chinese goods
remains in poverty is not a scenario
particularly appealing to Beijing. The
same can be said for Delhi.
Bangladesh meanwhile offers a port on
the Bay of Bengal for China, and access
to Indian markets as well as towards the
Middle East. Chittagong is already being
redeveloped with billions of dollars of
Chinese investment. Better relations with
India and Bangladesh also can reconnect
the Jute industry, and potentially revitalize
Calcutta. The city is already home to the
largest overseas diaspora of Tibetans,
and links back to Lhasa, if re-established,
could once again remake Lhasa into a
regional Himalayan trading hub. The
purists may scoff, but Lhasa traditionally
had such a role. Reclaiming trade routes
from Calcutta and Dhaka to Lhasa would
also revitalize the Himalayan region. If
China and India are unencumbered in
political issues over the Himalayas, better
cooperation concerning water resources
and management may also result. It is
pertinent to note that while the Dalai Lama
calls for more focus on climate change in
Tibet, it’s his own removal that is more
likely to provide a platform for increased
regional cooperation of a resource
that needs to be properly managed,
tensions dispersed, and developed along
multilateral considerations.
Pakistan remains awkward, but again,
Chinese patience is wearing thin. The
export of terrorism to West China
alarms Beijing, as does another potential
market for Chinese goods remaining
in poverty. Peace is required, not just
for the redemption of Pakistan but to
also assist with the redevelopment of
Central Asia. What was once a cosy
relationship built in part to frustrate India
is now looking increasingly difficult to
maintain in its current form. China wants
markets in Pakistan, and Pakistan needs
infrastructure. The same is true of Central
Asia, and the huge markets to the west
in Iran. Securing such a vast territory
to allow Chinese businesses to operate
in them is becoming more of a pressing
concern than using Pakistan as a needle
to prickle Indian sensitivities and keep its
military occupied along its Western front.
I predict longer term changes in China’s
expectations from Pakistan, although
this will undoubtedly take time in what
remains a fragile country.
While the current status between China
and India remains built upon political
differences, there are moves to reconstruct
this towards trade based foundations.
Sino-India trade during 2010 reached
US$60 billion, the same level it was at
before the global financial crisis. US$60
billion is incidentally, the same trade
volume that China currently has with
Russia. Premier Wen, recently stated in
Delhi it should increase to US$100 billion
by 2015. Clearly, trade is developing
and becoming more important. Chinese
businesses are starting to move to India,
and Indian businesses are increasingly
moving to China. We know, as our
practice is positioned right in the middle
of that trade and we handle FDI into both
countries from either side.
My belief is that although the old disputes
and mistrust in relations is undoubtedly
there, both nations see a need to move
beyond this stalemate and recalibrate
their understandings. It is curious that
an elderly monk and a government of
Generals provide two of the keys that
will enable the rusty lock to bilateral
trade development be broken open.
As and when it is, that US$100 billion
will begin to look like small change.
The opportunities between the two are
enormous.
Chris Devonshire-Ellis is the founding
partner of Dezan Shira & Associates,
w h o s p e c i a l i z e i n f o re i g n d i re c t
investment, legal and tax advice in
China and India. The firm maintains
10 China offices (Beijing, Dalian,
Qingdao, Shanghai, Hangzhou, Ningbo,
Guangzhou, Zhongshang, Shenzhen
and Hong Kong) and five in India
(Delhi, Calcutta, Mumbai, Bangalore
and Chennai). The practice may be
reached at chinaindia@dezshira.com.
Chris also contributes to our business
web sites India Briefing and the China-
India platform 2point6billion.
Note: The articles in this comparison
have previously appeared in our
2point6billion, China Briefing
and India Briefing websites and
publications, and may have been
amended from their original content.
3
 China and India Compared
The Next 20 Years have caught up significantly. When that China vs. India 2030 – Global Forecast
China and India are the two giants that will happens, the two countries will have Item China India
Size of economy in global terms 2nd 4th
firmly buttress the world’s economy in the reached their rightful place as global
Global position in purchasing power parity 2nd 3rd
coming century. And as both countries trading giants and regional partners and Global ranking among fastest 20th 12th
prepare themselves for a second wave of truly usher in what will become the Asian growing economies
Per capita income (US$) 10,700 8,900
growth in the aftermath of what has indeed century of dynamism and growth.
World per capita income ranking 80th 88th
proven to be a difficult financial crisis for Number of workers (millions) 175 600
Asia, questions are now being asked as to Trading Partners Population growth rate
Total population in global terms
0.82%
19%
1.01%
21.5%
the extent of competition that India really Bilateral trade between India and China Percentage of global trade 8% 5.5%
brings to global markets when measured has grown significantly since 2005. Due Global trade (US$bn, 2008) 9,824 4,500
against China. to the global economic downturn, trade Total rail track (km) 200,000 130,000
Total highway length (km in millions) 1.8 0.9
between the two countries declined in Total number of English 10 250
In some respects, the rise of India has 2009. Interestingly, Chinese imports of speakers (millions)
been greatly overshadowed by what Indian goods fell 26.6 percent more than (Data in these charts has been extrapolated from the following sources:
U.S. Dept of Commerce, CIA, Free World Academy, Keystone, Photius,
has happened in China over the past 20 Indian imports of Chinese goods. In fact, Legatum Institute. Please note data for 2030 is partially subjective,
years. If the development in China had this speaks to a broader problem with the although based on publicly available forecasts and is inherently prone
to 20 years of potentially unforeseen circumstances)
not occurred, then it would be India that relationship between the two countries.
would be considered the new darling In many ways, China seems to benefit
of global growth. To some extent, that Indian Trade Gap with China
China vs. India 2010 – Fast Facts
has enabled India to commence its own Item China India
growth curves without the media attention Size of economy in global terms 3rd 12th India Trade Gap
that has been focused on China. In other Global position in purchasing 2nd 4th Linear [India Trade Gap]
power parity
ways, however, there is little doubt that the Global ranking among fastest 5th 2nd 50

US$100 million
phenomenal growth of China has served growing economies
to spur India into action, and to finally Per capita income (US$) 3,180 1,032
0
World per capita income ranking 104th 139th 2005 2006 2007 2008 2009
release the country from its moribund, Number of workers (millions) 250 500
50 year hangover of independence from Population growth rate 0.63% 1.55% -50

Britain. Total population in global terms 21% 17.5%

Percentage of global trade 8% 1.5% -100
Global trade (US$bn, 2008) 2,561 437
While China has largely dominated Length of coastline (km) 18,000 7,000 -150
headlines, India has begun to act. In Amount of arable land 0.64 1.45
(sq. km in millions)
fact, over much of the past decade, -200
Available fresh water area (sq. km) 3,720 314,400
India’s growth patterns have mirrored Total rail track (km) 86,000 63,140
China’s at an average of about 8 percent -250
Total highway length (km in millions) 1.43 0.07
annually until the financial crisis hit, albeit Total number of English 10 232
Source: PRC Ministry of Commerce/China Briefing Analysis
speakers (millions)
coming from a far smaller base. Currently
however, India’s share of global trade is
a little under 20 percent of China’s total. China/India Imports
But with an economy about to break into China Imports India Imports Percent Change China Percent Change India
the global top 10 in terms of size – India
currently is in 12th position – the global 350
US$100 million

80.00%
community is both starting to take note 300
60.00%
of India’s rise and to appreciate the clout; 250
40.00%
as well as the opportunities such power 200
20.00%
brings. 150
0.00%
100
By 2030, India will have overtaken 50 -20.00%
China in terms of population, and almost 0 -40.00%
2005 2006 2007 2008 2009
certainly in GDP growth rates. With India Imports 89.35 145.82 240.16 315 296.67
double the amount of available workforce, China Imports 97.68 102.78 146.31 202.81 137.14
a younger population and a consumer Percent Change India 50.80% 62.13% 64.70% 31.20% -5.80%
Percent Change China 27.20% 5.22% 42.30% 38.70% -32.40%
economy of its own of about half a
billion people in its new middle class, Source: PRC Ministry of Commerce/China Briefing Analysis
India’s tortoise against China’s hare will

4 2point6billion.com
 China and India Compared

more from trade with India. While in While trade has brought China and Development Bank, support India’s
2005 India enjoyed a trade surplus with India closer together, the two have pasts claims of sovereignty. Political tensions
China, the situation flipped in 2006. Since riddled with disputes. In 1962, the two frequently affect economic trade. India
then, the trade gap has steadily grown nations fought a war over disputed border has successfully appealed to the WTO on
and if the current growth trend holds, the territories, and to this day, Arunachal several occasions to block the export of
Indian trade deficit could reach US$20 Pradesh and a section of Kashmir remain Chinese products.
billion this year. Furthermore, India in dispute, though many international
typically imports medium priced finished sorganizations, including the Asian While it seems that for the time being
products, while it exports raw materials. trade will continue to increase, a major
Indian Imports from China/Chinese Imports
The inequality of trade has led to tension from India Jan 2009 - Jan 2010 (US$) dispute could severely disrupt their
as Indian manufacturers have a tough time India imports China imports economic relationship.
Jan-09 2.06 billion 861 million
competing with cheap, Chinese produced
Feb-09 1.75 billion 1.14 billion
goods. Mar-09
Apr-09
2.22 billion
2.39 billion
1.31 billion
1.35 billion
China Project Offices
Trade in 2009 was down significantly May-09
Jun-09
2.35 billion
2.26 billion
1.02 billion
927 million
vs. India Project Offices
from 2008 levels. However, the month to Establishing project offices (POs) in a
Jul-09 2.78 billion 979 million
month trend overall, from January 2009 Aug-09 2.69 billion 799 million country is useful as they permit foreign
to January 2010, has been increasing. Sep-09 2.67 billion 1.42 billion investment and participation in a specific
Interestingly, Indian imports of Chinese Oct-09 2.44 billion 935 million
project, usually linked to a high value
Nov-09 2.78 billion 1.19 billion
goods are climbing at a higher rate than Dec-09 3.29 billion 1.78 billion contract that may take two or three years
Chinese imports of Indian goods. Jan-10 2.81 billion 1.82 billion to complete. They negate the need for the
Source: PRC Ministry of Commerce foreign participant to establish a more
China’s Top 15 China Total Imports/Exports Asia (US$) permanent presence, as the PO is linked
Exports to India 2009 2005
Asia imports
271.45 billion
Asia exports
199.67 billion
to the contract completion terms, yet
provide flexibility of hiring labor, funding
Aluminum 2006 318.8 billion 244.69 billion
the project, and remitting profits overseas.
Electrical machinery 2007 378.54 billion 307.56 billion
2008 702.66 billion 663.3 billion As China developed and required specific
Fertilizers
2009 603.45 billion 568.6 billion skill sets to complete specific, usually
Impregnated text fabrics Source: PRC Ministry of Commerce
construction based projects, the China
Inorganic chemicals and rare earth
China Total Imports/Exports World (US$) PO enjoyed a relatively successful period
Iron and steel World imports World exports
of popularity in the late 1990s and early
Iron and steel products 2005 660.12 billion 761.99 billion
2000s. Recently they have fallen out
Machinery 2006 791.61 billion 969.07 billion
2007 955.82 billion 1.21 trillion of favor, mainly as Chinese contractors
Manmade filament, fabric
2008 1.13 trillion 1.43 trillion are now able to take the lion’s share of
Minerals 2009 1.01 trillion 1.2 trillion
construction work and do not need foreign
Optic and medical instruments Source: PRC Ministry of Commerce
short term sub-contractors to assist, and
Organic chemicals Indian Imports from China/Chinese also because the Chinese themselves are
Plastic Imports from India (US$)
India imports China imports restricting their use. When discussing
Silk; silk yarn and fabric
2005 8.94 billion 9.77 billion the matter with authorities in Beijing,
Vehicles 2006 14.58 billion 10.28 billion it appeared no PO licenses have been
2007 24.02 billion 14.63 billion
granted for a number of years, and that
China’s Top 15 Imports 2008
2009
31.5 billion
29.67 billion
20.28 billion
13.71 billion applications would probably no longer
from India 2009 Source: PRC Ministry of Commerce be approved.
Artificial flowers and feathers
Copper Jan 2009 – Jan 2010
Cotton; yarn and fabric
China Imports India Imports Linear [China Imports] Linear [India Imports]
Electrical machinery
Fish and seafood 35

Hides and skins 30

US$100 million

Inorganic chemicals and rare earth 25

Iron and steel
20
Machinery
Ores, slag, ash 15
Organic chemicals 10
Plastic
5
Precious stones and metals
Salt, surfur, earth, stone 0
9

9
09

10
09

Tanning, dye, paint and putty

9

-0

0
v-0
9
-0

-1
ar-

ar-
-0
ay

p-
Jan

Jan
No
l
M

M
Se
Ju

2point6billion.com 5
 China and India Compared
This policy is in sharp contrast to India,
where the project office remains a viable
vehicle for foreign investors to participate
in infrastructure and construction related
projects tied for a limited period to a
specific contract. Foreign investors
planning to execute specific projects in
India can set up a temporary project site
office in India to handle the contract. The
Reserve Bank of India provides approval
and grants general permission for foreign
entities to establish project offices, subject
to certain conditions. These dictate that
the foreign investor has secured a contract
from an Indian company to execute a
project in India.
In addition, the project needs to adhere to
one of the following conditions:
The project is funded directly by
inward remittance from abroad
The project is funded by a bilateral
or multilateral international financing
agency
The project has been cleared by an
appropriate authority
A company or entity in India awarding
the contract has been granted term loan
by a public financial institution or a
bank in India for the project
If the above criteria are not met, the
foreign entity has to approach RBI to
obtain approval.
In terms of remittances, authorized Indian
banks can permit intermittent remittances
by the PO pending the winding up or
completion of the project provided they
are satisfied with the legitimacy of the
transaction, subject to the following:
The PO submits an auditors or chartered
accountants certificate to the effect that
sufficient provisions have been made to
meet other liabilities in India including
income tax
An undertaking from the PO that the
remittance will not, in any way, affect
the completion of the project in India
and that any shortfall of funds for
meeting any liability in India will be
met by inward remittance from abroad
Any inter-project transfer of funds requires
prior permission of the pertinent regional
office of the RBI under whose jurisdiction
the PO is situated.
6 2point6billion.com
In the financial circumstances described
above, readers familiar with China based
transactions involving foreign currency
should note the Reserve Bank of India in
such circumstances fulfills much the same
role as China’s State Administration of
Foreign Exchange.
Under these circumstances, it is
apparent that in order to take advantage
of, and participate in, India’s massive
reconstruction projects, foreign investors
may well find the Indian project office
a suitable vehicle to use as it affords
relatively easy market entry and exit upon
project completion. This contrasts greatly
with China, where the project office is
now largely seen as having had its day.
China FICE vs. India
Branch Offices
There are some fundamental legal
structural differences between China’s
foreign-invested commercial enterprises
and India’s branch offices (BO), not
least amongst them being that Indian
BOs are not independent legal entities,
whereas China FICEs are. However, in
terms of use, both fulfill pretty much the
same criteria for foreign investors: they
permit the import and export of goods,
can buy and sell goods, can trade or offer
consulting services, and can remit profits
back overseas. Branch offices differ in that
they are still considered part of a foreign
entity based overseas, and are not limited
liability companies. Foreign-invested
commercial enterprises are independent,
limited liability companies. Accordingly,
BOs do not require capitalization whereas
FICEs do.
A downside of the India BO is the high
level of income tax – 41.86 percent against
India’s norm of 33.99 percent – and the
standard income tax rate of 25 percent
in China.
Other differences exist in terms of FICEs
and BOs engaged in the service industries.
Branch offices do not attract turnover tax,
which China does levy on FICEs involved
in the service industry at a monthly rate
of 5 percent. Service industry BOs are
subject to service tax against invoice
value at a rate of 10.3 percent. For trading
however, the applicable tax burden is
VAT, which in China is 17 percent and
in India is 12.5 percent. Though it may
not be possible to reclaim all VAT upon
export in China, whereas in India VAT
can be reclaimed in full upon export. The
advantage of the BO over the FICE is the
ease of establishing and exiting it as an
entity. For this reason it may make sense
to set up a BO despite the initial higher
income tax burden to test the Indian
market without having to commit to major
capitalization costs in India. For longer
term trading and manufacturing, a private
limited company incorporation would be
more suitable.
Foreign Invested Commercial
Enterprises vs. Branch Offices
Requirement China India
Limited liability company Yes No
Minimum capital investment US$4,420 N/A
Industry restrictions Can only sell what Retail
Income tax
is purchased
25% 41.86%
VAT 17% 12.5%
Average gross hourly pay US$3 US$1.20
Employee welfare 45-50% 10.3%
(% of salary)
China WFOE vs.
India Private Limited
Companies
China’s wholly foreign-owned enterprise
(WFOE) has become the investment
vehicle of choice for the international
investor wanting to manufacture, service
or trade in China. In addition to the
WFOE’s expansive business scope, its
unrivaled popularity arises from multiple
other factors, including 100 percent
foreign ownership and control, security
of technology and intellectual property
rights, a self-developed internal structure,
the insertion of existing company culture,
and ability to sell to China’s domestic
market, and the ability to repatriate profits.
In this regard, India’s private limited
companies (IPLC) are the same animal,
with the exception that whereas China has
a specific set of regulatory considerations
for Sino-foreign joint ventures, an IPLC
can also be an Indo-foreign JV, and both
100 percent foreign-owned IPLCs and
IPLC JVs are governed by the same
regulations. For the purposes of this
analysis, we shall concentrate on the 100
percent foreign-owned IPLC. The need
for such a company to have either 100
percent foreign ownership or whether it
requires an Indian investor is dependent,
in a similar fashion to China, upon the

scope of the business’s intended activities.
The intended scope of business activities
in India needs to be studied first to assess
the suitability of the business as being a
100 percent foreign-owned entity.
On the assumption that the scope
of activities does not require Indian
investment, then an IPLC may be
established with 100 percent foreign
ownership in India. This is known as the
“automatic route” and does not require
additional approvals.
Unlike China, application procedures
for 100 percent foreign ownership
of IPLC may sometimes fall into a
second category, which does require
specific approval from India’s Foreign
Investment Promotion Board (FIPB).
These categories are identified by the
Reserve Bank of India, and comprise two
lists concerning approval required (List
A), and limited eligibility (List B) that
affect foreign investment in India. All
items and activities that are not mentioned
in List A and List B are eligible for foreign
investment under the automatic route up
to 100 percent. Items in List A require
approval from the FIPB. List B prescribes
the limits on the foreign investments for
which automatic approval will be granted
by RBI, subject to certain restrictions.
The lists are quite specific and generally
do not cover standard manufacturing or
trading which are usually applicable under
the automatic route. Most India investors
entering the market to manufacture, trade
and sell standard products will not fall into
either List A or B restrictions.
Similar to the China WFOE, an IPLC
requires a minimum of two directors,
and has from two to 50 shareholders with
limited liability related to the amount
of paid up capital. Both directors and
shareholders can be other legal entities. As
is the case in China, the amount of paid
up capital required should be a financial
exercise to determine the business’s start
up and cash flow needs.
Interestingly, when all taxes are considered,
in terms of repatriating profits from India,
the IPLC is more tax efficient than the
China WFOE. Although Indian profits
tax is higher, it does not levy a tax on
profits repatriated overseas, which China
does impose. The additional costs of labor
welfare are also considerably more in
China, making the IPLC more financially
viable than its Chinese counterpart,
something to mull over if considering one
market over the other.
Wholly Foreign Owned Enterprises
vs. Private Limited Companies
Requirement China India
Limited liability Yes Yes
Minimum capital investment Industry specific US$2,500
Regulatory status One tier Two tier
Income tax 25% 33.99%
VAT 17% 12.5%
Profits repatriation tax 10% Nil
China vs. India
Corporate
Income Taxes
Both China and India have fairly well
developed tax structures, both with the
authority to levy taxes divided between
the central and regional governments.
Both countries are going through an
extended period of tax reform at present,
and India especially as it seeks to pass
legislation to update its tax base for the
first time in 50 years. Top amongst these
changes is likely to be the introduction of
a goods and services tax (GST) at varying
rates amongst internal purchase and
sales, although 100 percent refund upon
export is expected. The GST is expected
to amount to 16 percent of invoice value.
This system is expected to partially
replace VAT is some states, although in
others it will be a new introduction. VAT
is not uniformly applied by all states in
India. For certain “sin” goods, such as
tobacco and petrol, VAT may be applied
on top of GST. This system is expected to
be rolled out during 2011, however may
be subject to further delay.
India however does score better in the
application of VAT (and future GST)
refunds against exports. China levies a
tiered system of VAT refunds against
exports, and in some sectors, such as
garments, does not permit refunds at
all. India however permits VAT refunds
against all categories of goods and
services upon export. It should be noted
that China does not currently levy VAT on
services, while India does.
In terms of corporate taxes, applicable
rates are as follows:
China and India Compared
Tax China India
Corporate income tax 25% 30.9% to 42.23%
Education surcharge Nil 2% to3%
Business (turnover) tax 5% Nil
Wealth tax Nil 1% (if t/o above
US$32,600)
Dividend tax to 10% 14%
overseas parent
Transaction-based taxes China India
VAT 17% 12.5%
GST Nil 16%
Withholding taxes 0-45% 10-40% depending
on royalties charge depending if permanent
from overseas on service, establishment is
average 20% in India or not
Note: While every effort has been made to ensure accuracy of tax data,
readers are asked to bear in mind that in both cases, regional variations
occur and that the tax regimes in both countries are evolving rapidly.
The figures above are as a general guideline only, and may be subject
to change. Accurate and industry specific tax data should be obtained
directly from professional advisers.
Tax incentives
With China unifying its tax base in 2008,
it did away with preferential tax incentives
largely available to foreign investors, and
especially those in free trade zones and
special economic zones. China now tends
to levy or provide refunds against a variety
of taxes depending upon industry. In doing
so the Chinese central government tries to
manage balances between domestic sales
of certain products and exports of certain
products, and varies these from time to
time or as circumstances dictate. China
is still very much a centrally planned
economy. Specific tax incentives therefore
are usually applicable in certain industries
only, occasionally regionally based,
and typically involve a manipulation of
business tax, profits tax or VAT.
India on the other hand wishes to develop
its special economic zones and free trade
zones, and accordingly provides highly
attractive tax incentives to do so. These
can include 100 percent corporate income
tax breaks for up to 10 years. These can
be applicable to certain development
projects to be carried out in India, mainly
within infrastructure. Incentives also
exist for businesses involved in 100
percent export of products manufactured
in an Indian SEZ or FTZ. These are
typically 100 percent for the first five
years of profitability, and 50 percent for
an additional five years, although there
are regional and eligibility variations.
Nevertheless, the boom in manufacturing
that China enjoyed with the tax incentives
it used to offer in its development zones
are now being recreated in India, and this
should spur foreign investors familiar
with the China model to consider India
2point6billion.com 7
 China and India Compared

as an alternative manufacturing base, as
these incentives provide a clear impetus
for doing so.
It should be noted that China engages a
calendar year audit cycle, January 1 to
December 31. India uses the fiscal period
from April 1 to March 31.
China vs. India:
Commercial Real
Estate Rentals
For the purposes of this study, we used
New York as a benchmark to help compare
China with India. Apartment rentals were
based on buildings built no earlier than
1980 which an apartment seeker would
expect to pay in each of these cities. We
have identified only the medium range
level in this inclusion.
Apartment rents: Furnished four bed, medium range
(US$ per month)
New York
Shanghai
Mumbai
Beijing
Delhi
There is not a huge difference between
China and India, although the China
property market is more speculative,
somewhat erratic in movement and prone
to regular bubbles. Rentals in Mumbai
are increasing and are expected to do
so significantly while demand outstrips
supply for the next three to five years.
Summary
From the global manufacturing
perspective, China and India now offer
similar, yet also differing opportunities.
China’s main thrust of its development
is now creating equality of wealth within
its borders, and to do this it needs to both
improve upon some of the infrastructure,
education and housing options and
facilities that are currently available in
its rural areas. China’s growth will come
increasingly from the rural population – a
total of some 600 million people – and it
is this sector that the government wishes
to develop into becoming a consumer
class. Today’s opportunities for China
are largely about being able to service
this sector.
China is also moving up the value
chain and wants to move away from
its traditional low cost, export driven
manufacturing base. In doing so,
8,330
opportunities exist in adding value –
1,430
research and development, innovation
1,070
1,050 and design are all going to be developing
930 services that China increasingly needs.
China is changing towards more
sophistication in adding value, together
with increased opportunities in the sale of
goods and services to its domestic market.
For India, this is also partially true.
Indians are receptive to international
brands and a wealthy middle class, with
English widely spoken, has huge and
yet still untapped potential for global
the detriment of its overall economy, while
India does not have enough manufacturing
capability and is too dependent upon
services. It is these realignments that
are creating the opportunities. India’s
provision of tax breaks of 10 years are an
opportunity for growth and profitability
in overseas markets that should not be
wasted.
Accordingly, India may now be considered
as a viable and serious destination for
export driven manufacturing to markets
abroad. While the world recovers from
the global financial crisis and Western
demand remains weak, that may seem
somewhat optimistic. Businesses still
need to achieve growth, and as Asia starts
to post impressive results in earnings and
the ability for its population to become
consumers, so manufacturing in India
to service these markets becomes more
realistic.
In truth, the China vs. India debate is
a no-brainer. Its neither one, nor the
other, and although some cross over in
capabilities will undoubtedly emerge, it
is quite apparent to the author at least,
that global strategy, in terms of getting
growth onto balance sheets of parent
companies elsewhere, must now embrace
China and India as two unique, but
complimentary destinations to achieve
dynamism and profit capabilities for the
next two decades.

Apartment rents: Unfurnished three bed, medium range

manufacturers looking for sales overseas.
(US$ per month) This is true of everything from auto India is now more competitive than China
New York 5,200
components to fashion, and in this aspect overall for labor intensive industries, a
Shanghai 1,230
the two countries share similarities in reduction of income tax to 30 percent
Beijing 760
Mumbai 720 their major urban markets. India has also (China: 25 percent) during 2011 will
Delhi 470 taken up the mantle, recently discarded by trigger a spurt of foreign investment.
China, of offering cheap manufacturing. Also of note are India’s lower mandatory
Apartment rents: Normal, local rent, medium range
(US$ per month) As China has wound down its free trade welfare payments to employees - an
New York 3,100
zones and special economic zones for the average of 10 percent against China’s 50
Shanghai 770
purposes of export manufacturing, India percent. These developments will increase
Beijing 600
has ramped its up. China has become too Indian competitiveness over China in
Mumbai 480
Delhi 370 dependent upon export manufacturing to certain industries.

China – India China Briefing India Briefing China Business Guides India Business Guides

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Doing Business in India

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8 2point6billion.com
China Demographics
Dictate India as Global
Manufacturing Hub
C
h i n a ’s r a p i d l y a g i n g
population is set to
dramatically shrink its
workforce and effectively
pass the baton to India as
the world’s manufacturing hub, according
to analysis from Morgan Stanley and the
Global Times. China’s one child policy,
which has seen it manage its population
over the past three decades, is now finally
kicking into the work pool and reducing
the number of Chinese workers.
The Global Times says, “2015 will mark
the beginning of the end of China’s
demographic dividend.” The World Bank
also echoes those sentiments, predicting
that China’s GDP growth will fall to 7.7
percent in 2015 and to 6.7 percent by
2020. Morgan Stanley expects India’s
growth to head in the opposite direction
and to surpass China’s growth two years
from now. Personally, I suspect that when
speculation and manipulation is stripped
out of China’s current GDP growth rates,
India’s economy is already growing at a
faster pace than China’s.
China’s aging workforce is already
having an impact on the nature of
conducting business in the country. It
was in recognition of this that China
strengthened its labor laws two years ago,
making it more difficult for employers
to lay off aging staff without having to
pay significant compensation, based on
years of service, for loss of employment.
That move effectively made employers
financially responsible for at least part
of the nation’s pension requirements.
China will possess 200 million people
above 60 years in 2015, and workers
coming to retirement age are expected to
add an unprecedented 10 million retirees
per annum to that figure. That loss of
workforce is already starting to make
China more expensive, and this trend
will continue. India, however, is poised to
provide the vast bulk of the global labor
pool. By 2020, the average Indian will be
29, while the average Chinese will be 37.
The data has interesting repercussions.
China is becoming a
consumer market to sell India’s infrastructure
to rather than a global woes have become
manufacturing hub its opportunity
This is often quoted as the dynamic that
will maintain China as a major destination
for foreign direct investment. While this is
true, the nature of selling to China is still
wrapped in many problems, especially for
overseas investors. The China market is
prone to protectionist measures, and with
the Chinese government itself still a major
shareholder in many Chinese state-owned
enterprises, foreign investors will have
an increasingly tough time competing
with them. Additionally, selling to China
requires a profound knowledge of Chinese
culture and tastes. Then there’s the
stranglehold that China has on much of
its domestic logistics industry. Selling
to China is fine, but it is a path fraught
with difficulties. The successful foreign
investor will have deep pockets and a
sound Chinese joint venture partner to
help them. The domestic expertise and
finesse to assist sales of products to
the Chinese consumer will invariably
require Chinese local expertise. Brands
well-known globally will have to adapt
marketing, positioning and even recipes
to fit the Chinese model. As I pointed
out two months ago, white goods need to
become red.
The most common complaint about India
is its infrastructure, which coupled with
a generally moribund economy for 40
years after independence, and some quite
extreme weather conditions, has meant a
lack of investment in virtually everything.
That is already changing, as airports are
fixed, bridges spanning oceans are built,
and city subway networks are opened.
For contractors, architects and engineers
who made good in China, India is the new
opportunity. A staggering US$500 billion
is being spent in the next three years in
India, and foreign businesses involved in
any aspect of infrastructure development
are scrambling to get into the market.
Global sourcing
is relocating
China will still maintain various sectors
for sourcing in which it has specific
expertise, and of course there is still
its domestic market to service. But the
sheer weight of economics makes India
the future tiger of global procurement.
Wages are significantly lower than in
China, and our recent Asian Comparator
survey of wage levels and related costs
in China, India and other Asian countries
consistently showed India as excellent
value for money in the labor pool. Sure
there are comments about quality and that
infrastructure bugbear again, but China
went through the same issues twenty years
ago. “Made in China” was a poor brand
in the 1980s. India’s infrastructure is not
as bad as is made out either, and the cost
savings are there to be had. Relocating
2point6billion.com 9
 China Demographics Dictate India as Global Manufacturing Hub
a business from China to India is also,
from the legal, operational and financial
perspective, rather easier than is generally
considered, as our report earlier this
month demonstrates. China meanwhile,
continues to become more expensive, as
the Communist China Price re-establishes
a policy of charging foreign investors
more.
I took the matter up over the weekend with
a number of expatriate CEOs working in
India. Crucially, they had also spent time
in China – a minimum of five years each,
and some up to ten – running businesses
and foreign invested enterprises. Now
they were in India and all working
with significant businesses with global
turnovers in the tens of millions to billions
of dollars. When it came down to it, they
said, China was easier to do business in
than India. China was better at organizing
big projects, and the labor pool was
Ahead of the Curve –
India’s Growth to Outpace China’s
I
t’s always nice when a subject you
have firsthand and long standing
involvement in finally makes
the mainstream media, and so it
proved in November with The
Economist’s cover story stipulating how
India’s growth will outpace that of China.
We’ve been pointing this out for some
time and regularly over the past few
years on our 2point6billion.com and India
Briefing sites.
The Economist’s articles essentially state
what we’ve already said, that India will
soon start to outpace China thanks to a
young and growing workforce. It also goes
on to point out that India’s “much-derided
democracy” is finally proving fruitful
rather than a hindrance, and attributes
“India’s surprising economic miracle” as
largely due to its private sector.
10 2point6billion.com
disciplined and productive in ways that
India was not. However, when it came to
the smaller details, India was far easier to
live in than China. Cultural differences,
languages, and more acceptance by
Indians than Chinese of their overseas
background and experience all made
them feel more comfortable in India than
in China. However, although India was
more difficult at first base to do business
in than China, the feeling was that was
the precise reason they all had MBAs and
years of management experience – they
were being paid to solve such problems,
and therefore it was “just part of the
job.” Asked whether they would prefer
to live in India or China (Mumbai was
regularly compared with Shanghai) the
surprising conclusion was that India was
preferable. Several executives expressed
a desire never to return to China. The
conclusion therefore is simple: “India
is more awkward than China when
“The country’s state may be weak, but
its private companies are strong,” the
magazine said. That’s very true, and is a
major part of where China and India, and
the quality of senior management and
innovation, differ.
While the vast majority of China’s
largest companies are state-owned and
subsidized, a matter that is leading to
calls of “unfair competition” from the EU
in particular, the vast majority of India’s
businesses are private sector run and
managed and have to generate their own
income to survive and prosper. That is
leading to a growing difference in decision
making and executive talent within
the two countries, and while Chinese
executives are hitting a glass ceiling due
to political considerations and government
involvement, Indian executives are not.
implementing large projects. But it is
not insurmountable, and I am well paid
precisely to solve such issues.”
Clearly, the attitudes are changing, along
with the demographics. China may huff
and puff and posture all it wants, but
as it becomes increasingly belligerent
towards its neighbors, more expensive,
and apparently quite willing to blame
foreigners for taking all the money out of
the country in response to its economic
woes, it is progressively becoming less
tolerant of foreign investment. India is
the reverse. China cannot, for once, turn
back the tide that its long-standing one
child policy has now revealed, and it is
akin to being King Canute to suggest it
will. China’s demographic advantages
are coming to an accelerating end, and
it is India that is set to take up the slack.
In short, Chinese executives are being
denied the right to develop talents as
entrepreneurs within China’s largest
companies. I do not believe that to be a
healthy system of management training
and development.
But why does this matter to China-based
businesses? Why are we discussing this
on China Briefing?
Well first, let’s go back to what The
Economist had to say and had observed.
They said that, despite the poor
headlines generated in the run up to the
Commonwealth Games, India is doing
rather well, and its economy is expected
to expand by 8.5 percent this year. It has
a long way to go before it is as rich as
China (the Chinese economy is four times
bigger), but its growth rate could overtake

China’s by 2013, if not before. Some
economists think India will grow faster
than any other large country over the next
25 years. Rapid growth in a country of 1.2
billion people is exciting, to put it mildly.
The Economist is right. It is exciting.
Although China’s economy is four times
larger than India’s, it is also the second
largest in the world. India tends to get
overshadowed by all the China hyperbole.
India is, in its own right, the world’s
eleventh largest economy (nominal GDP)
and the fourth by purchasing power
parity. With predictions for that to grow
at 10 percent per annum for the next two
decades, the opportunities to succeed
in India, just as China slows down, are
overwhelming. It is also important to note
that while much is made of the Chinese
and their savings, they lag behind India.
India has the highest savings rate in the
world at 36 percent.
Much was made in the media also about
the Commonwealth Games, and the “shit
and crap” that preceded it, but we can
note the games are proceeding nicely now,
once a few heads got knocked together,
and also once a few “never been to India
before” media hacks started to realize that
no, India is not like London or Silicon
Valley, and that one has to adjust. Stupid,
yet widely publicized comments of Delhi
being a “cesspool” are just totally wide of
the mark. In fact the city, built by Edwin
Lutyens, was designed to show off the
splendors of the British Empire and was
built with large boulevards to rival Paris,
magnificent buildings, and was “greened”
with trees from all over the empire.
Visitors familiar with it will know what I
am talking about.
The Games are a one off, and nothing
really to do with China. What is to do
with China though, and The Economist
echoed our own earlier words, was that
they noted “China’s workforce will
shortly start ageing; in a few years’ time,
it will start shrinking.” India, meanwhile,
is now blessed with a young and growing
workforce. Its dependency ratio – the
proportion of children and old people to
working-age adults – is one of the best
in the world and will remain so for a
generation. India’s economy will benefit
from this “demographic dividend,” which
has powered many of Asia’s economic
miracles.
Ahead of the Curve – India’s Growth to Outpace China’s
“The second reason for optimism is
India’s much-derided democracy,” The
Economist continued, noting that “Indian
capitalism is driven by millions of
entrepreneurs all furiously doing their
own thing.” Since the early 1990s, when
India dismantled the “license raja” and
opened up to foreign trade, Indian business
has boomed. Ideas flow easily around
India since it lacks China’s culture of
secrecy and censorship. That, plus China’s
rampant piracy, is why knowledge-based
industries such as software love India but
shun China. Given the choice between
doing business in China or India, most
foreign investors would probably pick
China, according The Economist, “but
as the global economy becomes more
knowledge-intensive, India’s advantage
will grow.”
“Picking China” is an issue that is related
to a familiarity with the country and also
the fact that in international news, the
country is main stream in ways that India
is not. It wasn’t so long ago when I was
just starting Dezan Shira & Associates that
I was advised by a successful Australian
businessman, who had been educated at
Peking University in the late 1980s, not
to go to China. The reasons: “It’s horrible,
dirty, and communist.” Another highly
prominent Hong Kong businessman told
me bluntly that “the Chinese will steal
your money.” Yet that didn’t stop me,
and the more I learned the more I grew to
adapt, belong, and begin to make progress.
I hear similar stories about India today:
“It’s dirty,” “It’s bureaucratic,” “There’s
no infrastructure.” They are all partially
true, but as I write I am having to devote
a considerable additional amount of
my time and financial investment in
our firm’s India practice just to keep
up with business demand. Being dirty,
administrative, or having to deal with a
lack of infrastructure are not very good
excuses for not wanting to do something
creative. It’s hardly an entrepreneurial
attitude, and the China guys who bang on
about that as a difference, well they have
their own choice to protect I guess and
don’t want to admit to an alternative. In
short, lazy consultants and lawyers grown
too fat on the milk of China. Yet make
no mistake – India is arriving, and it is
impacting upon China, big time.
India matters to China businesses because
it represents a second opportunity that
has arisen. It is unprecedented in modern
times for effectively 2.6 billion people
(the combined size of the China and
Indian populations, and hence the name
for our web site dealing with the bilateral
development issues) to walk into the
global economy in the space of about 25
years. The opportunities are staggering.
India matters for China businesses because
if you are not in India, you don’t have an
alternative to offer your clients. India
matters because it’s a global economy, and
not a Chinese one. India matters because
it has a wealthy and growing middle class
of 200 million. India matters because
it provides a secondary stream of very
potent revenues. India matters because
you can hedge your bets against anything
going wrong in China.
India matters because, ultimately, being in
China is not going to be enough in order
to provide service, cost comparisons,
alternatives, and market understandings,
analysis and the dynamics of change that
India will and is already bringing to China
and the Global economy. I’ve been saying
it now for the past five years. Now The
Economist has just put it on their front
cover. That doesn’t make it any more
true, but it should act as a trigger for
more China-focused executives to get
out, research the potential, get over to
India, and start to find out what and where
the opportunities for their businesses
are. Doing business in India is about to
become a global mainstream dynamic.
2point6billion.com 11
 China’s Indian City Equivalents
and the Reasons for Going
I
nterest in the China-India
comparison has begun in earnest,
and it’s not something that is going
to disappear. While eyes have been
on China for much of this year over
currency issues, we finish 2010 with a
U.S. presidential visit – but to India, where
Barack Obama visited in November 2010.
Inevitable China-India distinctions are
going to be made, and you can bet that of
these, a greater understanding of India,
rather than China will follow.
I recognized the issues between the
two countries several years ago, and
am regularly asked why I’d decided to
develop my practice out of China and into
India. The reasons were as follows:
Personal development
At the time we already had seven offices
in China (now increased to 10) and, as
head of the business, it alarmed me that I
wasn’t personally finding the opening of
a new office in China so much of a thrill.
That’s bad news for a COO, and indicative
that I needed to go find a new challenge to
keep me occupied – or leave the business.
Compatibility
I had a look at smaller regional markets
such as Singapore, Mongolia, and even
North Korea. However, when it came
down to it, I figured that we really knew
the following:
1. We weren’t intimidated by huge
countries
2. We understood the implications and
demographics behind a huge population
3. We understand and make a living from
emerging economies and countries
with rapidly evolving investment laws,
taxes and regulatory environments.
When we understood what we were
and what we knew, the only compatible
choice for us to expand into out of China
was India.
12 2point6billion.com
Hedging
I also felt that continuously investing in
China, effectively putting all of our eggs
in one basket, could prove to be a strategic
mistake if anything drastic went wrong in
China. If, for whatever reason, investment
into China slows, then I need to have an
alternative market to take up the strain and
even protect us if things get really bad.
Opportunity
I researched the India market for two
years before we decided to incorporate.
Operating originally from virtual offices
in five locations, and with a very skeleton
staff, I traveled the country all over
trying to feel India and to get the pulse.
Commuting between China and India is
hard work, and I still had China issues to
look after in the running of the business.
But the more I was there, the more it made
sense. We incorporated fully in 2007, and
upgraded virtual offices to fully staffed
facilities that year when we decided to
make the investment permanent. It was
made on the basis of government reforms,
the size of the market, the changing
demographics in China, and that “gut
feeling” that it was the right thing to do.
Now, we are set to initiate another tranche
of investment into India and have recently
expanded our operations in both Mumbai
and Delhi and recruited several more
staff. From 2011, our India operations
are expected to be self funding and are
expected to provide dividends from 2012.
I have successfully divested energies
from China and into India with profitable
results. And at the end of the day, that’s
what business is all about.
That doesn’t mean that we are not bullish
on China. We also opened a new office in
Qingdao in mid 2010. However, China is
changing, as is India, and it is the latter
changes that will be faster and require
more attention than the China ones for the
next three years. China is set on its course.
India is about to see massive winds of
investment blow through. Why? The size
of the consumer market, which is larger
than China’s, arguably more wealthy, and
certainly more committed to spending,
and its regulatory reforms (two examples,
India is reducing its corporate income tax
rate from 45 percent to 30 percent early
next year, while the top rate for individual
income tax will be lowered to 30 percent –
as against China’s top rate of 45 percent).
So there I’ve covered the whys and
wherefores and the processes. But
what are Indian cities really like when
compared with China? Let’s make some
comparisons:
Rural land just one hour outside Mumbai
Shanghai vs. Mumbai
The main issue with Shanghai is that it
gets referred to a great deal as “China’s
financial center.” If so, it seriously lags
behind Mumbai, and has for 20 years.
Just during the past decade, 2000-2010,
Mumbai’s Sensex has climbed 545.2
percent against the Shanghai Composite’s
151.3 percent. Put simply, for every dollar
you’d have earned in Shanghai, you’d
have earned 3.6 in Mumbai. Mumbai is
streets ahead of Shanghai in its financial
maturity, profitability, and ability to
deliver dividends to shareholders. J.P.
Morgan, among others, also think so.
Fortunately for Shanghai, its bluster over
being a financial center is in fact overrun
by more practical considerations. It is
the second largest port in terms of TEUs
shipped in the world, behind Singapore,
while Mumbai lies in 24th place. Mumbai
is also being upgraded significantly, so
expect to see that as a top 10 highest
volume seaport within the next 10 years.
It’s also true to say that the service markets

are different. Shanghai is a major port
from which to reach the West coast of
the United States, and markets elsewhere
in Southeast Asia and Australiasia. For
Mumbai, the markets of the Middle East
and East Africa dominate, and Europe
will progress once the global economy
straightens itself out and the United
States and European Union generate
some growth. But for the time being, they
are non-competitive, and dealing with
different emerging markets of their own.
In terms of growth, Shanghai can only try
and compete with Singapore. Mumbai is
where the growth and development will
be.
Pavilion inside Delhi’s red fort, Old Delhi
Beijing vs. Delhi
Both capital cities, both recently having
hosted major sporting events – we
compared the Beijing Olympics with
the Delhi Commonwealth Games here.
Surprisingly, it’s New Delhi that is the
prettier of the two cities. Built by Edward
Lutyens to show off the imperial grandeur
of the empire, he really went to town. It
would be possible to contrast Old Delhi,
that medieval maze of back alleys and
rickshaws and bustle and hustle with
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China’s Indian City Equivalents and the Reasons for Going
Beijing’s old hutongs, but the Beijing largest port globally, it is home to billion
city government knocked most of them dollar investments by BMW, Nokia,
down. In truth, that’s what should happen IBM and HP, attracting a similar type
to most of Old Delhi. But for both, it’s the of investment portfolio to Shenzhen.
seat of government, although the nearby Roughly 60 percent of India’s auto exports
city of Gurgaon is going to become go through Chennai, making it far more
more on the map as investors pour in. It auto and IT focused than the residual low
already possesses the third highest GDP tech industries that Shenzhen is currently
in the country. While you’ll be familiar trying to divest itself from.
with Tianjin – Gurgaon is the Indian
equivalent. Comparisons of course can go on and
on, and these above are only meant
as snapshots rather than complete
demographic examinations (but email
us if you require such information). I’ve
also provided some more rural than city
photos to push home the point that India
is not always about bustling cities and
hordes of people. It remains, just as China
does, largely a rural society, although
this is changing as education is improved
and, as is also the case with China, more
Rice cultivation in Chennai people migrate to the cities. Finally, please
find a breakdown of Indian imports from
Shenzhen vs. Chennai China, and Chinese imports from India. As
Shenzhen epitomizes new China, built bilateral trade and competition grows, the
from scratch and now a city of 8 million, comparisons will keep coming.
and the fourth largest port by TEU globally. Indian Imports from China/Chinese Imports
Supported by Hong Kong and Taiwanese from India Jan 2009 - Jan 2010 (US$)
investors, it’s grown from just being
Jan-09
India imports
2.06 billion
China imports
861 million
where their local manufacturing industries Feb-09 1.75 billion 1.14 billion
moved to, to being a port servicing global Mar-09 2.22 billion 1.31 billion
supply. Chennai, however, is catching up. Apr-09 2.39 billion 1.35 billion
May-09 2.35 billion 1.02 billion
With a similar, slightly larger population
Jun-09 2.26 billion 927 million
of 8.5 million, it is located on India’s Jul-09 2.78 billion 979 million
southeast coast, and has a slightly different Aug-09 2.69 billion 799 million
demographic (its basically just across the Sep-09 2.67 billion 1.42 billion
Oct-09 2.44 billion 935 million
ocean from Thailand). Its ability to also Nov-09 2.78 billion 1.19 billion
service the United States and Southeast Dec-09 3.29 billion 1.78 billion
Asia will make it a competitor over Jan-10 2.81 billion 1.82 billion
Source: PRC Ministry of Commerce
time with Shenzhen. Currently the 91st
Establishing Manufacturing Managing Human Resources
Operations in India in Vietnam ASIA BRIEFING
To order, please contact
sales@asiabriefingmedia.com
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2point6billion.com 13
 How India Has Outperformed
China Profitability
C
hina has taken most of
the headlines as a result
of its sensational growth
over the past two decades,
leaving India somewhat in
the shade. Yet surprisingly, it is India that
has provided better profitability over the
past decade. Indeed, Michael Cembalest,
chief investment officer at J.P. Morgan
Private Banking, has placed his clients’
trust firmly on Indian equities and not
Chinese.
In his well-read “Eye on the Market”
newsletter, sent to the bank’s high net
worth individuals, he noted that since
China began its market reforms, India has
in fact well outperformed China. During
2010, India’s equity market has provided
investors with a return of 22 percent while
Shenzhen, South China’s bourse in the
booming city next to Hong Kong, has
actually shrunk by 3 percent.
Over the past 10 years, India’s Mumbai
Sensex has risen 545.2 percent compared
to a rise of just 151.3 percent on China’s
Shanghai Composite.
Of the 13 managers on Cembalest’s
platform who invest in emerging or Asian
equities, 10 are overweight on India, a
winning strategy for 2010, he says, given
India’s out performance versus most
developed and developing equity markets.
In his newsletter, Cembalest outlines the
reasons:
India provides better
corporate profitability
Profit margins compare favorably with
other developed and developing countries.
Companies in India are more exposed to
market forces than in China, which may
explain the superior margin results.
India’s equity capital
markets are more
developed than China
India ranks in the top 10 globally in equity
14 2point6billion.com
market issuance, with three times the
number of public companies as China.
There is greater exposure to the private
sector as 75 percent of the investable
market cap in India are private companies,
compared to 18 percent in China.
In short, Cembalest is saying that Chinese
companies are “protected by the state”
and that the implied lack of market
forces create a situation where both state
interference and a lack of competition
are in fact making Chinese companies
less profitable and entrepreneurial than
Indian ones.
There is also a difference in funding –
90 percent of available bank funding in
China goes to state-owned enterprises,
while in India that 90 percent goes to
privately held businesses. It makes it far
harder for Chinese companies to compete
at an executive level with their Indian
counterparts, even with the benefit of state
funding and involvement. Simply put,
Indian businessmen are more capable than
Chinese businessmen in making money,
and being able to share that through
dividends.
While it remains harder to operate in
India than China at present, the country is
very much on an upward trajectory, and
the results speak for themselves. China’s
massive state involvement in its own stock
markets is hindering the development and
profitability of their businesses. When
India really starts to kick in with its
tax reforms next year, the gap between
Indian profitability and China’s in their
respective stock market performances and
funds may grow even wider.
Mumbai Stock
Exchange Outperforms
Shanghai
Mumbai may be on the way to overtaking
Shanghai as a financial hub in the coming
years based on data which shows that the
Bombay Stock Exchange’s main index
significantly outperformed the Shanghai
Stock Exchange’s main index in terms of
growth in the past decade.
The Bombay Stock Exchange (BSE)
Sensex grew by 249 percent over the
last 10 years, while the Shanghai Stock
Exchange (SSE) Composite Index
managed 140 percent growth. This is
more remarkable given the Shanghai
market has the advantage of a fixed
population access; Chinese nationals can
only invest in the Shanghai or Shenzhen
exchanges and require special permission
to acquire stocks from overseas. Indians
meanwhile are free to invest where they
choose, however increasing amounts
of foreign capital and returning Indian
investment are now flowing back to India
(the Shanghai Stock Exchange places
limitations on foreign investment with a
only 79 foreign institutions currently able
to buy and sell A (locally priced) shares).
Another influence to the Chinese market
has been increases often caused by
government liquidity due to the stimulus
plan. Speculations on bubbles are rampant
when it comes to China’s indexes, again
a feature India’s exchange does not tend
to have. Government interference in the
Mumbai market is far more limited.
The BSE traces its roots back to 1830,
with its primary trading index, the Sensex,
being first compiled in 1986 with a
base level of 100. The BSE is now the
largest exchange in South Asia and the
12th largest globally with an estimated
market capitalization of US$1.03 trillion
in June 2009. There are over 4,o00 listed
companies on the exchange. In contrast,
the SSE was only reformed in 1990 and
lists some 900 companies. It is the sixth
largest exchange in the world with a
market capitalization of US$2.07 trillion,
but is dominated by government-owned
companies and is not fully open to foreign
investors. Shanghai’s primary index, the
SSE Composite IX was formed in 1991
with a base value of 100.
Export Trade Processing in
China ‘To Become Extinct’
Factories must either relocate
elsewhere in Asia or remodel to
sell to China
The trade processing industry in China,
traditionally concentrated in the Pearl
River Delta region, is becoming extinct,
and businesses urgently need to reinvent
their business models, according to
Thomas Chan, the director of Hong Kong
Polytechnic University.
Chan, who is also the head of the China
Business Center, made his comments in the
South China Morning Post in November.
Much of China’s trade processing is
invested in by Hong Kong and Taiwanese
factories. Stating that China had lost its
long term, low cost advantages in labor,
land and a low RMB exchange rate, Chan
identified higher prices in raw materials,
coupled with a reluctance by U.S. and
European retailers to accept higher
prices as sounding the death knell for the
industry.
Trade processing factories will be forced
out of business within the next 12 months
unless they change their business models
and either migrate their work to other
production bases such as Bangladesh,
Cambodia, India or Vietnam, or change
their China business model to sell to the
booming domestic market, Chan said.
The Chinese government also sees the
trade processing industry as undesirable
as it deems it outdated, and wants to
shift the economy to a service based
consumer driven model. Trade processing
is typically labor intensive, energy
wasteful, environmentally poor, and
produces exports mainly by processing
cheap imported materials. China wants
to develop an added value economy and
become innovative rather than rely on
processing trade.
Such business will flow instead into
the emerging economies in Asia, and
especially those that can provide low cost
labor and land, and that have less stringent
environmental and labor laws. Guangdong
Province alone is home to some 38,000
factories involved in the industry. Adding
that “many factory owners do not want
to face the facts,” Chan said that many
factories would cease being financially
viable. Meanwhile, attempts by trade
processing factories to relocate within
China have largely been unsuccessful due
to rapidly rising labor and land costs in
other inland provinces.
Hong Kong-based Li & Fung, the world’s
largest sourcing and trade processing
business, now sources and processes an
increasing volume of its garments from
elsewhere in Asia as it seeks to depend less
on China for such activities. Matters to be
aware of in trade processing are the costs:
Labor
China is committed to doubling the
national minimum wage within the next
five years, meaning an average 20 percent
increase per annum on a national basis
until 2015.
Commodities prices
These remain volatile and, in the case of
cotton, subject to price spikes. However
markets such as India are able to actively
compete with China in terms of volume,
delivery timescales, quality and finishing.
Global Financial Crisis
A potential second round financial crisis,
and one that may seriously affect China,
is now more likely following the United
States pumping US$600 billion into the
markets last month. That will keep the
RMB high against the dollar and increases
the cost of Chinese export manufacturing.
That being said, all is not doom and
gloom. Mentioning that China would
enter a “golden age” and a “domestic
consumption revolution,” Chan indicated
that China based trade processing
factories should look at supplying the
domestic market instead, and capitalize
on the national policy to boost domestic
expenditure. This was echoed by Morgan
Stanley Chief Economist Wang Qing
who stated that he expected China’s total
consumption to reach two-thirds that of
the United States, or 12 percent of the
global total, within the next decade.
“We are seeing a trend of nearly all LLJG
operations (licensed foreign investment
entities sub-contracted to Chinese
factories, and unique to South China)
now converting to WFOEs to allow them
to sell to the Chinese domestic market. It
is a growing trend and one that is rapidly
increasing,” said Alberto Vettoretti,
managing partner in China for Dezan
Shira & Associates based in Shenzhen.
“Our firm has an increasing number
of China-based clients now expanding
their operations into India and Vietnam
while they also restructure their China
operations. The trade processing industry
is moving away from China to Southeast
Asia, while China operations are
restructuring to focus on domestic sales.
Investors in the trade processing industry
must act now to rethink their business
model and either relocate their trade
processing elements elsewhere, refocus
on the China domestic market, or both. If
they do not, they will face serious financial
difficulties in the form of increased costs
within the next two years if they continue
to concentrate purely on China based
export trade processing.”
2point6billion.com 15
 Indianizing Your Existing Business
The Business Environment
A
s China begins to slow
down, and the global
supply chain shifts, India
has just recorded GDP
growth of 9 percent for
the past quarter meaning it has overtaken
China in terms of production. It is a trend
that is likely to remain. As China-based
businesses also start to gear up for the
development of China’s domestic market,
and look to the hinterlands for growth,
others are also eying the India market.
Exporting a business into another country
is never easy, and this is especially so in
the case of China and India. The countries
have different administrative systems and
do not necessarily agree to international
conventions surrounding territories and
descriptions. Then there are the immense
language and written language issues. If
these are not recognized, embarrassment
and even criminal action can follow.
As my practice Dezan Shira & Associates
has found out, care needs to be paid
when replanting a subsidiary root of a
business from one country to another.
Not all systems or points of reference are
the same. Dezan Shira & Associates first
moved to establish operations in India
four years ago (after 14 years extant only
in China) and we found many surprising
cases where what we thought we knew
from a cultural perspective needed a
rethink, and additional work and attention
to new cultural detail. This article is
designed to explain some of the practical
differences in styles the China-based
executive may meet when asked to look
at India.
The Business
Environment
A more demanding large project
environment
India isn’t up to China standards when it
comes to the development and execution
of large-scale projects. Administrative
delays, worker discipline and, above
all, the interference of local politics can
interfere with planning and execution.
16 2point6billion.com
Problems, including the notorious
infrastructure issues, need to be worked
with and solutions found. Innovation
and an ability to think outside the box
are needed in India, whereas in China
they’ve tended to make the administration
far easier. However, there are signs that
China is not what is was – increases in
labor unrest, strikes (previously unheard
of), and especially protectionism are
growing in China. As was mentioned to
me in Mumbai recently “I’m paid to sort
these problems out, and that’s what my
MBA program was for.” Is India more
big project awkward than China? Yes. Is
it solvable? Also yes.
A more welcoming social
environment
While China is a generally friendly
and welcoming place to be, for the
small infrastructure it falls down when
dealing with foreigners, and there are
still barriers. Getting tickets, going out
to Chinese events, finding out what’s
happening online, reading international
news, social networking, keeping in touch
internationally with family and friends
over the internet – these are all awkward
or have infrastructure banned in China.
While one can get used to not having
Facebook in China, if you’re used to it
overseas it’s a major hassle. India has
both free media and social networking,
and its usage of the English language just
makes the social element of being in India
that much more pleasant. Plus, if you’re
Japanese, Indians don’t have endless
spats over wartime related events and
territorial disputes over 60 years old that
frequently mar the Japanese population in
China. Neither, apart from Pakistan and
China, does India have territorial disputes
with anyone else. China is currently in
disputes with India, Vietnam, Japan,
Taiwan, and several other nations over the
Spratly Islands, is threatening potential
economic sanctions with Norway after
the Nobel Peace prize was awarded to a
Chinese reformist, and has a history of
encouraging its nationals to harass citizens
of other nations when things go wrong –
such as throwing stones at the U.S. and
British embassies over the NATO incident
in Belgrade. China is more antagonistic,
is quite prepared to occasionally indulge
in harassment of foreign nationals, while
Indians tend to argue among themselves
rather than with foreigners.
Senior management
In China over the past 20 years, local
management has had to be educated and
developed to international standards
to fulfill to the exacting standards of
running an international business. Items
such as FCPA, SOX and other regulatory
aspects creep in, and to many Chinese
managers, these are still a bridge too far
when added in to corporate culture and
language issues. Twenty years ago, there
were very few Chinese managers with
any global experience, and today the
number is still relatively small. Even the
Chinese government has had to embark
on a program of sending its top officials
overseas on university courses. The
upshot is that international management
operating a business in China in most
cases still has to take an active role in
the daily operations of the business. In
India, graduates and executives have long
been educated overseas and are highly
familiar with international standards.
Indeed, many non-resident Indians are
highly sought after by Indian companies
back home as they seek to upgrade their
domestic enterprises. With a profound
knowledge of Indian culture, language
capabilities, an overseas education and
managerial experience, Indian executives
tend to be far more advanced globally than
their Chinese counterparts who tend to hit
a glass ceiling. It means that an Indian
manager running your Indian operations
is usually a safer bet, more culturally
intoned, and better able to adapt than
Caucasian executives in the same role. In
our case, Indianizing our company meant
handing the country over to a returning
Indian national to run, and for our western
executives to step aside. The senior Indian
executive is often more entrepreneurial
than his Chinese counterpart and more

familiar with global standards of business
operations.
Government officials
Dealing with government officials in
China and India does require the standard
protocols, but there are differences. Indian
politicians are democratically elected
and can be pressured or lobbied via
independent think tanks. China bans such
bodies and does not permit any external
criticism other than the Communist Party.
Increasingly, Chinese officials can be
aloof and uncooperative at times unless
it is in their vested interest to assist you.
Demonstrations of annoyance or criticism
of the media as happens in China when
politicians are challenged does not occur
in India, where a free media helps in part
to keep politicians under the microscope.
That would not be tolerated in China.
The difference is in the concept of being
answerable to the people, which both
governments profess but exercise in
different ways.
Corruption
The styles of corruption are different
between China and India. In China, it tends
to be disguised as favors and connections,
and can be for serious amounts of money.
However it may not raise its head on a
daily basis. In India, apart from the high-
end level of corruption, it exists in the
form of “baksheesh” nearly everywhere,
almost as a form of giving a tip. The
amounts are small, but will need to be
catered for in “miscellaneous expenses.”
If not, your paperwork may just sit around
until the tip is paid. That is what is meant
when people describe corruption in India
as “endemic.” In China it is not, but the
amounts and the inconveniences can be
far more serious, and tend to be more
insidious in nature.
Power
Just as China has experienced, power
supply can be erratic in India. While
special economic zones offer more
protection and reliability, the more
extreme weather conditions and monsoon
can create problems. Businesses need to
invest in generator back up supply just as
they used to do in the Yangtze River Delta
a few years back and as would be expected
in any emerging market.
Banking
In a similar manner to China’s State
Administration of Foreign Exchange,
India monitors the flow of inbound and
outbound capital via the Reserve Bank
of India (RBI). The RBI also designates
tier one banks in India to fulfill some of
its duties, a situation that actually makes
Indian bureaucracy at this level easier than
in China, which employs capital controls.
RBI approval is required for a variety of
transactions, however this is relatively
easy to arrange. India has about 100,000
ATMs against China’s 200,000. Generally
speaking though, access to cash points
is not problematic. Cash and foreign
currency may also be freely exchanged
at hotels or licensed foreign exchange
brokers. In terms of international banks,
Standard Chartered are the market leader
(historically they have always had a strong
India presence in much the same way
HSBC is more associated with China)
and most international banks maintain
branches in all major cities.
Receivables and bad debt
provisions
U n f o r t u n a t e l y, a l t h o u g h C h i n e s e
businesses are starting to migrate
overseas, unlike their Indian counterparts,
Chinese businesses can be tardy to the
extreme when being asked to meet the
final payment for goods and especially
services. Our experience shows that the
majority of Indian businesses will meet
Indianizing Your Existing Business
their financial and contractual obligations.
A higher proportion of Chinese businesses
will renege on the final payment, often
in what can appear to be a calculated
mechanism designed to exploit the fact
that the cost of recovery to your business
is likely to be more than the amount due.
We believe this is a sign of immaturity
on the evolution of Chinese businesses
and will improve, however the problem
does exist. For services contracts in
particular, we recommend structuring
payments so that as much as possible is
paid prior to the end of the service and
final settlement. Our experience dictates
that unless this is done, an average of
50 percent of Chinese businesses fail to
make final settlements or be highly tardy
in doing so. If known, this then becomes
a structuring issue over payment terms. In
these instances, our advice is to be aware
of a potential need to mitigate against this
unfortunate habit or be prepared to have
to deal with potentially unrecoverable
receivables and debt. Contractual terms
should be solid and supported by good
business practice concerning payment
terms. Indian clients on the other hand
may be price sensitive, and negotiations
take longer, but once the deal is done
they tend to pay up. The acquisition of a
receivables problem is more likely when
dealing with Chinese customers than
Indian unless your business model has
already deflected this issue.
2point6billion.com 17
 Indianizing Your Existing Business
Individual income tax
IIT
India, like China, has a sliding scale for
individual income tax payments, but the
top threshold for tax payment is lower
in India than in China. India also has
in place a rather complicated system
of additional surcharges and expense
rebates, the latter of which are more
generous that those currently available
in China. Also, unlike China, India does
not charge individual income tax on
dividend payments from companies. This
can be an important factor especially for
expatriates with bonuses or stock options.
India is currently undergoing tax reform,
which as a general rule of thumb, will
mean the expatriate is rather better off
in India than China, with a basic level of
30 percent IIT in India at the highest tax
bracket as opposed to 45 percent in China.
As always, each case can be specific
and it is best to ask for clarification on
these matters beforehand as other factors
such as housing allowances and so on
can complicate matters and they need
to be structured properly. Please contact
Dezan Shira & Associates India at india@
dezshira.com for advice on individual
income tax in India.
International communications
In every way, India is far superior to
China in this regard. While much of
China’s problems in this area are self-
inflicted issues over a lack of press
freedom, language issues and its notorious
Great Firewall, India by comparison is
a paradise. There are numerous English
language daily newspapers available (I
read about five of them: Times of India,
The Economic Times, Hindustan Times,
DNA and the Asian Age, while the
International Herald Tribune, Wall Street
Journal, Financial Times and USA Today
are all published in same-day Indian
editions). Imported newspapers are also
18 2point6billion.com
freely available, typically 24 hours behind.
Keeping up with the news then is not a
problem, especially if like me you like
to browse the morning newspapers over
a cup of coffee. Cities such as Mumbai
also provide a second daily, evening
newspaper, something China’s media
censorship cannot cope with. India’s
domestic TV is in a plethora of languages
including English language channels, and
can get a bit vociferous, especially over
issues concerning Pakistan or China, but
respected global networks like CNN, BBC
and Al Jazeera all maintain Delhi-based
bureaus and programming. Meanwhile,
Facebook, YouTube and total access
to surf the internet is a given right in
India. Also, unlike China, where calls
are relatively expensive, India’s call
charges are amongst the lowest in the
world, and this dynamic will also lift the
interconnectivity of the country as well
as help bring its rural population out of
poverty. India is very much hardwired
into the international community and
international communications, phone,
internet and wireless are all world class.
There is also less espionage in India,
whereas China has a reputation for
spying on commercial activities that
affect its state owned enterprises. About
90 percent of China’s largest businesses
are completely or partly state-owned and
are consequently prone to government
involvement or interference, while in
India, about 90 percent are in the private
sector. It makes business communications
far simpler, and less likely to be subject to
commercial espionage. From a practical
time zone perspective, the time difference
between Delhi/Mumbai and New York
is currently 10.5 hours and Chicago is
currently 11.5 hours. London is just 5.5
hours.
Media
China’s media is censored and largely
controlled by the state, and much incoming
foreign media is routinely banned, both in
print, TV and internet. Consequently,
China’s media is rather bland and follows
an organized framework. Exciting it is
not. India’s media is open and is largely
driven by sensationalism that can come as
a bit of a shock to the newly initiated. It is
sometimes difficult to determine which is
the lesser of the two evils: China’s censors
or India’s sensationalists. India TV media
especially is very loud and driven by
ramping up the “shock horror” headlines
for maximum effect. Favorite subjects for
Indian media do include China issues, and
China is often portrayed as being a threat
to India. While the TV may blare unsavory
stories, usually they remain taken with
a pinch of salt. Far better balanced are
newspapers such as the Times of India,
the Economic Times, and The Hindu.
All major international newspapers are
commonly found, with many also being
produced in India. International TV
channels are routinely available.
Chambers of commerce
These vary considerably in quality (as
they do in China), some being excuses for
a monthly beer drinking session, others
taking a more active role in the business
community. The American Chamber
and European Chamber in India are
particularly active, while other chambers
such as the British Business Group (not
called a chamber as India is part of the
Commonwealth) host regular social
events and feature a variety of corporate
speakers. Other Asian, European, Oceanic,
African, and South American nations
have their own versions. Many of these
organizations also have representations
in other major Indian cities. The current
chairman of the BBG in Mumbai,
Jim James, is himself a former China
expatriate, whose business in Shanghai
was so awkward from the regulatory
perspective that his employers moved
him to Mumbai. They are now thriving
in India, something that proved mission
impossible in China. Interestingly, that
is not an uncommon experience among
expatriates living in India who have
relocated from China. Also of note are the
various India-country chambers, such as
the India-China Chamber of Commerce,
which provides a solid link between their
respective governments and businesses.
Google searches will reveal the chambers,
groups and organizations pertinent to you.
 Indianizing Your Existing Business

The Cultural Environment

A
s many China based
businesses will begin
to look at the Indian
market, here we provide
some examples of the
differences in culture between operating
in China and in India.
The Cultural
Environment
Defining territory
For China, it is well known that Taiwan
should never be omitted from any
published maps of China, including those
on your China website or brochures. It
breaches the “One-China” policy and
can have criminal repercussions. The
same applies in India. The official map
of India is different to the map provided
by the United Nations, redrafting certain
sections of Kashmir. It is a criminal
offense to publish inaccurate non-Indian
official maps omitting this. It may mean,
for the India market, using official Indian
maps of the territory and not relying on
common international versions.
Language
China
China possesses two types of written
characters, simplified and traditional.
Simplified is used in Mainland China,
traditional in Hong Kong, Taiwan, and
India
Hindi in the Devanagari script is the
official first language of India, though
the constitution also recognizes English.
Indian states are additionally free to further
recognize regional languages, leaving
each state free to, via its legislature, adopt
Hindi or any language used in its territory
as its official language or languages.
Examples include include Kokborok in
Tripura; Mizo in Mizoram; Khasi, Garo,
and Jaintia in Meghalaya; and French
in Pondicherry. Altogether, close to 50
official languages are in common usage
on a regional basis across the country.
The Romanization of Devanagari has
also been erratic, with certain cities
especially being interchangeable in
names: Calcutta (Kolkata), Bengalaru
(Bangalore), Puducherry (Pondicherry)
and Bombay (Mumbai).
A striking example of the script differences
can be seen in this Dezan Shira &
Associates advert promoting the firm’s
India practice from a China-India cross
border perspective.
The use of English, Chinese and
Devanagari get the message across – but
required three nationalities of staff in both
China and India to create.
Religion
Mao famously declared, “Religion is
poison!” to the Dalai Lama, and still
today the country is officially atheist.
While Buddhism is making a (well
monitored) comeback, the pragmatism
of the Chinese sees them pray more
to gods of money and wealth than for
wisdom and spiritual enlightenment.
India, meanwhile, is multi-religious,
with Hinduism dominating, although
most Indian cities have substantial
Muslim populations also. Muslims also
predominate in several business sectors,
and it is common to be in meetings with
Muslim businessmen. As in all religions,
some are more devout than others, and
Indians with a permanent bruise on their
foreheads mark a devout follower of the
faith. Business meetings with Muslims
may be interrupted at certain times of
the day to pray (usually a small room set
aside for the purpose) and your meeting
may be delayed for 15 minutes while
the rituals take place, only to restart at
exactly the conversational point they
were temporarily postponed. Sikhs are
found to the North-West; resplendent in
their turbans and moustaches, Sikhism
is a blend of Hinduism and Muslim, and
do not practice the nationwide ingrained
caste system, which still pervades in

China-India Business Consulting and Resources

by most of the overseas Chinese diaspora.
The difference derives from when Mao
Zedong revolutionized the Chinese
language on the mainland in 1954 to
improve literacy levels. Other territories
at the time not under mainland control
or with large Chinese diasporas resisted
the use of the simpler version. China
also has several officially recognized
regional languages – there are seven
distinct languages on a standard Chinese
banknote for example – many regional
dialects, and even historical differences in
the Romanization of the Chinese language
(Beijing vs. Peking for example). Care
needs to be paid to which market segment
is to be addressed.

Corporate Establishment, Tax, Accounting & Payroll Throughout Asia

2point6billion.com 19
 Indianizing Your Existing Business
Indian culture today. Other than usual
pleasantries, it is probably a good idea
to avoid much in-depth discussion about
religion unless you are well versed in
the subject. Tensions can rise to the
surface quickly and it is best a subject
handled delicately. That said, it is a major
and colorful part of the multi diversity
of Indian life and adds much to the
color of the country, from Elephant
Gods to revered Cobras to the Prophet
Mohammed, India’s religious mix in its
society is never very far away.
Food
There is an old saying about Guangdong
Province in China: “The people will eat
everything with legs except a table, and
anything with wings except an aircraft.”
Chinese cuisine is famous for its diversity
and wide range of ingredients used. Some
may be off-putting to the uninitiated –
steamed silkworms for example – but
generally, the Chinese have very liberal
palates and are experimental. If it tastes
good, it’s eaten. But then again, large
parts of China are strongly Muslim, and
pork, so much a national staple, will
not be found in many central or western
provinces. Buddhism too has had an
impact, and many Chinese are essentially
vegetarian as a result. However, that
can be vegetarian with a twist – many
vegetarian dishes are prepared using
animal fat. The term is rather loosely
applied in China.
Like China, Indian cuisine is one of the
great cuisines of the world; however
Indian religious sensibilities dictate a far
more serious approach to the preparation
and consuming of food than that in
China. Food prepared with animal fat
or even prepared in the same kitchen as
non-appropriate items can be a serious
matter, and the Jain population – who
are prevalent in the business community
– will not eat any food that may have
disturbed a non-vegetarian life form,
including root vegetables as picking them
from the ground may kill small insects. I
recall a packed Air China 757 flight from
Delhi to Beijing where 75 percent of the
passengers refused all food (seven hours)
because Air China had not considered
the mass needs of a vegetarian manifest.
Such considerations need to be taken
into account when entertaining Indian
clients or businessmen. It is a sensible
20 2point6billion.com
matter of courtesy to ask beforehand.
Additionally, the 5,000 years of Ayurvedic
medicinal culture, coupled with religion,
has ingrained a strict sense of proprietary
into what is means to be really vegetarian.
Chinese restaurants in India are quite
common, a legacy of the coolies often
brought over by the British in the colonial
days. Most of these restaurants therefore
tend to be based on southern Chinese
cuisine, being Hakka or Fukien in origin.
Indian restaurants in China are more
uncommon, but are increasing in numbers,
especially in the larger cities. Generally
speaking, Indian curries get hotter the
further north you go, while to the southeast
and in cities such as Chennai, the food
becomes not dissimilar to Thai cuisine
with the use of coconuts predominating.
Food, drinks and hygiene in
general
Indian food is as diverse as the nation
is large, and although the ubiquitous
curry remains king, there is such a
variety that you could spend a lifetime
here and not try the same thing twice.
Generally speaking, the further north,
the hotter the curries, while in the south
coconut prevails and creaminess comes
into the palate. China also has a place in
Indian cuisine, a large number of coolies
were sent over during the days of the
British Raj to work on railways and road
construction (the Chinese ability to build
infrastructure better than their Indian
counterparts has been noted for centuries)
and their descendants, many from Fujian,
now run very successful and often long
established Chinese restaurants across
the country. Cities such as Delhi, and
especially Mumbai, have an even greater
selection of cosmopolitan cuisine and
restaurants than Shanghai. Favorites?
Try Indigo in Mumbai, recent winner
of the world’s best bar, while La Piazza
in Delhi is home to Michelin Star chef
Andrea Angeletti. Unlike China, most
of India’s fine international dining still
remains within hotels, but this is slowly
changing. Many old colonial properties
are being purchased, upgraded and opened
specifically to cater for the international
clientele, and there is no doubt in my
mind that just as has happened in China,
India’s best restaurants will eventually
move into some of the most elegant
properties the country has to offer, and
again as is happening in China, Michelin
ranked chefs and restaurants are moving
into this huge country full of gourmands
all eager to explore and develop a cuisine
over 5,000 years old. It’s the ultimate
challenge for a chef, and India’s tastes
are both locally excellent yet still ripe
for gastronomic cultivation. In terms
of alcohol, some states in India are
completely dry, while in other cities such
as Delhi and Mumbai, occasional dry days
are observed. That aside, Indian wines are
making inroads into international markets,
with brands such as Sula, Grover and
others very enjoyable indeed, while an
extensive imported selection is also freely
available. The days of the British Raj of
course introduced whisky, rum, and gin,
and the Bombay Sapphire, modeled on
an ancient Raj era recipe and including
aromatics found only in India, is world
famous. Quality bars, restaurants and
hotels are well up to (and in many cases
exceed) international standards, it’s only
when one steps out of these comfort
zones that problems can arise. Hygiene
can be an issue as the country is moist
and warm – ideal breeding grounds for
disease and stomach bugs. To avoid any
upsets, eat and drink at sensible places and
if out on walk about, take bottled water.
It’s only the naive or corner cutter these
days who gets caught out with “Delhi
Belly,” but just in case it’s a good idea to
maintain a stock of Imodium. If not you,
someone else might need it. Be sensible,
and India’s hygiene and consumption of
water and other drinks and food will not
be a problem.
Alcohol consumption
Unlike China, India has dry states, in
which the sale and consumption of
alcohol is prohibited, for example the
states of Gujarat and Mizoram. Certain
national holidays such as Independence
Day and Gandhi Jayanti (the birth date of
Mahatma Gandhi) are dry nationally. Dry

days are also observed on voting days.
Prohibition has become controversial in
Gujarat following a July 2009 episode
in which widespread poisoning resulted
from alcohol that had been sold illegally.
All of the Indian states observe dry days
on major religious festivals and occasions
depending on the popularity of the festival
in that region. Dry days are a serious
matter and are enforced by the police.
It can also offend others if alcohol is
openly consumed during these periods.
If planning special dinners or events in
advance, it is best to check whether the
intended date will be a dry one or not.
Other Indian Sub-Continent
Sensitivities
In Sri Lanka, every full moon is a dry
day, as are a variety of holy days. In
Pakistan, only members of non-Muslim
minorities such as Hindus, Christians
and Zoroastrians are allowed to apply for
permits for alcohol. The monthly quota
depends on their income but is usually
about five bottles of liquor or 100 bottles
of beer. In a country of 140 million,
only about 60 outlets are allowed to sell
alcohol and there used to be only one
major legal brewery, Murree Brewery in
Rawalpindi. Enforced by the country’s
Islamic Ideology Council, the ban on
alcohol is strictly policed. Members of
religious minorities often sell their liquor
permits to Muslims and a black market
trade in alcohol continues.
In Bangladesh, foreign passport holders
of non-Muslim nations can drink in
some licensed restaurants and bars
(and expatriate clubs) and can purchase
imported alcohol from “diplomatic
bonded warehouses” at a hefty rate of
sales duty (at 300 percent). Holders of
diplomatic passports and some other
specially privileged persons (such as
U.N. employees) have “passbooks” which
entitle them to buy imported alcohol
from the same “bonded warehouses”
duty free. Often duty free and duty paid
prices are shown alongside one another.
Bangladesh nationals of any religion may
purchase alcohol from special outlets with
a medical certificate. Illegal homemade
liquor (known as “Mod” or “Bangla”)
is widely consumed in rural areas. The
(mostly Christian) Garo tribal folk also
brew a strong rice beer called “Choo.”
Christians are permitted to use wine for
Holy Communion. The tourism nation of
the Maldives also bans the importation
of alcohol. If brought in, they may be
deposited with customs and reclaimed
upon exit. Alcoholic beverages are
available only to foreign tourists on resort
islands and may not be taken off the resort.
Hotels
India’s hotels at the top end are legendary
and are among the best in the world.
They are also among some of the most
expensive – a night at the Taj Mumbai is
going to be a minimum of US$750. There
are some bargains to be had, such as the
Gordon House Hotel, close to the Taj;
however the boutique hotels often require
more local knowledge that we don’t have
space to reproduce here. Opulence and
luxury aside (we also recommend the
Imperial Hotel Delhi as best in class –
it’s one of the top 20 hotels in Asia, let
alone India), most of the major chains
are here. Again, they are an oasis of calm
and tranquility among the heat and dust
of India. Hilton does a far better job in
India than they do in the United States,
while brands such as the Oberoi, who
specialize in Asia and the Middle East,
are well worth checking out and offer
comfort, service and quality that are hard
to match either in China or the United
States. Hotels in India really should be
to five star standard for the traveling
executive (lower stars get progressively
worse), and they literally make your trip
happen for you. A five star hotel in India
provides the added value service that
is essential in an emerging country like
this. Your accounting department may not
like it, or the extra costs when compared
with China, but in India it’s not worth
scrimping on this aspect. You’ll need
them as a business base, as a home, and
as a sanctuary. And yes, you can drink
the water, while concerning the service
and helpfulness aspect, English is widely
spoken, and overall service is far better
than that in China’s hesitant or reluctant
assistance, where the proletariat can
and do still demonstrate their political
superiority over the bourgeoisie, and
unknown or unproven capitalists in
particular. There is a very good reason the
new Fairmont Peace Hotel in Shanghai
spent a fortune on hiring Western trained
service personnel. In India, its long been
a normal standard and hospitality reigns
supreme.
Indianizing Your Existing Business
Hotel concierges
The service in Indian hotels is generally
superb, and unlike Chinese concierges,
who are often limited in their ability to
help or be interested, Indian concierges
are generally excellent sources of local
information and will always know
someone who can help with your request.
They are also not so obviously on the
make and treat guests respectfully as
clients of the hotel. A tip however is
appreciated – Rs.500 (US$10) goes a long
way for good advice. It is always a good
idea in Indian hotels to make friends with
the concierge. These are professionals
employed for their knowledge and many
will have been within the hotels service
for decades. They are an excellent source
of local assistance and for getting things
done. In this respect, the average Chinese
concierge service has a long way to go.
Housing
It is more expensive in India, although
not outrageously so. A decent family
sized furnished apartment will be priced
between US$4,000 and US$5,000 a
month. Of course the sky is the limit
if you wish. The difference is not the
quality of the building – in fact Indian top
end apartments are generally better than
Chinese – it’s the rubble and state of the
roads outside that makes the difference.
Plus the odd wandering sacred cow. But
that’s part of life in India, and it adds
character at the very least. Finding a house
is as always, a bit of a battle, but making
contacts with chambers of commerce or
your embassy will help reveal the details
of reputable agents that will know the
quality and area you’ll be interested in.
However, be prepared for a steep bill
from the landlord – unlike China’s 2 + 1
month deposit system, many landlords in
India will ask for a 9 or 12 month deposit
upfront, and that’s generally the norm.
Ouch.
Chai wallahs
The tea boy is an integral part of every
Indian office and is there to run errands and
fetch the tea, cold drinks, lunch curries, a
takeout Maharaja Mac, whatever. He
won’t speak English, will be from the
poorer areas of India, and may work for
you directly or be part of a locally run
service. He’ll be thrilled to have exposure
to international executives. Treat them
well, they are good guys, and will revere
2point6billion.com 21
 Indianizing Your Existing Business
management as demigods if encouraged
with a few kind words, the odd tip, and
time spent on a few words of English. He’s
a feature of the regular Indian office that
is at once both absolutely necessary and
vital to the refreshment of the executives.
Chinese ayis are just not the same.
The heat
India is hot. And in the summer, really
hot. Our Delhi office records temperatures
of 45 degrees Celsius in August. Beijing
by comparison is 32. India therefore
is sweaty, roasting, and on the coast in
cities such as Mumbai, very humid. It’s
important to dress appropriately, and in
India during such times it is not necessary
to wear a jacket and tie. A formal shirt
and trousers will suffice. The monsoon
kicks in during June and brings rains, and
plenty of them, but although it may pour,
it’ll usually be just for a few hours. The
rains are gone come September, when the
country begins to cool down. Winter time
can be balmy in Mumbai, and positively
chilly in Delhi, where it can get down to
just above freezing. India very definitely
is a country that needs to be examined for
its weather conditions. China too is the
same. Summer brings heat, especially in
the south where Hong Kong, Shenzhen
and Guangzhou can become oppressively
humid. Beijing’s winters, and the rest of
northern China, can become very cold, as
fronts from Siberia can and do turn south
and bring freezing temperatures. But to
cope with India’s heat, it’s wise to pack a
bottle of chilled water, especially if you’re
walking outside. It’s unwise to buy cold
prepared drinks from street vendors unless
they are canned or bottled – you need to
be sure the contents are good.
Medical care and hospitals
India’s doctors have been exported all
over the world and are highly trained
both at home and at overseas hospitals
and universities. India also has a wide
network of international standard clinics
and hospitals, as well as being home to
some of the world’s top surgeons. There
22 2point6billion.com
are numerous institutions to choose from
– your medical insurance company will
provide details, but others include Fortis
and Apollo, while Pacific Prime provide
a list of English speaking doctors and
facilities on a national basis. I have had
minor surgery in India (bursitis, an old
tennis injury) and both the operation and
aftercare were first rate.
Schools
India’s schooling system at the top end
is generally excellent – the country
possesses some of the most prestigious
pre-university public schools in Asia.
The Indian government has also recently
liberalized the education sector at
the university end and is for the first
time permitting prestigious academic
institutions to establish joint ventures and
schools in India. The web site International
Schools in India provides a national search
function and details. However, in common
with China, international schools in
India are expensive. You’ll need to allow
about US$20,000 per annum per child,
however there is a wide and generally
well established selection to choose
from – with many based on the proven
British standard model of education. Your
embassy will also be able to advice on
pertinent educational facilities in India.
City traffic
It’s an infrastructure problem, and the
rise of vehicle ownership compared to
the development of roads is surging
ahead. While in Beijing our executives
can manage if necessary four meetings a
day, diaries in India regularly get screwed
up. Two appointments outside the office
is the maximum at most that can be
realistically targeted for without busting
a gut. Plan meetings well, and don’t over
attempt to arrange multiple meetings each
day in India. You simply won’t be able to
fulfill them.
Car and driver
A must. Indian city traffic is improving (but
still problematic during rush hours), while
China’s traffic problems are worsening.
A decent car and driver is needed for you
to read the newspapers, catch up on the
laptop, and generally use your car bound
time efficiently. Best to get a high wheel
base vehicle though, especially in Mumbai
– those summer monsoon rains dictate you
need something to get through the waters.
India also has a thriving second hand auto
market, something China has yet to really
develop – so bargains can be found. And
for the wealthy, Bentley, Rolls Royce,
Ferrari and Lamborghini are all in the
latest showrooms. Our recommendation
would be a Land Rover Discovery – it’s
now an Indian-owned brand (no import
duties) and that’s the job for navigating
the worst of the roads and the worst of
the weather. If you want to swank it up,
another Indian-owned brand is Jaguar
and unlike China’s expensive imported
vehicles, Indian ownership means parts
and service are easy. A driver is a must –
a local guy who knows the city and will
know all the short cuts and deal with the
inevitable argument or road hassle.
Company cars
It’s a standard piece of kit for the busy
executive. Together with drivers, some of
whom have been professional for years.
My driver in Mumbai used to be employed
by Sir Richard Attenborough during the
filming of the epic “Gandhi” and still
receives birthday cards from him. The
choices of vehicle are many, but Indians
are generally not as keen as the Chinese
on displaying wealth. Also, coupled with
the appalling state of traffic, it’s highly
likely you’ll receive dents and bangs.
One day I had three minor accidents
all of which messed up the paint work.
A wooden cart spun out of control and
scratched a three foot long mark along the
car’s side, someone sideswiped me along
the motorway, and then 10 minutes later
I got rammed in the rear at traffic lights –
so much for the expensive bespoke paint
job. Better then to keep the car modest,
be prepared for the odd scrape, and sit
in the back. My choice, the ubiquitous
Hindustan Motors Ambassador; classic,
fun to be in, roomy, plenty of luggage
space, inexpensive and easy to maintain.
Taxis
Given the temperatures that can be reached
in India, taxis come in two varieties, air
conditioned and non-air conditioned.
It is wise to choose the former, and the
additional surcharge is small. Upon
arrival, it is also sensible to head for the
“pre-paid taxi” kiosk as touts frequent
international airports looking for gullible
travelers. Pre-paid taxis are a reasonable
fare, usually larger vehicles and are used
to dealing with foreign travelers. Beware

of helpful porters insisting on handling
your luggage outside the main exit, they
will immediately demand tips and can
be a nuisance. Your taxi driver will help
with your luggage. On longer journeys it
should be noted that some taxis are only
licensed to operate within a particular state
and additional planning may be required
for out of state journeys. Hotel taxis or
cars tend to be expensive – far better to
enquire with the concierge as to better and
more reasonable rates. Other than pre-paid
taxis, it is also sensible to negotiate the
price, even if the taxi is metered, before
you commence your journey. Some
journeys will obviously involve toll roads.
Be prepared to have some small change
(Rs.100 notes) ready as the driver himself
may not carry much cash.
Private clubs
China isn’t really big on private member
clubs, and those that do exist tend to
be both really expensive and cater for
Chinese tastes only, although there are
notable exceptions in Beijing, such as
the Capital Club. But generally China is
not so developed for club facilities for
expatriate families and business duties.
India, though, follows more the Singapore
model, where clubs have long existed that
cater for the expatriate community. Of
particular worthy mention are the Breach
Candy Club (Mumbai), close to the U.S.
Consulate and home to Asia’s largest
outdoor swimming pool. The Bombay
Gymkhana Club offers a great range of
sports activities, such as the inevitable
cricket, but also hosts the rugby teams,
soccer, hockey and many other activities,
while in Delhi the Indian International
Center is the place to hang out – and is
funded by the Rockefeller Center. Private
clubs in India are a source of comfort
and a home away from home for many
expatriates in a manner that China tends to
distrust lest foreigners connive together to
plot a subversive overthrow of the regime,
but clubs in India are a welcome respite
from the heat and daily hassles of Indian
expatriate life, often have a fascinating
history, a vibrant business community and
provide superb facilities for the family
and to make friends. Every executive
expatriate package in India should include
such a membership, especially if a family
is involved. Other cities too, have their
equivalents.
Relocation
I am often asked the differences between
Beijing and Shanghai, or Shanghai and
Hong Kong, and which I prefer, and the
same is true of Delhi versus Mumbai. I
always strive to be diplomatic and say
that I’m always happiest where I am at
that particular moment. Increasingly
though, I’ve noticed that in the China-
India space I have occupied now for the
past five years, there are more expatriates
who are traveling to work in India, many
of them from China. It’s to be expected,
many successful foreign invested
China businesses have either been well
established and are now localizing in
terms of operational management, or
businesses previously only in China are
now expanding into India and are sending
over their trusted “Asia hand” to do it.
There is no doubt that the membership
of chambers of commerce in India
is expanding, and that progressively
greater numbers of expatriate managers
are seeking work and employment in
the country. China will have been the
previous posting for many of them. India’s
infrastructure is the opportunity and
many experienced project managers will
be making the transition sooner or later.
India represents a logical extension to a
professional expatriate’s career, and the
relocation from one to the other is not as
extreme nor as awkward as many would
think. India is the new land of opportunity,
and while China commences its long
descent into normal growth and suburban
normality, India is where the action
is. Overseas expatriates need to start
preparing to expect that call – and with a
significantly lower individual income tax
burden – even positively looking forward
to it as a solid career move. Relocating
from China to India is fast becoming
normal executive career practice.
Executive Summary
As is clear, the China business and
investment environment is changing – fast
– and foreign investors used to the market
conditions of the past twenty years will
need to adapt. The low end manufacturing
supply chain is moving out of China and
into South-East Asia. India will be a
major beneficiary of this change. China
meanwhile will concentrate on developing
its wealth – the minimum salary level is
set to double as a state policy within the
next five years. This will create a massive
Indianizing Your Existing Business
consumer market for foreign investors
to sell to, but at the same time will
mean foreign investors will increasingly
have to compete with Chinese domestic
companies. This will create new stresses
as the domestic Chinese environment is
tilted towards favoring local businesses
rather than foreign. Disputes and issues
of protectionism and favoritism will rise.
Foreign investors therefore will need to
upgrade their market intelligence and take
full advantage of all available benefits
in order to compete. This includes the
improving and strengthening of financial
and administration systems, and making
full use of technical benefits such as
double tax treaties. Financial structures
and appropriate business structuring will
become more important than ever.
India meanwhile will continue to grow – I
personally feel its GDP growth is already
higher than China’s – the Chinese state
figures often tend to be exaggerated.
That growth – the opportunity that
exists in redeveloping the entire national
infrastructure – will in turn lift millions
out of poverty and add to an already
buoyant consumer market.
The key then in understanding what is
happening is to realize the fundamental
evolution that China is experiencing and
adjust business models to take advantage
of the huge domestic market in China.
Low end, export driven manufacturing
will move elsewhere in Asia – potentially
India – or will face financial difficulties
as operating costs eat into already tight
margins. The rise of India is not a threat
to China based businesses, but rather
more presents a new opportunity – and
almost on the same scale as the China
phenomenon. The answer, when looking
at China and India is simple. The next two
decades represent a unique opportunity to
invest in both.
Chris Devonshire-Ellis can be contacted
at chinaindia@dezshira.com.
Dezan Shira & Assocoiates:
www.dezshira.com
China Briefing: www.china-briefing.com
India Briefing: www.india-briefing.com
Emerging Asia: www.2point6billion.com
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