PROJECT ON:

Report on PESTEL Analysis of India and STEEPLED Analysis of

China with Comparison Between Education & Consultancy
Industry of India & China

SUBMITTED TO:

Prof. Dharmendra Khairajani

(Faculty- Principal of Economics II)

SUBMITTED BY
Devang Rao
Semister-2
Section B
Roll No.- 31
(B.BA., L.L.B. Hons.)

UnitedWorld School of Law, Karnavati University

Uvarsad
Overview of India:

India is a vast country. Situated in southern Asia, it shares its border with China, Nepal, Bhutan
to the north, Bangladesh and Burma/Myanmar to the north-east and Pakistan to the north-west.
There exists a small disputed area with Pakistan which shares its border with Afghanistan. It is
surrounded by the Bay of Bengal to the east, the Indian Ocean to the south and the Arabian Sea to
the west. There is a Himalayan mountain range which is spread across most of northern India.
Let’s look at the different aspects of India.

Population

India is the seventh largest country in the world. It is the second most populated. In the coming 25
years, it might overtake China to become the world’s most populated country. The country has an
estimated population of 1.21 billion. 29 percent of the population living in urban areas. India has
more than 2,000 ethnic groups.

States and Union Territories

India comprises of 29 states and seven Union Territories, with New Delhi as the capital. A number
of cities in India have undergone name changes since independence in 1947. Major alterations
over the past 20 years include Bombay switching to Mumbai, Madras became Chennai, Calcutta
changing to Kolkata and Bangalore renamed as Bengaluru.

Languages

In India, Hindi is the official language and is spoken throughout the major cities. English is also
widely spoken in urban areas. There are 21 other languages that are commonly spoken across the
country.

Religions

The main religions in India are Hinduism (80.5 percent), Islam (13.4 percent), Christianity (2.3
percent), and Sikhism (1.9 percent). Other religious groups include Buddhists, Jains and Parsis
(1.8 percent).
Literacy and Life expectancy

Literacy within the country is 61 percent and average life expectancy is 67.14 years old.

Economy

The official currency in India is Rupee. Our country is the world’s fourth-largest Purchasing
Power Parity (PPP) and has the 11th largest GDP (gross domestic product) in the world. In the
year 2011, GDP was $1.843 trillion. A member of G20, India is also the fastest growing
economies globally.

Major trade partners of India are China, the USA, the United Arab Emirates, the European Union,
Russia and Japan. You can find natural resources such as iron ore, coal, mica, manganese, bauxite,
chromite, limestone, barite, thorium, titanium ore, diamonds and crude oil in India. Outsourcing
industries and information technology in India are growing at an alarming rate.

India is in a period of unprecedented opportunity, challenge and ambition in its

development. Already the world’s third largest economy in purchasing parity terms, India
aspires to better the lives of all its citizens and become a high-middle income country by 2030,
well before the centenary of its independence.

Long-term GDP growth has become more stable, diversified, and resilient. Over the next few
years, India is expected to grow at well over 7 percent per year, with progress being buttressed
by dynamic reforms in the macroeconomic, fiscal, tax and business environments.

In recent years, the country has made a significant dent in poverty levels, with extreme poverty
dropping from 46 percent to an estimated 13.4 percent over the two decades before 2015. While
India is still home to 176 million poor people, it is seeking to achieve better growth, as well as
to promote inclusion and sustainability by reshaping policy approaches to human development,
social protection, financial inclusion, rural transformation, and infrastructure development.

While the country’s development trajectory is strong, challenges remain. Economic

performance has been strong, but development has been uneven, with the gains of economic
progress and access to opportunities differing between population groups and geographic areas.
Despite regulatory improvements to spur competitiveness, levels of private investment and
exports continue to be relatively low, undermining prospects for longer term growth. The
country’s human development indicators – ranging from education outcomes to a low and
declining rate of female labour force participation - underscore its substantial development
needs.

India’s ability to achieve rapid, sustainable development will have profound implications
for the world. India’s success will be central to the world’s collective ambition of ending
extreme poverty and promoting shared prosperity, as well as for achieving the 2030 Sustainable
Development Goals (SDGs). Indeed, the world will be only able to eliminate poverty if India
succeeds in lifting its citizens above the poverty line.

For international trade and the health of the global economy too, India’s growth will be an ever
more important. In addition, the carbon footprint India leaves as it propels its high growth will
have a significant influence on the planet’s ability to keep global warming within the 2-degree
threshold.

On crucial issues ranging from managing scarce water resources, to modernizing food systems,
to improving rural livelihoods, to ensuring that megacities become engines of sustainable
economic growth and inclusion, India’s development trajectory will have a major influence on
the rest of the world.

At the same time, India’s growing economic and political stature and the relevance of its
experience, know-how and investments for the development efforts of other nations well-
position the country to play a greater leadership role in the global arena.

Geographical Features

Sprawling over a land of 3,287,263 sq Km, India has a vast and varied geography. The four
geographical regions of the country are mountains in the north, the plains of the Ganga and the
Indus, the desert region and the southern peninsula.

The world’s highest mountain range is the Himalayas in the north. Kanchenjunga, the world’s
third highest mountain at 8,586m (28,169 ft), sits on the India–Nepal border.
Tourism

Tourism in India is a booming industry. 5.78 million foreign tourists visited the country in 2010.
There are several tourists’ spots that attract the tourists.

Politics and Government

On 26 January 1950, the constitution of India came in existence. It comprises of 29 states and
seven Union Territories. Our Indian constitution offers the citizens of India some basic freedoms.

India operates as a socialist, sovereign and a secular democratic republic with a parliamentary
system of government. Here, the president is head of the union of states, and a prime minister is
head of the government. The prime minister runs the office with the help of the cabinet ministry.

Every state has an elected government with a governor as the head. Noteworthy, Union Territories
are ruled directly by an administrator appointed by the president. Most of all, there are a number
of political parties that fight together. Some of the main national political parties are the Indian
National Congress (INC), Bharatiya Janata Party (BJP), and the Communist Party of India-
Marxist.

The judicial system of India began under British rule, so the major process and procedure continue
to resemble the British judicial system.

Climate

Geographical diversity and immensity create good variety in the weather condition. The climatic
zones existing in India include:

 Tropical monsoon in both south and west

 Tropical savannah in both central and south

 Arid in north-west

 Semi-arid in north-west and south

  Humid subtropical in north and north-east

 Montane in far north and far north-east Himalayas

Most common of these is the tropical monsoon climate. The country depicts 4 seasons in a year:

 Winter (December–early April)

 Summer (April–June)

 Monsoon (June–September)

 Post-monsoon (October–December)

Security

India experienced few terrorist activities in the recent past. The terrorist groups supposed to be
behind this are still active. Jammu & Kashmir, the most disturbed states restrict travel in some
areas.

India ranks tenth in the world’s highest reported crime rates. Instances of theft, robbery and murder
have been seen in the past. Sexual offences towards the woman have also been noted.

PESTEL analysis of India:

This PESTEL analysis of India aims to address some of the political, economic, social,
technological, environmental, and legal issues concerning the country.

Political environment of India

India is one of the most powerful countries in the world. It is the largest democracy in the world
and enjoys a relatively stable political environment. New Delhi is the capital of India. India
neighbours two powerful countries i.e. China and Pakistan. Other neighbouring countries are
Bangladesh, Myanmar, Nepal, Bhutan, & Sri Lanka.

Democratic will of the people reflected in the local and national elections is mostly respected
and accepted by the political parties and people in general. This political culture of tolerance
contributes immensely to maintain a stable political climate which is in fact a very important
factor to attract foreign direct investment (FDI). However, sporadic political unrest is not very
uncommon in India.

A major area of concern in India is corruption. It badly affects the country’s business and
political environment, posing a challenge to the country’s economic growth. Corruption
increases the cost of business operations and often affects foreign direct investment. However,
a growing public awareness and government initiatives are combating the challenges of
corruption.

Economic environment of India

According to the IMF 2017 economic forecast, India’s GDP is worth $2.4 trillion making it the
7th largest economy in the world by nominal GDP. The GDP will grow by 7.0% in FY18 which
is expected to increase to 7.4% by FY20 (The World Bank Group, 2018).

The current corporate tax rate in India is 30% (as of February 2018). It is worth noting that the
country witnessed frequent corporate tax rate changes over the years. For example, the tax rate
in 2010 was 33.99%, while it reached an all time high of 38.95% in 2001 (Trading Economics,
2018).

India is one of the top countries in many industries. For example, it is the 7th largest coffee
producing countries in the world (International Coffee Organisation, 2017). It is also one of the
top agriculture producing countries in the world.

India’s key exports are petroleum products, jewellery, pharmaceutical products, transport
equipment, machinery and readymade garments to name but a few. On the other hand, India
imports crude petroleum, gold and silver, electronic good, pearls and precious stones and many
other things. Some of the top trading partners of India are China, UAE, Switzerland, Saudi
Arabia, USA, and Qatar (Guardian News and Media Limited, 2016).

Social environment of India

India has a gigantic consumer market with a total population of approximately 1.2 billion. Such
a huge market is a great opportunity for multinational companies. No wonder why so many
multinationals are operating in India! India offers cheap labour and the labour force is expected
to reach 160-170 million by 2020 (IBEF, 2018). Accessible and affordable labour force has
encouraged many multinational companies to outsource some of their business operations to
India.
India is a multi-ethnic, multi-lingual, and multi-religious country. Communal harmony is a
great strength; however, the country sometimes witnesses tensions in ethnic lines. India has a
world-renowned film industry. It is also world renowned for some of the sports e.g. Cricket
and Hockey. IPL (Indian Premier League) attracts cricket legends and talents to India.

India is one of the most attractive markets in the world in many sectors. Standard of living is
gradually improving and the country has a growing middle class with good disposable income.
However, it is worth noting that India still suffers from poverty and according to the World
Bank, 1 in 5 people in India are still poor.

Technological environment of India

India is one of the most technologically advanced countries in the world. In fact, according to
some sources, it is the 3rd most technologically advanced country in the world. No wonder why
more and more tech giants including but not limited to Facebook, Microsoft, and Apple are
investing in the country! India is a key destination for outsourcing work in IT. With an
advanced IT infrastructure and highly skilled IT work force, India offer enormous opportunities
for entrepreneurs to embark upon technological projects such as software development and
upgrades, e-commerce, mobile apps, business solutions, and many more.

Environmental issues of India

While India has made a lot of progress over the years, the country still faces a number of
environmental challenges e.g. air pollution, water pollution, floods, resource depletion such as
water and forest, loss of biodiversity, and diversion of consumer waste into rivers. Expatriates
may sometimes find it difficult to live under some of these environmental challenges.

Legal environment of India

The last element to address in the PESTEL analysis of India is the legal landscape. As
mentioned above, India is a famous destination for foreign direct investment. Depending on
the scope and the business needs, foreign investors can set up a company, branch, or a limited
liability partnership in India. Indian companies are governed by the Companies Act, 2013.
There are several labour laws that regulate employment relations in India e.g. Employees’ State
Insurance Act 1948 (ESI Act), Industrial Disputes Act 1947 (ID Act), Maternity Benefit Act
1961 (MBA) and the Payment of Bonus Act 1965 (PBA).
STEEPLED analysis of China

Political factor

Currently, China Government is ongoing to promote rule of law. After the Cultural Revolution, a
legal system to restrict of official authority and revolutionary excesses has been developed. In
1982, the National People’s Congress issued a new state constitution that emphasized the rule of
law under which even party leaders are theoretically held accountable.
Since 1979, when the drive to establish a functioning legal system began, more than 300 laws and
regulations concerned about economic areas have been promulgated. In the 1990s Legal reform
became a government priority. Legislation designed to modernize and professionalize the nation’s
lawyers, judges, and prisons was issued. The Chinese constitution and laws provide for
fundamental human rights, including due process, however in practice these are often ignored. In
addition to other judicial reforms, the Constitution was modified in 2004 that include the
protection of individual human rights as well as the legally-obtained private property, but it does
not clear about how some of these provisions will be implemented. Since this modification, there
have been new promulgations in bankruptcy law and anti-monopoly law, and modifications for
both company and labor law. Although additional safeguards to citizens have been provided in
new criminal and civil laws, previously debated political reforms, including expanding elections
to the township level beyond the current trial basis, have been put on hold.
Since Tiananmen, 13 rounds of human rights dialogue between the U.S and China has been
conducted. In May 2010, the most recent round was taken placed; topics were turned around
religious freedom, the rights of labor, freedom of expression, rule of law, the discrimination of
race, and multilateral cooperation as well. A foundation to continue these rounds in the future was
adopted by The U.S. and China leading to unanimous approval for the next round of dialogue in
China in 2011. The meetings in Lhasa on March 10th 2008, marking the 49th anniversary of the
Tibetan uprising turned violent, and led to protests and unsecure state throughout Tibetan areas
and others surrounding provinces. The army and police force monitored strictly Tibetan areas for
the safety of the 50th anniversary in 2009 and 51st in 2010 and security was tightened in the border
with Nepal. Armed uprising was ongoing when ethnic violence broke out in Urumqi in Xinjiang
Uighur Autonomous Region on July 5, 2009. Security control significantly increased in Urumqi
and its surrounding areas and as the result some mosques in Xinjiang were closed. As of early
2010, Urumqi was still under a heavy police control and most Internet and international phone
communication were totally cut off.
In recent years, riots have been happened in China that has created the unstable condition for
foreign companies’ investment in China. However, China Government has taken strict measures
to prevent and stop this situation that creates safe environment for foreign investors.

Economic factors

China’s economy has been reformed and opened since 1978. A more pragmatic thinking on many
political and socio – economic problems has been approved by the Chinese leadership and
therefore the role of ideology in economic policy has been partly reduced. China has transformed
its economic into the market-oriented that positively impact not only on China but also on the
world. These economic reforms China has implemented over the past 2 decades have profoundly
affected both individual initiative and entrepreneurship. As the result the poverty has been
significantly reduced and the average income has reached to highest level ever seen. At the
beginning of 2010China is ranked as the second-largest economy in the world after overtaking
Japan to capture this position. An average economic growth has been sustained over 9.5% for the
past 26 years. In 2009, its economy reached to $4.814 trillion was about one-third the size of the
U.S. economy. The high economic growth along with higher national income growth may boost
demand for Soundtech Technology’s products – this is big opportunity for the firm to develop its
business. In the 1980s, the combination of central planning with market-oriented reforms were
tried to implement in order to increase productivity, living standards, and technological quality
but not lead to negative effect on inflation, unemployment, and budget deficits In addition,
Chinese Government pursued agricultural reforms, dismantling the commune system and
introducing a household-based system that provided peasants greater decision-making in
agricultural activities. Besides that, nonagricultural activities like village enterprises in rural areas
were also encouraged. Similarly, the government promoted more self-management for state-
owned enterprises in order to increased competition in the marketplace, and create opportunities
for China’s domestic enterprise directly contact with the foreign ones. On 20th June 2010, China’s
central bank set the Yuan exchange rate at higher level after committing to increase the flexibility
of exchange rate of its currency. Reference exchange rate of the day was set at 6.7980 Yuan on
USD 1 – its strongest level since September 2008, up 0.43% compared with the level of 6.8275
Yuan on 21st June 210. A stronger Yuan would make Chinese exports more expensive, help
redress trade balances and bring some reliefs to foreign manufactures struggling to complete. The
increase of Yuan exchange rate creates disadvantages for Soundtech Technology when they
export their products to overseas markets because it raises the price in term of foreign currency.
Especially, in recent years the cooperative relationship between China and Singapore have been
improved within related global and regional organizations such as the ASEAN plus China, Japan
and South Korea, the Asia Pacific Economic Cooperation Forum (APEC) and the World Trade
Organization (WTO). At the same time, both China and Singapore have conducted beneficial
cooperation and put efforts to offer training sessions to a third country and to help their companies
or enterprises explore and exploit the world market.

The 20th anniversary of the establishment of diplomatic corporation between China and Singapore
is marked in year 2010 as well as the event of China’s participation in the ASEAN Free Trade
Area (FTA). By taking advantages of all the opportunity from the partners, China is ready to work
with Singapore to lift bilateral relations to a “new level” and bring more substantial benefits to the
citizens of both countries. For this reason, China Government always makes the best condition to
welcome Soundtech Technology to invest in China.

Social factors

With a population officially over 1.3 billion and an estimated growth rate of 0.494%, China is
very concerned about its population growth and has attempted with mixed results to implement a
strict birth limitation policy. The government’s goal is to stabilize the population in the first half
of the 21st century, and 2009 projections from the U.S. Census Bureau are that the Chinese
population will peak at around 1.4 billion by 2026. It can be said that China has huge population
that supply to the market a profuse workforce which is an opportunity for Sountech Technology
to expand its business in China. Another affecting factor that can be considered is the trend of
employment with relation to the unemployment level. The current unemployment rate in China in
January 2010 is 4.3% which demonstrates that this project would help the society and in turn the
economy by creating positive job opportunities.

Recently, China Government has increased the minimum wages. On 1st April Guangdong
increased the province’s minimum wages by an average 13%. Moreover, the southern China
province produces about 13% of China’s economic output, the most among the country’s 32
provinces. Minimum wages in the capital city Guangzhou reached to 860 yuan increased $120
per month from 780 yuan, Wages of other cities in the province would also get a boost, with those
in some inland cities up nearly 18%. China Government has increased the minimum wages that
is a challenge for Sountech Technology because they have to paid more for labour costs that will
decrease business profit.

Technological factors

Chinese science strategists realize China’s greatest opportunities in technology fields such as
computers and biotechnology, where creates a chance for China to make innovation in these areas.
It cannot be denied that a dense network of trans-Pacific contact has been built by most overseas
Chinese students that will boost the cooperation between U.S. and China scientific in coming
years. The U.S. space program is regarded as the standard of scientific modernity in China is held
annually. China’s small but growing space program is national pride of China when its third
manned orbit was totally successful in September 2008.
Technology Agreement is the model for bilateral cooperation between The U.S and China in
science field. In April 2006 the Science and Technology Agreement was extended by a 5-year
agreement was signed. The agreement which includes approximately 60 protocols, memoranda
of understanding, agreements, and annexes, is considered as the longest-standing between U.S.-
China accords. The agreement encompasses cooperation between U.S. and China in variety fields
like marine conservation, renewable energy, and health. Besides the U.S China also has close
relationship with Japan and the European Union in science and technology cooperation.
Based on the data supplied by the State Development Planning Commission, during the Ninth
Five-year Plan period from1996 to 2000, China has significant technological development. 50,000
projects have been set up under the “Spark Plan”. Started in 1986, these projects were actually a
technological program in order to enhance the IT level in rural areas.

Since 1996 a total of CNY192.9 billion has been invested in the “Spark Plan” in which CNY3.5
billion was from the Government’s Funds, CNY41.9 billion were from loans of banks and
CNY147.5 billion from private and other social sectors. Since 1996 the Chinese government has
invested CNY3.19 billion in the industrial sector to develop technical innovation projects. In
addition, since 1999 the government has been focusing on technological innovation of State-
owned enterprises by spending CY19.5 billion worth of treasury bonds
A number of districts for high-tech development have been established for researching and
developing technological purpose. For example, in 1996 the Silicon Valley was built with an
CNY101.5 billion investments in the infrastructure construction. Up to now there have been
approximately 17,000 high-tech enterprises operating in those districts, with the employees more
than 2.2 million.

Environmental factors

Undoubtedly, along with China’s rapid industrial development are the serious negative impacts
on environment these include increasing pollution and decreasing natural resources as well. In
2007, China became the world’s largest emitter of carbon dioxide and other gases leading to
greenhouse. WTO conducted a report on the quality of air in 272 cities worldwide, pointed out
seven out of the ten cities that are the most polluted in the world were in China. In addition, based
on China’s own evaluation, two-thirds of the 402 cities which have been air polluted two-thirds
of them moderately or severely so. According to environmental report, there is water polluted in
almost all of the nation’s rivers to some degree and half of the population is lack of clean water
for daily life. By some estimates, there are approximately 300 million people have to use
contaminated water for drinking every day.

Water scarcity also is considered as an issue; taking severe water scarcity in Northern China as an
example that is actually a serious threat to sustained economic growth. Thus, the government has
been working on a project for delivering a large-scale of water from the Yangtze River to northern
cities, including Beijing and Tianjin. Some research estimate pollution costs hold the Chinese
economy from 7% to 10% of GDP per year.

Currently, like any Government, China’s leaders are increasingly paying attention to
environmental problems in the country. Realizing the important of environmental protection, The
State Environmental Protection Administration was officially upgraded to a ministry-level
agency, the Ministry of Environmental Protection in 1998. Recently, China’s environmental
legislation has been strengthened and some progress in stemming environmental deterioration has
also been made. China took part the Asia Pacific Partnership on Clean Development in 2005,
which unites industries and government to implement common strategies together that reduce
pollution and global climate change. Campaign about pollution control was great invested that a
factor contributing to a successful Olympic Beijing 2008, though some of the benefits were just
temporary in nature. Thanks to these campaigns the quality of air in some cities has been improved
recently.
It can be said that China is participating actively in climate change talks as well as other
multilateral environmental negotiations, especially discussions about how developed countries
deal with serious environmental issues that help developing countries to a greater extent. China
has signed the Basel Convention about transporting and treating hazardous waste; the Montreal
Protocol about the Ozone Layer Protection and other major environmental agreements.
As long as China is huge country thus water scarcity is regarded as a big issue that also is the
project’s disadvantage. Besides that, climate change is considered as one of the major systematic
risks for Soundtech Technology because climate change is affecting how companies operate and
the products they offer.

Legal factors

In order to encourage foreign companies to invest in China, China Government has gradually set
up a relative complete law system. In 1979, The Law of the People’s Republic of China on
Chinese-Foreign Equity Joint Ventures was published. 20 years later, the Chinese government has
promulgated and issued a series of laws and statutes about the establishment, operation,
termination and liquidation of foreign-invested enterprises. The main laws and regulations include
the three basic laws. The law on Chinese-Foreign Equity Joint Ventures, The Law on Chinese-
Foreign Contractual Joint Ventures, and The Law on Wholly Foreign-Owned Enterprises; detailed
rules for the implementation of the three basic laws; The Company Law of the People’s Republic
of China; The Income Tax Law of the People’s Republic of China for Enterprises with Foreign
Investment and Foreign Enterprises; Interim Provisions for Guiding Foreign Investment;
Industrial Catalogue for Foreign Investment; Interim Provisions Concerning the Investment
within China of Foreign-invested Enterprises, Provisions Regarding the Merger and Separation of
Foreign-invested Enterprises, and Liquidation Measures for Enterprises with Foreign Investment.
These provide legal bases from which to guarantee the independent operation rights of foreign-
funded enterprises and to protect the legitimate rights and interest of both domestic and overseas
investors.

Currently, the China’s government is considering its existing laws and statutes in accordance with
the model of the WTO. It has abolished certain obsolete laws and regulations, and will gradually
revise the laws and regulations that are incompatible with the rules of the WTO.
Tax law is one of the most important issues that SoundTech Technology needs to understand as
the tax regulations have a direct impact on ST’s business activities. China is known as one of the
most attractive incentives packages in Asia. Tax incentives and other facilities for the
manufacturing sector are provided for in the Promotion of Investment.

The data below demonstrates the tax that a medium-size company must pay or be withheld in a
given year, as well as measures of the administrative burden in paying taxes. These measures
include the number of payments an entrepreneur must make; the number of hours spent preparing,
filing, and paying; and the percentage of their profits they must pay in taxes

Ethical Factor

If you want to talk about business ethics in China, don't set yourself up as the Western expert
imposing foreign models on the Chinese. That was the message of Stephan Rothlin, general
secretary of the Center for International Business Ethics (CIBE) in Beijing in remarks to the
Business and Organizational Ethics Partnership of the Markkula Center for Applied Ethics
March 23. The Chinese, Rothlin said, are very open to considering ethical issues: "They want
to be global players, and they realize that in order to become a real global power, they have to
eliminate corrupt practices." Many students at the Beijing University of International Business
and Economics, where CIBE is based, are pursuing an MBA because they are frustrated by the
corruption they witness, he noted. But the Chinese do not want paternalism from the West.
Instead, Rothlin said, they want acknowledgement that "they can offer something, that they can
actually become a driver in the field of ethics." Because the Chinese are emerging as an
economic powerhouse, any ethical rules they integrate into their businesses practices will have
an impact on the whole world. Often, the Chinese see hypocrisy in criticism of their country
by companies that tout their own ethical codes but then close their eyes to what their own
Chinese subcontractors are doing, Rothlin said. To counteract this scepticism toward Western
critiques, he counselled an approach that acknowledges unethical conduct in other cultures as
well. Swiss by birth, Rothlin teaches about the failure of Swissair in 2001 "to avoid suggesting
that only China has problems." He gives the same advice to those who want to work with
Chinese companies or bring their businesses to China. "The strategy should be to limit the
output of Western experts to a minimum," he said. Setting up a code of ethics, for example,
should be primarily the job of the Chinese. "It does not mean anything if you translate your
existing code from English and distribute it," he cautioned. "The Chinese will say, 'Yes, thank
you,' and then throw the code away." Of course, that indifferent kind of implementation would
not work anywhere in the world, even, as one member of the partnership pointed out, "in San
Diego."

Rather than imposing a code, Rothlin argued, "let the Chinese develop their own codes. Then
the managers can identify themselves with these codes." Rothlin emphasizes China's own
philosophical traditions when he talks about business ethics with the Chinese. He gave this
example of how he discusses the problem of corruption, which often includes favouring family
and cronies. Some students of China have argued that the Chinese are encouraged in such
favouritism by their traditions. They point to Confucius' focus on responsibility to family,
citing his admonition that a person who sees his father steal a sheep should not turn his father
over to the authorities. But Rothlin points out counter-arguments within the Chinese tradition
itself. Mozi, a philosopher of the 5th century BCE, tried to replace the Confucian focus on the
clan with a more universal caring. He saw favoring the family as the root of corruption and
instead advocated laws that protect everyone equally. Using his insights into Chinese
philosophy, Rothlin has developed a textbook in Chinese, Becoming a Top-Notch-Player: 18
Rules of International Business Ethics (Beijing: Renmin University Press, 2004). The book
draws on Chinese experiences for case studies and examples. His centre has also supported the
translation of various classic business ethics texts into Chinese and the development of rigorous
research on business ethics issues at Beijing University of International Business and
Economics. Rothlin addressed the Business and Organizational Ethics Partnership as part of
reciprocal visits between CIBE and the Markkula Centre for Applied Ethics. Markkula
Executive Director Kirk O. Hanson has consulted with CIBE, the first centre of its kind in
China, and serves as honorary chair.

Other speakers at the March Partnership meeting included Dan Sweeney from the Center for
Corporate Excellence on "Tone at the Top and Executive Compensation" ; Robert Finocchio,
teaching scholar at SCU and private investor on "Incorporating Ethics into the Organization s
Strategic Plan"; and Frank Daly, Markkula Center Fellow, Eric Pressler, Apple Computer, and
Sam Piazza, Hewlett Packard, on "Rules-Driven and Values-Driven Ethical Approaches:
Trade-offs."
The Business and Organizational Ethics Partnership brings together executives and scholars in
a forum designed to increase the members' knowledge about effectively managing ethics in
their organizations. Founded in 2003, the partnership currently includes 14 business
organizations and 10 faculty members who share the goals of honing ethics and compliance
policies and practices, and advancing the state of business ethics knowledge.

Demographic Factor

China is the most populous country/region in the world. In its unified and un-unified forms, it
has been forever, so it seems. It certainly has been since the fall of the Roman Empire, although
one can argue that the British Empire was larger for a moment. Oddly enough, the pre-eminent
position that it has held for over 1,500 years, is about to be surpassed by India. China, in its
wisdom brought it population under control decades ago, encouraging smaller families. This
has allowed it to further develop and economically grow.

Quite simply, if a country’s economic growth is 3% a year, and its population growth is 3% a
year, then the average person is basically getting nowhere. This has been the case for many
nations in the developing world. China has broken from that pattern.The population of China
(People’s Republic of China) for 2017 is estimated at 1,411 million, or 1.4 billion. This is a
staggering figure making it almost five times (4.6 times) as many people as the United States.
It is around three times what its population was in 1950. The population in its first official
national census taken by the People’s Republic of China in 1953 was 583 million. It was a little
hard to determine what the population of China was until the post-war period. Post-war in this
case means post-Warlord period, post-Sino-Japanese War, post-World War II and post-
Chinese Civil War. The Chinese population was almost four times larger than the United States
in 1950/1953, back in the days when we were at war with China in the Korean peninsula. The
Chinese population is now growing at a rate of 0.59% percent a year (a half percent a year).
This is very low.

The fertility rates in China are 1.62 children per woman (2016) according to National Health
and Family Planning Commission (NHFPC) and 1.29 in 2016 according to the National Bureau
of Statistics (NBS). Not sure why there is such a difference. Regardless, this is not replacement
rate and well below 2.1. It is a birth rate lower that what we see in many developed countries,
although China is a still a developing country. This low birth rate was a result of the one-child
policy instituted by the Communist Party in 1979. It appears to have not only worked, but it
worked too well. In 2015, the government instituted a two-child policy. According to NHFPC,
they are expecting the birth rate to grow to 1.8. I guess this is one of the goals of the 13th Five-
Year Plan. This is still not replacement rate. China does have some emigration and
immigration, but the population is so massive that this does not have a huge impact on
population growth rates.

They have classified 91.51% of the population of China as Han Chinese. Still, 8.5% of 1.5
billion creates some significant minorities. This includes the Tibetians, with at least 2.8 million,
and the Turkish Uyghurs estimated at 3.6 million.

Most likely the Chinese population will experience negative population growth by 2030. The
United Nations predicts the Chinese population will be 1.36 billion in 2050. This compares to
402 for the United States and 132 for Russian in 2050. Predicting population over 30 years is
not that difficult. On the other hand, there is a projection that Chinese population will decline
to 1.02 billion by 2100.
The population is aging, with its demographic “pyramid” developing a narrowing at the bottom.
The demographic “pyramid” from 2015 is below:

These figures do not include Taiwan (Republic of China) or Macau (Macao Special
Administrative Region). It does include the city of Hong Kong. Mainland China claims Taiwan
is part of China and has had an army posed across the straights ready to invade for almost 70
years. I am guessing if they have not invaded in the last 70 years, they are not going to invade
in the next 70, especially as Taiwan is a major trading partner. I do not expect re-unification as
long as Taiwan remains democratic (and it has been since 1991/1996) and China remains a
communist dictatorship. Taiwan had a population in 2010 of 23.1 million, and it is growing
only very slowly. Macau, with a population of 552,300 in the 2010 census, is effectively under
Chinese control, as is Hong Kong (7,097,600 in the 2010 census).
Education Industry in China

Size of Chinese education industry would double

The ecosystem of Chinese education, of which main sectors are private education, studying
abroad, trainings and online education, generally boasts a booming trend. The size of Chinese
education market is expected to grow from 1.6 trillion yuan in 2015 to 2.9 trillion yuan by
2020. Chinese private education institutions have witnessed a strong growth momentum and
kindergartens account for a large share of private education institutions. In terms of
geographical location, over 40% of private K12 and higher education institutions are in East
China.

Outbound international students from China have grown from 280,000 in 2010 to 520,000 in
2015. The number of Chinese students studying abroad has been steadily growing and there is
further potential for the number to grow. US, Australia, UK and Canada are among the major
destinations of Chinese outbound international students.
Training has become a new hot spot of Chinese education market. Traditional education
institutions, as well as internet giants, are eager to make their presence in the training sector.

Major trends emerging in the sector of online education include 1) the integration of online and
offline platforms, 2) the diversification of profit-making models, 3) the rising significance of
mobile-end users, 4) penetrating into Tier 3 and 4 cities and the continued expansion of
businesses, and 5) M&A deals boosting industry consolidation.

Capital driving the development of education industry would be the New Normal

From the investment point of view, the education industry sees an increasing trend of VC/PE
investment value and volume, while M&A deal volume and value also reached record levels.
M&A deals in the education industry indicate two major trends: first, M&A deals launched by
industry peers to improve their business ecosystem; second, listed companies seek to diversify
their businesses through cross-industry acquisitions.
Education industry accessing capital markets has multiple meanings:
 Further drive the development of private education
 Broaden the financing channels and boost the growth of businesses
 Realize brand extension and the identification of business values through financing and
public offering
 Capital would further accelerate the consolidation and evolvement of education
industry
Foreign capital continually flows into Chinese education market, while Chinese education
businesses further explore their road of "going out"
For foreign investors, there are multiple models to enter Chinese education market. The optimal
entry model depends on how investors weigh the balance between extent of engagement and
capital required.

Meanwhile, Chinese education businesses are actively exploring "going out". Outbound
models include setting up overseas offices or subsidiaries and the export of online education.
However, regardless of private education, studying abroad or vocational training, regulatory
policies and reforms would be one key factor and safeguard to drive the growth of education
industry and market.

Consultancy Industry of China:

China’s consulting market outpaced its economy last year, growing at double digit growth to
reach a total market value of $4.5 billion. The Chinese consulting industry is now larger than
its international equivalents in France and Australia.

The concept of management consulting was introduced from Western countries to China in the
1980s as the nation’s economy underwent sweeping marketization. The management
consulting industry in China is still in the growth stage, having been in a state of expansion
over the past 15 years particularly.

As the world’s fastest growing economy, China, which has become an economic superpower,
has continued to attract a flood of management consulting companies keen to tap into the
booming market. Most major global consulting firms have expanded into China, with
management consulting market leaders McKinsey & Company, The Boston Consulting Group,
Bain & Company all present, alongside many more. These firms, alongside the largest
accounting firms, the Big Four, as well as BDO, Grant Thronton and RSM, continue to
dominate the largest market share in China, as their strong brands, global credentials, ability to
leverage their audit base, and end-to-end solution set all play well to domestic and multinational
clients alike. They mainly provide consulting services to their former global customers instead
of local Chinese firms, in the fields of strategy, operations, human resources and marketing.

According to the latest figures from Source Global Research, 2016 was an especially good year
for management consultants in China. Consultancy.asia analysis of the data suggests the
segment grew by as much as 12%, a boom of an additional 5% on the previous year, to reach
a total value of more than $4.5 billion.

The rising demand for consultants appears to have been chiefly driven by multinational
corporations (MNCs) increasing their investments in the country. However, government
initiatives including the $4 trillion belt and road infrastructure investment plan are also
transforming the landscape for domestic players, and clients across many industries are
presently reconsidering their business models in light of digital innovation and a slower-
growing economy.

Source’s analysis also argues that the growth and professionalization ambitions of China’s
state-owned enterprises (SOEs) and privately-owned enterprises (POEs) is also opening up
new opportunities for management consultants, who previously found little work among these
client groups.

Financial services are by far China’s biggest consulting service segment, and are estimated at
over one third of the total industry. In 2016 they turned in a solid performance, with digitisation,
growth, and regulation all driving demand. Thanks to the growing standard and quantity of
competition leveraging new disruptive technology, these firms also began thinking
increasingly about strategic direction, as the Chinese financial sector continued to reform. This
generated a glut of demand for services around productivity and efficiency in particular, as the
financial sector sought to transform from a very traditional model – traditional banking with
branches and local offices – to one that's much more focused on online platforms and services.

Beyond finance, digitisation is making its presence felt across China’s consulting market more
generally. While it is not of the same level, as in other leading global markets, the impact of
digital innovation is being felt across retail, with tech-savvy consumer sites such as Alibaba
emulating Western firms like Amazon to disrupt the bricks-and-mortar retail market
incumbents.

Changing market

With rising demand amid an increasingly consumer-orientated economy, the manufacturing

consulting market also did well due to modernisation and efficiency initiatives. The Chinese
car market grew rapidly last year, with a boom in the desire for premium models too. As a
result, manufacturing consultants were a hot commodity among companies looking to tap into
this changing sentiment.

Across the board, all industry sectors performed well for consultants. However, just like in
2016, the smaller industries where consulting grew the fastest. Healthcare, pharma & biotech,
and retail all experienced strong growth from a relatively small base.

As companies across all industries sought to leverage new automated techniques, the
technology service line grew by the largest percentage, with the productivity agenda driving
good volumes of digitisation work. The operational improvement service line, China’s largest
by some distance, also grew at an impressive rate in 2016, while clients took on new techniques
aimed at ensuring their continued success as economic growth slows. Customer-facing reforms
are also in high demand, as are data & analytics services aimed at monetising the consumer
information collected. As is the case with most major economies, advanced technologies,
including robotics and AI, are also gaining ground, especially in the automotive sector.
Similarly, to those based in India, whose consulting sector is also seeing bullish growth, many
consultants still remain disappointed that China’s consulting industry is not maturing as
quickly as they had hoped. Pricing pressures, a phenomenon experienced worldwide by
developed consulting markets including the UK and France, continue to limit growth, while
talent shortages have hamstrung many firms attempting to distinguish themselves among an
increasingly crowded market.

A general lack of regulation has also led to a number of consultants reporting to Source that
they do not get paid in a timely fashion – a problem which may further prevent higher growth,
as firms spend longer chasing payments from old jobs than obtaining new business. However,
some industry figures are more optimistic, and counter this critique with the suggestion that
China is, as with many industries, achieving maturity on its own terms – a maturity that is
distinctly different from Western models.

Opportunity ahead

In the future, China is likely to continue its enhanced rate of performance. Strong growth is
expected at least through to the end of 2018, and despite a slower-growing economy and
growing international political and economic instability, the pressure for clients to grow,
modernise, and digitise shows no sign of subsiding, with the trends forecast to keep consultants
in major demand for a while yet.
With its current market size of $5.4 billion, China is now home to a larger management
consulting market than France ($5.1 billion) and Australia ($4.6 billion), as well as the entire
continent of Africa ($2.6 billion) and rival growing economy India ($2.2 billion). While it is
still light-years behind the world’s largest consulting market of the US ($59 billion), it is
rapidly making ground on the UK, whose slow growth, both of the economy and consulting
sector, is largely attributed to Brexit.

China stands to make further ground on the world’s second largest consulting industry as a new
market opens up in China’s western provinces. MNCs and domestic companies alike are now
viewing the region as a potential location for further expansion, with first and second-tier cities
beyond the major cities in the east now thought of as major opportunities.

According to Source, the key for any firm to succeed in courting these Western-bound
companies is to have a tailored local approach. Firms who can demonstrate the best local
expertise, knowledge of the ins and outs of the market in the region, as well as boasting top
local talent ready to put boots on the ground, can expect to perform best. With these tools,
international clients will feel adequately armed to take their leap into the unknown of the new
market.

Education Industry of India

India’s education sector offers a great opportunity with approximately 29 per cent of India’s
population being between the age group of 0-14 years. India’s higher education segment is is
expected to increase to US$ 35.03 billion by 2025. The education sector in India is estimated
at US$ 91.7 billion in FY18 and is expected to reach US$ 101.1 billion in FY19.
India has over 250 million school going students, more than any other country. It also has one
of the largest networks of higher education institutions in the world. Number of colleges and
universities in India reached 39,050 and 903, respectively in 2017-18. India had 36.64 million
students enrolled in higher education in 2017-18. Gross Enrolment Ratio in higher education
reached 25.8 per cent in 2017- 18. In December 2018, the Gvernment of India published that
3.43 million candidates had enrolled in the Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
2016-20 scheme.
The Central Government plans to disburse US$ 1 billion to states for introducing skill
development initiatives. In November 2016, Ministry of Skill Development and
Entrepreneurship launched Pradhan Mantri YUVA Yojana, at a cost of US$ 74.68 million for
providing entrepreneurship education and training to students in the country. Skill India
Mission 2015 aims at skilling 400 million Indian youths by 2022. As of December 2018, there
were 15,044 Industrial Training Institutes in the India. In October 2017, in order to boost the
Skill India mission, two new schemes, SANKALP and STRIVE were launched with an outlay
of Rs 6,655 crore (US$ 1.02 billion). Revitalising Infrastructure and Systems in Education
(RISE) by 2022 was announced in union budget 2018-19 with an outlay of Rs 1 lakh crore
(US$ 15.44 billion) for four years. Skill India programme has benefitted more than one crore
(10 million) youth annually.

Education sector in India remains to be a strategic priority of the government. The Government
of India has allowed 100 per cent Foreign Direct Investment (FDI) in the education sector
through the automatic route since 2002.The sector has received cumulative FDI worth US$
1.75 billion up to June 2018. Indian education sector witnessed 18 merger and acquisition deals
worth US$ 49 million in 2017. In May 2018, the Ministry of Human Resource Development,
Government of India launched Samagra Siksha scheme with the aim of achieving holistic
development of school education in the country. The Government of India is working on the
draft of the New Education Policy to address the changing dynamics in the education industry
of the country as per the requirement of the population. As of November 2018, National
Education Policy Framework has been launched. New National Education Policy draft is ready
and would be given to the Central Government.
Consultancy Industry of India

A number of major trends are set to change the face of India’s management consulting industry,
according to Lalit Khanna, the Managing Director of New Delhi based SL Consultants.

The consulting landscape of India is currently worth around $12 billion, with around $1.5
billion of the industry’s revenues flowing into the pockets of management consulting firms.
However, after recording strong growth for consecutive years, 6% per annum, India’s
consulting industry now finds itself at the onset of major disruption, as highlighted by Lalit
Khanna in his review of the country’s sector trends. His warning comes at a time when the
global industry finds itself in similar water.

Growth is strong, on the back of internationalisation and the rise of new segments (e.g. digital,
cybersecurity, design thinking), yet at the same time competition in the marketplace is heating
to new heights while client demands are changing faster than ever. According to Lalit Khanna,
who founded SL Consultants – a consultancy that provides management consultancy and
digital transformation services to businesses and public institutions – in 2009, this is best
exemplified by three key areas.

Digital

The first, and perhaps most obvious of these, is digital change. Digital transformation
consulting now makes up a $44 billion chunk of the global consulting industry, with further
growth expected as the advancement of new automated technologies and AI show no signs of
slowing down. As the continual development of technology changes what can be done, so the
needs of businesses keep on changing to accommodate it. Be it healthcare or
telecommunications, technology is greatly impacting how organisations work.

According to Lalit Khanna, “Where startups are adopting digital technologies for bringing
innovative services to its clientele, the well-established businesses are switching to AI,
robotics, and Machine-Learning technology for transforming their business culture and bring
agility into their organisations. For serving the counselling organisations, the consultancy firms
first have to adopt the disruptive change themselves and train their workforce enabling them to
provide quick, profitable, and smart solutions to the clients. AI and automation significantly
boost the productivity of the consultants and the customer experience.”
An example of the challenges faced by consultancies in this regard is the usage of AI-like
technologies. While these can enhance the firm’s business processes as well as bring innovation
to the services promising them higher growth, budgeting for and implementing such systems
is no mean feat, while they also exacerbate a digital skills gap already present across the
business spectrum, suggesting training issues will also be a great challenge for consultancies
here.

Gig economy

Secondly, the gig economy is well publicised as having reshaped the way many businesses now
work, as on-demand talent is cheaper in the long-term due to its lack of commitments to
benefits such as sick-pay or a pensions scheme. At the same time, firms do not need to continue
paying the wages of an expert outside of the period they actually need them if they hire them
on a temporary business. For consulting firms, it is one of the best ways to tap on the right
talent specialised in a particular area bringing to their clients the much-needed skill set and
experience, but it also comes with a host of issues of its own, including the quality of work,
availability of talent, and the efficiency of non-permanent staff.

“The revenue generation for consulting firms depends on the strategies and services developed
by the consultants in close interaction and collaboration with the clients. They might even
require field-tests for which many on-demand or freelance employees are not ready,” Lalit
Khanna said of challenges consultants tapping gig economy talent might face. “Also, the
consulting firms have started going digital with intuitive platforms and software for which they
have to pay a hefty subscription amount. Misuse or exploitation of such paid tools and software
and the manipulation with data meant to be kept confidential is a threat for the consulting firms.
Unlike traditional employees, the consulting firms have to face a tough time while grooming
the flexible workforce and encouraging them to take a proactive approach to project
completion.”

Performance based working

Finally, clients are demanding more and more value for their money, with many entities both
public and private coming under scrutiny for their consulting spending. As a result, many
consultancies are now being forced to work for performance based payments. This means that
rather than the amount of hours for which a consultant labours being considered at the time of
billing, what counts is to what extent the work put in has yielded success in terms of the
objectives and targets of the client.
While this is not necessarily a problem for the world’s largest firms, it disproportionately
impacts on smaller-scale consultancies. It especially places them in a difficult position if a
difficult client does not agree to change the tentative amount proposed earlier, after the
consultant achieves success. The effective implementation of the performance-based billing
totally depends on the sophistication of both the consulting firm and the clients entering into
the contract, and can land either in trouble if they fail to appreciate this.

Lalit Khanna concluded, “Moreover, one of the biggest nightmares the consulting firms have
is by the time a consultant prepares a research report or any strategic plan for the client after
collecting data, analysing it, and pilot testing, those trends and issues become outdated and are
replaced with the new emerging disruptive forces. Such vulnerabilities affect the revenues of
small-scale consulting firms which do not have an easy access to Big Data, Data Analytics,
Cloud, and other cognitive technologies. However, the consulting giants who are the early
adopters of dynamic nextgen technology dominate the market leveraging the relevant insights,
automation devices, and scalable data gathering. They are better able to advise clients on the
seamless implementation of disruptive technology as they themselves harness the potential.”

Comparison
Education Industry

China and India are the two largest higher education systems in the world with a total
enrollment of 2.91 crore and 2.67 crore students, respectively. While both Indian and Chinese
higher education systems are evolving in the context of developing economies, they have taken
different paths and this has also shaped their social and economic make-up.

Indian higher education system is highly concentrated at the undergraduate (bachelor’s) degree
level. In fact, with 1.98 crore students, it is the largest system in the world in terms of
undergraduate enrollment as compared to 1.27 crore in China and 1.04 crore in the U.S. As a
proportion of the total student enrollment in higher education, India has nearly 75% of all its
students pursuing a bachelor’s degree as compared to 43% for China and half for the U.S.
This concentration at the undergraduate level is quite unique to India not only due to three-year
degree in Arts, Science and Commerce, which form more than 85% of all undergraduate
enrollment, but also due to its sociocultural environment which has positions bachelor’s degree
as a more successful pathway for upward mobility. The undergraduate concentration has
implications on all other key levels of education–vocational, postgraduate (master’s) and
doctoral–by expanding the master’s level enrollments but stunting the vocational and doctoral
level enrolments. However, availability of too many bachelor’s degree holders for a smaller
economy as compared to China or the U.S., has created a situation of credential inflation, which
simply means, devaluation of a degree with time due to oversupply of graduates. This is evident
from many unemployed and underemployed college graduates. It also reflects poor quality of
education and skills imparted at many institutions. Due to employability challenges, many
continue to aspire for master’s education in a hope for finally getting their dream jobs and
career mobility resulting in over-representation at the postgraduate level. Despite smaller
population and size of higher education system as compared to China, India has more than
double the number of students at postgraduate level (27 lakhs vs. 12 lakhs).

At the vocational education level, India with young and ambitious population is missing the
opportunity of engaging them as a part of the mainstream economic growth through
manufacturing. This is where China leaped forward and engaged the masses through low-cost,
volume-based manufacturing. However, China did not achieve this by chance, instead it
expanded vocational education system to develop a skilled manpower base for manufacturing
related activities. China enrols nearly 96 Lakhs students in vocational education as compared
to 40 Lakhs in India. Likewise, at the other extreme, while overall Indian higher education
continues to grows, it is seriously lacking faculty to teach at academic institutions. Granted,
not all institutions need to have faculty with research orientation but research is important to
build the foundations of critique and problem-solving for any field. Unfortunately, momentum
for getting advanced degrees suddenly stops at the doctoral level where India (~72,000) has
one-third the number of students enrolled in China (~236,000),

While China’s higher education has its own limitations, it highlights how India is losing
opportunities of maximizing societal and economic impact through higher education. An
informed and radical change in higher education is needed to address qualitative and
quantitative challenges at all levels of education and providing diverse pathways of educating
and engaging talent.
Consultancy Industry
China’s consulting market outpaced its economy last year, growing at double digit growth to
reach a total market value of $4.5 billion While India has reached total market value of $2.2
billion. The Chinese consulting industry is now larger than its international equivalents in
France and Australia still India is Far to outpace the China but it’s Growth has also doubled as
compared to previous years.

Across the board, all industry sectors performed well for consultants weather it’s India or
China. However, just like in 2016, the smaller industries where consulting grew the fastest.
Healthcare, pharma & biotech, and retail all experienced strong growth from a relatively small
base.

As companies across all industries sought to leverage new automated techniques, the
technology service line grew by the largest percentage, with the productivity agenda driving
good volumes of digitisation work. The operational improvement service line, China’s largest
by some distance, also grew at an impressive rate in 2016, while clients took on new techniques
aimed at ensuring their continued success as economic growth slows. Customer-facing reforms
are also in high demand, as are data & analytics services aimed at monetising the consumer
information collected. As is the case with most major economies, advanced technologies,
including robotics and AI, are also gaining ground, especially in the automotive sector.

Similarly, to those based in India, whose consulting sector is also seeing bullish growth, many
consultants still remain disappointed that China’s consulting industry is not maturing as
quickly as they had hoped. Pricing pressures, a phenomenon experienced worldwide by
developed consulting markets including the UK and France, continue to limit growth, while
talent shortages have hamstrung many firms attempting to distinguish themselves among an
increasingly crowded market.

With its current market size of $5.4 billion, China is now home to a larger management
consulting market than France ($5.1 billion) and Australia ($4.6 billion), as well as the entire
continent of Africa ($2.6 billion) and rival growing economy India ($2.2 billion). While it is
still light-years behind the world’s largest consulting market of the US ($59 billion). But due
to Rapid change in the Economic policies in India it can be said that India can go far beyond
its current Situation.
Comparison of PESTEL

Political Environment

Indian democracy is a democracy while Chinese communism is not communism!

India is the largest democracy in the world. There are over 800 registered political parties in
India catering to a wide range of political, social and economic ideologies. India also has the
largest electorate in the world.

India’s vast democracy at times acts as a hindrance to the decision making process by making
it tedious and the leaders who are elected and not the best of the crop. Dynastic politics, cattiest
politics etc are not foreign to the Indian democracy.

China on the other hand has a single party system which is loosely based on communism.
China’s economy however is capitalistic. It's unfair to call China a communist State anymore
( I have recently written an answer about this ).

Communist Party of China is the de facto authority of the State. It is not a democracy and
leaders often win the internal electoral votes without a single vote against them. This system
allows faster decision making as well as a unified and streamlined vision for the country. The
tradeoff of course is the lack of several rights which are fundamental in nature such as freedom
of speech, freedom to express dissent against the government etc.

China’s lack of democracy has allowed it to expand at an unprecedented rate. Today, China is
the second most powerful country after the United States of America. The lack of political
conflict has allowed China to practice expansionism.

India is bogged down by internal political strife. The upside however is that every citizen has
the power to vote. Individual rights of humans in India is superior to that of China. If the quality
of our politicians improves, internal strife would be productive and we'd be on the way to actual
progress.
Economical Comparison

The economies of India and China are among the largest economies in the world. However,
the differences in the size, composition and other quantitative and qualitative features stand in
stark contrast when comparing China and India. India, has a much smaller economy, about
only a fifth of China’s. Its exports are a fraction of China’s, as are its imports. India’s economy
is mostly dependent on its large internal market with external trade accounting for just 20% of
the country’s GDP. This is a huge difference from China, given just how large a part of Chinas
economy is due to International trade. In fact, India’s balance of payments (BoP) on its current
account has been negative. However, this is probably due to its ever increasing oil import bill
and its overall Balance of Payments (BoP) was positive since the late 60s due to remittances
from Non Resident Indians and increased foreign direct investment.

However, the darker side to blistering growth rates achieved by China is captured by indices
of inequality. While the current Gini Index, a measure of inequality of income/wealth, of India
is 36.8, the same for China is 46.9, which is remarkably high. However, China has successfully
reduced the proportion of population living below the poverty line to 10% while India has 22%
of its population living below the poverty line. given the sizes of both populations, the
difference is massive, and finding the causes of this difference is crucial.

A significant question that many economists have tried to answer is the reason behind China’s
superlative economic growth. Consensus is now broadly reached with the explanation that it
was a combination of several factors, not least the proactive actions of the government, coupled
with already favourable historical circumstances that are responsible. China’s very strengths in
these areas have been India’s weaknesses.

Popular opinion is that India cannot catch up with China in the near future, at least in the next
few years. China leads India in foreign investment, a key contributor to economic growth, by
a margin of 10 to 1, because foreign investors, who can place their money anywhere, see more
opportunities and fewer obstacles in China. Ironically, Indian democracy is viewed as a
hindrance vis-a-vis the stability of China’s authoritarian regime on its liberalizing market and
docile unions. India also lacks a Hong Kong and a Taiwan, next-door technology, and capital
hubs that when combined with the mainland’s abundant, cheap, and productive human
resources create powerful complements. China dominates in manufacturing and has the market
size and spending power domestically The constraints on the growth of India’s GDP appear to
be insufficient investments according to most economists, including FDI and investments in
infrastructure. The most commonly cited constraints on investments is the confusion and
slowness of policy change as well as confusion and tardiness at the bureaucratic levels, as
contrasted with the “single mindedness” of the Chinese state.

Social Environment Comparison

The steadily rising rate of economic growth in India has recently been around 8 percent per
year (it is expected to be 9 percent this year), and there is much speculation about whether and
when India may catch up with and surpass China’s over 10 percent growth rate. Despite the
evident excitement that this subject seems to cause in India and abroad, it is surely rather silly
to be obsessed about India’s overtaking China in the rate of growth of GNP, while not
comparing India with China in other respects, like education, basic health, or life expectancy.
Economic growth can, of course, be enormously helpful in advancing living standards and in
battling poverty. But there is little cause for taking the growth of GNP to be an end in itself,
rather than seeing it as an important means for achieving things we value.

It could, however, be asked why this distinction should make much difference, since economic
growth does enhance our ability to improve living standards. The central point to appreciate
here is that while economic growth is important for enhancing living conditions, its reach and
impact depend greatly on what we do with the increased income. The relation between
economic growth and the advancement of living standards depends on many factors, including
economic and social inequality and, no less importantly, on what the government does with the
public revenue that is generated by economic growth.

Some statistics about China and India, drawn mainly from the World Bank and the United
Nations, are relevant here. Life expectancy at birth in China is 73.5 years; in India it is 64.4
years. The infant mortality rate is fifty per thousand in India, compared with just seventeen in
China; the mortality rate for children under five is sixty-six per thousand for Indians and
nineteen for the Chinese; and the maternal mortality rate is 230 per 100,000 live births in India
and thirty-eight in China. The mean years of schooling in India were estimated to be 4.4 years,
compared with 7.5 years in China. China’s adult literacy rate is 94 percent, compared with
India’s 74 percent according to the preliminary tables of the 2011 census.

As a result of India’s effort to improve the schooling of girls, its literacy rate for women
between the ages of fifteen and twenty-four has clearly risen; but that rate is still not much
above 80 percent, whereas in China it is 99 percent. One of the serious failures of India is that
a very substantial proportion of Indian children are, to varying degrees, undernourished
(depending on the criteria used, the proportion can come close to half of all children), compared
with a very small proportion in China. Only 66 percent of Indian children are

Technological Environment Comparison

If you had compared India and China in the late 1980s, there would not have been much
difference in their science and technology capabilities. In the early 1990s, China had started
moving ahead, but the two countries were not too far apart in their preparations for the 21st
century industries. But in the 1990s, China invested heavily in education and research and
started moving ahead very quickly. It has continued this thrust ever since. Now the two are
poles apart in science and technology infrastructure. China is nipping at the heels of the US,
the world leader in science and technology. It has already caught up in quantity, though it is
still some way behind in quality. India and China have brought different philosophies while
investing in science and technology. Chinese leaders, many of whom are well-educated in
science and engineering, decided that science and innovation should drive the Chinese
economy. Indian politicians, mostly without a scientific or technical background, had a
different trajectory in mind for the country’s economic growth. China wanted to be the world
leader in as many areas as possible, while India had no such overriding purpose. Here ET
collects some data that shows how far apart the two countries are in their preparation for the
knowledge industries of the future. Some of these statistics have betaken with a dose of
scepticism, as China is driven by the aim of creating quantity. But the data clearly shows that
China is now at least a decade ahead of India, and is moving further quickly.
Environmental Factor Comparison

India tops the world in pollution-related deaths, accounting for 2.5 million of the total 9 million
deaths attributed to pollution worldwide in 2015, according to a recent report by the Lancet
Commission on Pollution and Health. China was second on the list, with 1.8 million total
fatalities due to pollution.

The biggest problem: air pollution

The primary cause is air pollution. In 2015, 1.81 million or 28% of the 6.5 million air-pollution-
linked deaths worldwide occurred in India. China saw 1.58 million deaths. The report
illustrated that globally, air pollution accounts for twice the number of deaths than those linked
to AIDS, tuberculosis and malaria combined, and for nearly 15 times as many deaths as war
and all forms of violence. The majority of air pollution-linked deaths are due to non-
communicable diseases such as heart disease, respiratory tract diseases, chronic obstructive
pulmonary disease and lung cancer.

Major contributors to bad air quality include auto emissions due to increasing urban traffic
congestion, fossil fuel powered heavy industry, construction, and the burning of agricultural
land post harvests.

Poor children are the most vulnerable

The study found that nearly 92% of pollution-related deaths occur in low and middle-income
countries. Children face the highest risks because small exposures to chemicals even during
pregnancy and in early childhood can result in lifelong disease, disability, premature death, as

India and China are among the worst hit

According to the WHO, PM 2.5 levels should not exceed 25 micrograms per cubic meter over
a 24-hour period and 10 micrograms per cubic meter on average over a year. But in cities
like Delhi and Beijing, there are days when PM 2.5 levels surge to almost 1,000, which is so
high that it’s literally off the scales of many pollution monitoring devices.

PM 2.5 refers to fine particulate matter -- microscopic particles that are less than 2.5
micrometers in diameter, minuscule enough to be absorbed right into the lungs and blood.
Sustained exposure to high levels of PM 2.5 can cause respiratory diseases like bronchitis,
asthma and inflammation of the lungs, and even heart attacks and strokes.
Data: WHO. Graphic by Nick DeSantis, Forbes Staff.

India hasn’t yet seen state efforts of a scale that can revolutionize pollution control (although
this Diwali, India’s Supreme Court banned the sale of fireworks in an effort to preserve air
quality -- despite resistance from Hindu religious groups and citizens alike). China on the other
hand, woke up to its pollution problem some years ago. According to analyses of NASA
satellite data, the levels of fine particulate matter got worse across India by 13% between 2010
and 2015, while China’s fell by 17%. Delhi’s average annual PM 2.5 concentrations are in the
vicinity of 150 μg/m, compared to about 60 μg/m for Beijing. Overall, Delhi’s PM 2.5 tends to
about three times the Beijing mean and 15 times the WHO guidelines.

India can learn from China

India should take a lesson out of China’s book. Both are large nations seeking to move
their massive populations from poverty to wealth via industrialization. Environmental
deterioration has long been the collateral damage of this process, as already experienced by
most developed economies, from the United States to Japan.
But, as journalist and author of Choked: Everything You Were Afraid to Know about
Pollution Pallavi Aiyar points out, for governments and citizens to begin to care about pollution
as much as they do about economic growth usually requires an “inflection point.” In Beijing,
she notes that this point was “the 2008 Olympics Games,” when unprecedented international
attention “dragged [China's] dirty air into the headlines, where it has stayed since.”

Pedestrians wear masks to protect themselves from pollution in Beijing on December 19, 2016.
Hospital visits spiked, roads were closed and flights cancelled as China choked under a vast
cloud of toxic smog. (Photo credit: GREG BAKER/AFP/Getty Images)

Pollution control initiatives in China over recent years have ranged from setting up city specific
targets for air quality progress, and a vast network of air quality monitoring systems, to
requiring companies to complete environmental impact assessments and punishing violators
with heavy fines. Despite being a major source of energy in China, coal-fired power plants and
steel factories have come under the hammer. Restrictions on vehicle ownership and usage have
also been implemented, given that auto emissions are a major source of air pollution.

But making environmental protection a priority is often a long and conflicted process.

Pollution control can be profitable

Many developing Asian cities are among the most polluted in the world because of the
pervasive but false belief that pollution is an inevitable and profitable part of the development
process. In fact, inaction and environmental degradation come with significant costs, while
solutions can fuel economic growth.

To illustrate this point, the Lancet report points out that welfare losses due to pollution are
estimated at $4.6 trillion per year -- 6.2% of global economic output. But in the United States
alone investment in pollution control has returned $200 billion each year since 1980 ($6 trillion
total). Let's hope India takes note.
Legal Environmental Comparison

As per Allen, Qian and Qian(AQQ), They first examine measures of China’s legal system and
compare them to the average measures of the 49 countries from different legal origins. In terms
of overall creditor rights, China falls between the English-origin countries that have the highest
measures of protection, and French-origin countries that have the poorest protection. China’s
shareholder protection shows a similar pattern. Most countries have better creditor and
shareholder protection than China. They also compare China’s legal system to those of other
emerging countries, similar to the growth comparison above. China’s corruption index is the
fifth worst among the fifteen selected developing countries. In order to have an effective law
enforcement system, a country must have an independent and efficient judicial system with a
sufficient supply of qualified legal professionals. AQQ point out that according to the Ministry
of Justice of China there were 110,000 lawyers and 9,000 law firms as of 2002, while Orts
(2001) estimates that there are 150,000 lawyers in China, roughly the same number of licensed
attorneys as in the state of California. Lawyers represent only 10% to 25% of all clients in civil
and business cases, and even in criminal prosecutions, lawyers represent defendants in only
half of the cases. Among the approximately five million business enterprises in China, only 4%
currently have regular legal advisers. Moreover, only one-fifth of all “lawyers” in China have
law degrees, and even a lower proportion of judges have formal legal education. 3 Measured
by simple exchange rates, China’s GDP in 1980 was US$180.6 billion while in 1990 it reached
US$368 billion. Also note that the exchange rate between the RMB and US$ changed from
US$1 = 4.25 yuan to 8.28 yuan in 1992, which introduced a significant downward bias for
China’s GDP figure in 1992. This is why using PPP-adjusted figures to measure GDP and its
growth is more appropriate. 5 Another reason for ineffective enforcement of many new laws
in China is the intrinsic conflict of interest between “fair play” in practicing law and the
monopoly power of the single ruling party, especially in cases in which government officials
or their affiliates are involved. La Porta, Lopez-de-Silanes, Pop-Eleches, and Shleifer (LLPS,
2004) find that China ranks among the worst countries in terms of political freedom as well as
the protection of property rights. They also find that political freedom (constitutional rules) and
measures of economic freedom (property rights, procedures of start-up firm) are positively
correlated across countries, and that judicial independence accounts for the positive effect of
common law legal origin in economic freedom. However, China stands out as an exception to
this rule, scoring extremely poorly on both political and economic freedoms and yet enjoying
one of the fastest economic growth rates. Finally, AQQ points out that in China the reforms
accelerated in 1992, with the enactment of regulations governing enterprises with foreign
investment. Since then, the Accounting Standards for Business Enterprises of China, together
with the 13- industry regulation board, have been trying to move China’s accounting practice
in the Listed Sector toward the IAS (International Accounting Standards). However, as with
legal professionals, the most glaring problem in China’s accounting system is the lack of
independent, professional auditors. This implies that the proposed IAS-based standards may
actually be counterproductive within China’s current infrastructure.

STEEPLED Comparison

Social Environment Comparison

The steadily rising rate of economic growth in India has recently been around 8 percent per
year (it is expected to be 9 percent this year), and there is much speculation about whether and
when India may catch up with and surpass China’s over 10 percent growth rate. Despite the
evident excitement that this subject seems to cause in India and abroad, it is surely rather silly
to be obsessed about India’s overtaking China in the rate of growth of GNP, while not
comparing India with China in other respects, like education, basic health, or life expectancy.
Economic growth can, of course, be enormously helpful in advancing living standards and in
battling poverty. But there is little cause for taking the growth of GNP to be an end in itself,
rather than seeing it as an important means for achieving things we value.

It could, however, be asked why this distinction should make much difference, since economic
growth does enhance our ability to improve living standards. The central point to appreciate
here is that while economic growth is important for enhancing living conditions, its reach and
impact depend greatly on what we do with the increased income. The relation between
economic growth and the advancement of living standards depends on many factors, including
economic and social inequality and, no less importantly, on what the government does with the
public revenue that is generated by economic growth.

Some statistics about China and India, drawn mainly from the World Bank and the United
Nations, are relevant here. Life expectancy at birth in China is 73.5 years; in India it is 64.4
years. The infant mortality rate is fifty per thousand in India, compared with just seventeen in
China; the mortality rate for children under five is sixty-six per thousand for Indians and
nineteen for the Chinese; and the maternal mortality rate is 230 per 100,000 live births in India
and thirty-eight in China. The mean years of schooling in India were estimated to be 4.4 years,
compared with 7.5 years in China. China’s adult literacy rate is 94 percent, compared with
India’s 74 percent according to the preliminary tables of the 2011 census.

As a result of India’s effort to improve the schooling of girls, its literacy rate for women
between the ages of fifteen and twenty-four has clearly risen; but that rate is still not much
above 80 percent, whereas in China it is 99 percent. One of the serious failures of India is that
a very substantial proportion of Indian children are, to varying degrees, undernourished
(depending on the criteria used, the proportion can come close to half of all children), compared
with a very small proportion in China. Only 66 percent of Indian children are

Technological Environment Comparison

If you had compared India and China in the late 1980s, there would not have been much
difference in their science and technology capabilities. In the early 1990s, China had started
moving ahead, but the two countries were not too far apart in their preparations for the 21st
century industries. But in the 1990s, China invested heavily in education and research and
started moving ahead very quickly. It has continued this thrust ever since. Now the two are
poles apart in science and technology infrastructure. China is nipping at the heels of the US,
the world leader in science and technology. It has already caught up in quantity, though it is
still some way behind in quality. India and China have brought different philosophies while
investing in science and technology. Chinese leaders, many of whom are well-educated in
science and engineering, decided that science and innovation should drive the Chinese
economy. Indian politicians, mostly without a scientific or technical background, had a
different trajectory in mind for the country’s economic growth. China wanted to be the world
leader in as many areas as possible, while India had no such overriding purpose. Here ET
collects some data that shows how far apart the two countries are in their preparation for the
knowledge industries of the future. Some of these statistics have betaken with a dose of
scepticism, as China is driven by the aim of creating quantity. But the data clearly shows that
China is now at least a decade ahead of India, and is moving further quickly.
Economical Comparison

The economies of India and China are among the largest economies in the world. However,
the differences in the size, composition and other quantitative and qualitative features stand in
stark contrast when comparing China and India. India, has a much smaller economy, about
only a fifth of China’s. Its exports are a fraction of China’s, as are its imports. India’s economy
is mostly dependent on its large internal market with external trade accounting for just 20% of
the country’s GDP. This is a huge difference from China, given just how large a part of Chinas
economy is due to International trade. In fact, India’s balance of payments (BoP) on its current
account has been negative. However, this is probably due to its ever increasing oil import bill
and its overall Balance of Payments (BoP) was positive since the late 60s due to remittances
from Non Resident Indians and increased foreign direct investment.

However, the darker side to blistering growth rates achieved by China is captured by indices
of inequality. While the current Gini Index, a measure of inequality of income/wealth, of India
is 36.8, the same for China is 46.9, which is remarkably high. However, China has successfully
reduced the proportion of population living below the poverty line to 10% while India has 22%
of its population living below the poverty line. given the sizes of both populations, the
difference is massive, and finding the causes of this difference is crucial.

A significant question that many economists have tried to answer is the reason behind China’s
superlative economic growth. Consensus is now broadly reached with the explanation that it
was a combination of several factors, not least the proactive actions of the government, coupled
with already favourable historical circumstances that are responsible. China’s very strengths in
these areas have been India’s weaknesses.

Popular opinion is that India cannot catch up with China in the near future, at least in the next
few years. China leads India in foreign investment, a key contributor to economic growth, by
a margin of 10 to 1, because foreign investors, who can place their money anywhere, see more
opportunities and fewer obstacles in China. Ironically, Indian democracy is viewed as a
hindrance vis-a-vis the stability of China’s authoritarian regime on its liberalizing market and
docile unions. India also lacks a Hong Kong and a Taiwan, next-door technology, and capital
hubs that when combined with the mainland’s abundant, cheap, and productive human
resources create powerful complements. China dominates in manufacturing and has the market
size and spending power domestically The constraints on the growth of India’s GDP appear to
be insufficient investments according to most economists, including FDI and investments in
infrastructure. The most commonly cited constraints on investments is the confusion and
slowness of policy change as well as confusion and tardiness at the bureaucratic levels, as
contrasted with the “single mindedness” of the Chinese state.

Environmental Factor Comparison

India tops the world in pollution-related deaths, accounting for 2.5 million of the total 9 million
deaths attributed to pollution worldwide in 2015, according to a recent report by the Lancet
Commission on Pollution and Health. China was second on the list, with 1.8 million total
fatalities due to pollution.

The biggest problem: air pollution

The primary cause is air pollution. In 2015, 1.81 million or 28% of the 6.5 million air-pollution-
linked deaths worldwide occurred in India. China saw 1.58 million deaths. The report
illustrated that globally, air pollution accounts for twice the number of deaths than those linked
to AIDS, tuberculosis and malaria combined, and for nearly 15 times as many deaths as war
and all forms of violence. The majority of air pollution-linked deaths are due to non-
communicable diseases such as heart disease, respiratory tract diseases, chronic obstructive
pulmonary disease and lung cancer.

Major contributors to bad air quality include auto emissions due to increasing urban traffic
congestion, fossil fuel powered heavy industry, construction, and the burning of agricultural
land post harvests.

Poor children are the most vulnerable

The study found that nearly 92% of pollution-related deaths occur in low and middle-income
countries. Children face the highest risks because small exposures to chemicals even during
pregnancy and in early childhood can result in lifelong disease, disability, premature death, as

India and China are among the worst hit

According to the WHO, PM 2.5 levels should not exceed 25 micrograms per cubic meter over
a 24-hour period and 10 micrograms per cubic meter on average over a year. But in cities
like Delhi and Beijing, there are days when PM 2.5 levels surge to almost 1,000, which is so
high that it’s literally off the scales of many pollution monitoring devices.
PM 2.5 refers to fine particulate matter -- microscopic particles that are less than 2.5
micrometers in diameter, minuscule enough to be absorbed right into the lungs and blood.
Sustained exposure to high levels of PM 2.5 can cause respiratory diseases like bronchitis,
asthma and inflammation of the lungs, and even heart attacks and strokes.

India hasn’t yet seen state efforts of a scale that can revolutionize pollution control (although
this Diwali, India’s Supreme Court banned the sale of fireworks in an effort to preserve air
quality -- despite resistance from Hindu religious groups and citizens alike). China on the other
hand, woke up to its pollution problem some years ago. According to analyses of NASA
satellite data, the levels of fine particulate matter got worse across India by 13% between 2010
and 2015, while China’s fell by 17%. Delhi’s average annual PM 2.5 concentrations are in the
vicinity of 150 μg/m, compared to about 60 μg/m for Beijing. Overall, Delhi’s PM 2.5 tends to
about three times the Beijing mean and 15 times the WHO guidelines.

Political Environment

Indian democracy is a democracy while Chinese communism is not communism!

India is the largest democracy in the world. There are over 800 registered political parties in
India catering to a wide range of political, social and economic ideologies. India also has the
largest electorate in the world.

India’s vast democracy at times acts as a hindrance to the decision making process by making
it tedious and the leaders who are elected and not the best of the crop. Dynastic politics, cattiest
politics etc are not foreign to the Indian democracy.

China on the other hand has a single party system which is loosely based on communism.
China’s economy however is capitalistic. It's unfair to call China a communist State anymore
(I have recently written an answer about this).

Communist Party of China is the de facto authority of the State. It is not a democracy and
leaders often win the internal electoral votes without a single vote against them. This system
allows faster decision making as well as a unified and streamlined vision for the country. The
tradeoff of course is the lack of several rights which are fundamental in nature such as freedom
of speech, freedom to express dissent against the government etc.
China’s lack of democracy has allowed it to expand at an unprecedented rate. Today, China is
the second most powerful country after the United States of America. The lack of political
conflict has allowed China to practice expansionism.

India is bogged down by internal political strife. The upside however is that every citizen has
the power to vote. Individual rights of humans in India is superior to that of China. If the quality
of our politicians improves, internal strife would be productive and we'd be on the way to actual
progress.

Legal Environmental Comparison

As per Allen, Qian and Qian(AQQ), They first examine measures of China’s legal system and
compare them to the average measures of the 49 countries from different legal origins. In terms
of overall creditor rights, China falls between the English-origin countries that have the highest
measures of protection, and French-origin countries that have the poorest protection. China’s
shareholder protection shows a similar pattern. Most countries have better creditor and
shareholder protection than China. They also compare China’s legal system to those of other
emerging countries, similar to the growth comparison above. China’s corruption index is the
fifth worst among the fifteen selected developing countries. In order to have an effective law
enforcement system, a country must have an independent and efficient judicial system with a
sufficient supply of qualified legal professionals. AQQ point out that according to the Ministry
of Justice of China there were 110,000 lawyers and 9,000 law firms as of 2002, while Orts
(2001) estimates that there are 150,000 lawyers in China, roughly the same number of licensed
attorneys as in the state of California. Lawyers represent only 10% to 25% of all clients in civil
and business cases, and even in criminal prosecutions, lawyers represent defendants in only
half of the cases. Among the approximately five million business enterprises in China, only 4%
currently have regular legal advisers. Moreover, only one-fifth of all “lawyers” in China have
law degrees, and even a lower proportion of judges have formal legal education. 3 Measured
by simple exchange rates, China’s GDP in 1980 was US$180.6 billion while in 1990 it reached
US$368 billion. Also note that the exchange rate between the RMB and US$ changed from
US$1 = 4.25 yuan to 8.28 yuan in 1992, which introduced a significant downward bias for
China’s GDP figure in 1992. This is why using PPP-adjusted figures to measure GDP and its
growth is more appropriate. 5 Another reason for ineffective enforcement of many new laws
in China is the intrinsic conflict of interest between “fair play” in practicing law and the
monopoly power of the single ruling party, especially in cases in which government officials
or their affiliates are involved. La Porta, Lopez-de-Silanes, Pop-Eleches, and Shleifer (LLPS,
2004) find that China ranks among the worst countries in terms of political freedom as well as
the protection of property rights. They also find that political freedom (constitutional rules) and
measures of economic freedom (property rights, procedures of start-up firm) are positively
correlated across countries, and that judicial independence accounts for the positive effect of
common law legal origin in economic freedom. However, China stands out as an exception to
this rule, scoring extremely poorly on both political and economic freedoms and yet enjoying
one of the fastest economic growth rates. Finally, AQQ points out that in China the reforms
accelerated in 1992, with the enactment of regulations governing enterprises with foreign
investment. Since then, the Accounting Standards for Business Enterprises of China, together
with the 13- industry regulation board, have been trying to move China’s accounting practice
in the Listed Sector toward the IAS (International Accounting Standards). However, as with
legal professionals, the most glaring problem in China’s accounting system is the lack of
independent, professional auditors. This implies that the proposed IAS-based standards may
actually be counterproductive within China’s current infrastructure.

Ethical Factor Comparison

India’s unique business practices would encourage the ethical behavior of the popular western
viewpoint. Some of India’s unique business practices include corporate social responsibility,
favors, clanship, and friendship

It is believed that the collapse of communism was a major factor in the shift from 20th century
business ethics to the current 21st century business model, some formerly communist countries
have become well-run capitalist countries. Some other factors in shifting business ethics into
the 21st century are that affluent nations are aging and the traditional industries do not generate
as many jobs today as they did in the past. People in positions of power have discovered that
economics play a vital role in the results of elections. The major factor that has helped shift
business ethics into the 21st century though is the evolution of information technology, which
has leveled the playing field for all economies

Both China and India are on the verge of becoming innovative economies and are not just
alternative locations for our low-end jobs, when this happened, the shift would ultimately
redefine business practices. India’s business practices are unique and may be compatible with
western business practices one day, but India believes that favors, clanship, and friendship are
important in business, while western business ethics believe this to be a conflict of interest.I
can see that the business ethics of India and China is much different

So when it comes to Globalization, India and China are expected to be the leaders in the 20th
century. Some believe that the 19th century, or the “American century” has finally come to an
end. Through globalization, China and India have discovered that the area of business ethics is
an ever-changing environment and as a result, management teams within these countries have
developed an ethical program that enables them to work together ethically. Even though there
are barriers such as different languages, diverse cultures, and a growing number of people
involved – China and India have been able to overcome them in order to work together.

Demographic Comparison

China’s old age dependency ratio of about 11% today, is expected to rise to 24% by 2030, by
which point there will be more over-60s than under-15s, and to 40% by 2050. In other words,
the 10 workers that support each older citizen today will have dwindled to 2.5.

The working age population fell for the first time in 2012 for example, and will have dropped
by 8 million, or the size of London, between 2012-2014. This trend will gather momentum in
the next 30 years, and underpins the rise in wages and salaries in China, and draws attention to
the inadequacy of Chinese public social spending, which is just 7% of GDP, compared with
16-17%, for example, in Brazil and Russia. China is focused on a number of measures to
broaden social security and healthcare coverage, as was made clear in the comprehensive
reform plans announced at the end of last year.

Many of these reform proposals were slogans rather than detailed plans, and I think that some
of the more politically sensitive plans will either be diluted or run up against vested interests
and fail to be implemented, or only weakly. Social security changes, as well as financial
reforms, though, I fully expect to figure prominently. There were a couple of demographic
reforms that also caught the eye.

The one child policy is going to be eased so that second children will be allowed for couples,
where one partner rather than both was a single parent. Officially, China expect about 1-2m
additional babies to be born each year for the next few years, but you might well ask why?
China’s fertility rate is 1.6, and higher than a lot of places that never had a OCP, and the reasons
that Chinese fertility rates have fallen are identical to those for other women in other countries.
In major Chinese agglomerations, where income per head is the same as in Portugal, the fertility
rate is just 0.8.

The other important demographic proposal, which is closely associated with the broad macro
challenges of boosting consumption, strengthening the social safety net, and reforming local
government, concerns the hukou, or alien registration system. China plans to liberalise this
system, which sustains roughly 200 million migrants as second class citizens without access to
schooling, adequate housing and healthcare for example, first in smaller towns and cities. But
it’s hard to reform the system properly without land and private property rights reform in the
countryside, and its the bigger cities where hukou matters most, and it’s precisely here where
resistance by urban residents and local governments is strongest.

So expect to see periodic coverage of these two initiatives, but I don’t think either of them will
be game changers, as things stand.

India is altogether different. The population is expected to overtake China by 2025, India still
has a fertility rate of 2.73, and in the next 15 years, its working age population will grow by
about 225m – almost as much as the entire working age population of Western Europe today.
Its population of over-60s will double to 15% of the population by 2040, but this is still only
where China is today and where the rich world was in 1970.

India’s rural sector is still home to 70% of the population and provides over 55% of jobs. But
there is a much weaker tendency for people to leave for an urban life, not least because job
opportunities are not that great. Poverty and relatively low educational attainment mean that
far too many people are ill equipped for productivity-enhancing work. The recorded
unemployment rate of 7% for example, masks a 27% incidence of poverty in persons employed
in any capacity, not just full time workers.

There’s no question about the optimism deriving from India’s demographics coupled with its
prowess in churning out scientists, engineers and IT and healthcare professionals. India
produces 60% of the world’s vaccines and is on course to make about $4.5bn from them by
2017. But if existing widespread poverty and underemployment are allowed to fester in an
environment of excessive bureaucracy and corruption, this optimism could dissipate.

As it is, India’s 10% growth a few years ago has collapsed into a struggle to maintain growth
of 4-5%, and job creation momentum is fading. One local credit rating agency thinks non-farm
job creation will be 25% lower in the next seven years than in the last seven years – and much
less than the 10-12m needed each year to absorb new entrants to the labour force. The main
reason for the jobs crisis is that India lacks employment-intensive manufacturing, its labour
laws are complex and burdensome, and the state has failed to supply public goods, including
education and infrastructure, and remove unnecessary regulations and subsidies that suppress
employment. These weaknesses speak to what one Indian author has called the ‘degradation of
our state institutions’. National elections in a few months time will come at a crucial time for
India’s economic and political development, and investors and others will doubtless scrutinise
the outcome closely.

Conclusion

Comparisons to China are plentiful when considering the Indian economy and its growth
potential. While we share a lot of optimism about India, it faces challenges that demand a more
circumspect approach. We have been students of India for the last two decades, and recently
had the great privilege of inviting Professor Vijay Joshi, an Emeritus fellow at Oxford
University, and the author of India’s Long Road – The Search for Prosperity to address the
Emerging Markets Team. The thoughts below are inspired in part by what we learned.

The Rise of India and Its Challenges

India is clearly one of the most important countries in the emerging world. With a market
capitalization of $2.2 trillion, India is the second largest equity market in our universe. It is
also significant in a global economic context, with a GDP of $2.6 trillion in 2017,2 reflecting
its continental-sized population of 1.3 billion as of 2016. However, as Professor Joshi points
out, India is a “premature superpower.” Despite its tremendous growth potential, it still faces
considerable challenges in its journey to becoming an industrialized, modern economy – many
of which are self-inflicted.
One of the most debilitating issues in India today concerns labor laws dating back to
1947. These laws inhibit employer flexibility and create barriers to labor absorption in the
productive, organized sectors of India’s manufacturing and service industries, leaving a
plurality of the labor population in low paying jobs with limited security. As a result, India’s
rapid economic growth has not translated into broad-based social mobility. In fact, India has
the unfortunate distinction of being one of the world’s poorest countries on a per capita income
basis. Its GDP per capita of $1,940 in 2017 is not only low on an absolute basis, it is merely a
quarter of China’s, a country with similar population size.2
The situation is compounded by the difficulty the Indian government faces in delivering
services to its population. Despite a consolidated public-sector deficit of 6.6% of GDP in 2018
and outstanding consolidated government debt of 68% of GDP, healthcare, education, and
infrastructure programs are woefully inadequate.3 For example, India is still substantially
behind China in terms of literacy rates and secondary and tertiary school enrollments.

The election of Prime Minister Narendra Modi a few years ago was accompanied by high hopes
that reform would address these and other challenges. However, those hopes have given way
to the cold, hard reality that unwinding the government’s excessive, and often obstructive,
involvement in large swathes of the economy – banks, transportation, energy – will be a
herculean task.

It’s Not the Next China, but India Does Have Significant Growth Potential

For these and many other reasons, declarations that India is poised to become the next China
are inappropriate. India aside, we’re unlikely to see a “next China” growth story out of any
emerging market given the profound depth and size of China’s economic expansion, unleashed
over the past three decades through a combination of powerful reforms, urbanization, massive
expansion of trade, property market development, and significant capital formation.

India, however, does have enormous potential to grow into a significant regional economic
power over the next 10-20 years. We see three main drivers of total factor productivity gains
and overall economic growth: capital investment, urbanization, and the potential for significant
labor absorption into the formal sector. On capital investment specifically, India has relatively
high levels of domestic savings, averaging 31.9% of GDP over the past five years, with which
to fund much needed investments in infrastructure and capital stock. Second, urbanization has
a long potential runway given that nearly 70% of the population still lives in rural India. A shift
into urban areas is likely to result in significant productivity gains, a phenomenon we continue
to witness in China.

Regarding the movement of labor, both challenges and opportunities lie ahead for India as it
shifts large swathes of the economy into the organized sector, which currently employs only
one-fifth of the population. India has a pronounced dual economy, with a relatively small, but
highly productive, formal sector complimented by a huge, but insufficiently productive,
unorganized sector in agriculture and domestic services. According to Joshi, despite a 63
million person increase in India’s total workforce during the first decade of the century, there
was a net three million decline in the number of formal workers in the organized sector. The
sheer size of the unorganized sector represents a huge opportunity for India if they can pull off
the transition.

For India to grow faster than the 6%-7% rate (4%-5% per capita GDP) of the past 30 years, a
new wave of reforms to boost capital accumulation and productivity is much needed.
Unfortunately, the near-term economic backdrop is working against it. The external
environment is clearly becoming less accommodating, with rate normalization in the United
States, a weaker rupee, and higher energy prices. Additionally, fiscal pressures appear to be
building up in an important election year. Meanwhile, credit growth has not picked up as
desired, with private capital formation still cautious.

Opportunities Still Abound

We believe that navigating the long-term complexity and short-term volatility of the Indian
equity market requires a nuanced, active investment approach. A propensity to look for
compelling analogues without understanding the underlying economic drivers and risks – e.g.,
likening India to China – can lead to dangerous conclusions and inappropriate portfolio
exposures. Our approach in India, and elsewhere in our universe, looks beyond seductive
narratives to appreciate structural drivers and real options, both of which are often unique to
individual companies.

India’s economic realities have given birth to some extraordinary companies that have been
able to turn the country’s longstanding challenges into long-term opportunities. A good
illustration of that is how Kotak Mahindra Bank and HDFC Ltd, our two largest Indian
holdings, have been capitalizing on India’s extensive and ineffective state involvement in the
banking sector to support their long-term growth trajectory. The Indian banking sector today
is saddled with more than 10% non-performing loans (NPLs), thanks to the reckless behaviors
of the public sector banks during India’s credit boom following the great financial crisis. The
public sector banks represent two-thirds of the system’s total assets and almost 100% of the
system’s NPLs. Setting the public sector banks on the right path would require overcoming
four “R” hurdles: Recognition, Resolution, Recapitalization, and Reform, and today these
public sector banks have barely cleared the first. As a result, the Indian economic machine is
currently running with two-thirds of its financial engines turned off, and only one-third – where
Kotak and HDFC play – powering its credit growth. With their clean balance sheets and excess
capital, we believe Kotak and HDFC will continue gaining market share as the public sector
banks continue retreating in the upcoming years.
Kotak and HDFC are just two of many extraordinary Indian companies in our portfolio, which
illustrate our fundamental, bottom-up investment approach. As volatility increases in the Indian
equity market, and global equity at large, we remain focused on finding such companies, paying
appropriate prices for them and constructing a durable portfolio that is well-positioned to
outperform.

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