China and India Share Little but Fast Growth. That Could Change

Dear Business Writers: Chindia is not a real place. Despite what you may have read, China and India may be the great ascending economic powers of our time, but their emerging influence comes from very different places. Common ground, however, may be easier to find than one would expect, argues Tarun Khanna, a Harvard University professor and author of Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours. He predicts the two powerhouses will complement each other more and more in the coming years.

Khanna expects the China-India thaw to continue.

Can you outline the unique economic strengths of both countries?
China has an incredibly efficient government and top-down state, which is extremely good at orchestrating large investments. It doesn't have functioning domestic capital markets, the banks are in a mess, and the equity markets are very speculative. So support for indigenous private-sector entrepreneurs is relatively limited. As a result, you have very few world-beating mainland Chinese companies [that are not state owned]. India is exactly the opposite. It has terrible infrastructure and terrible roads, but it has complete freedom of information, complete protection of property rights. India is basically a noisier version of the United States.

Given those differences, what traits define a typical entrepreneur in each?
Well, the human impulses are no different. Kids are graduating from colleges and saying, "We want careers and businesses for ourselves." But the way they'd go about it would be quite different. In India, you would try to bootstrap your company much as you would in the U.S.: Try to raise financing; go to risk capital. In China, you'd often raise capital from overseas Chinese sources, friends-and-family-type capital. And the [Communist] Party would take an interest in you if you were a vibrant enterprise.

What makes the two fit for increasing trade and cooperation?
I'm not for a second implying there will be a lovefest. [China and India] fought a [border] war in 1962, and there are still mutual tensions that will persist. Relations went into a deep freeze for a long time. The thawing started two or three years ago and is accelerating greatly. Top [leaders] in both countries are focusing more on economic development and poverty alleviation.

What's your advice for U.S. firms trying to navigate both countries?
Make sure you bring the entire social system along with you. Things that build up infrastructure and also create a lot of employment for local citizens are seen very positively—much more positively than just selling products. It's a much easier sell to say, "We'll use your ideas and talent," than it is to say, "We're just going to sell you potato chips."