FDI in China, which was booming at 20-25 per cent a year, slipped to 9.7 per cent growth in 2011. Growth further declined during the first half of 2012. The fall in the growth was driven by drops in FDI from USA, UK, South Korea and France. In contrast, FDI in India swelled by 31.3 per cent in 2011. Paradoxically, the growth in India was spurred by UK, Singapore and Mauritius. A big investment from Mauritius is routed by USA and UK’s subsidiaries. In 2011, in China investment from USA, UK, and South Korea declined by 26 per cent, 2 per cent and 5 per cent respectively. In contrast, in India FDI from UK, Singapore and Mauritius increased by 282 per cent, 100 per cent and 32 per cent respectively. In 2011 even though in China Japanese investment increased - nearly by 50 per cent, in India Japanese investment was much higher - by 136 per cent.

Global analysts forecast that Chinese attraction for foreign investment will plummet from high to medium or low speed in five to ten years. There are six factors which will haunt China’s advantages to attract foreign investors.

During 2010-2012, minimum wages increased by over 30 to 35 per cent . In Beijing the minimum monthly wages jumped from US$ 152 to 200, in Shenzhen it increased from US $174 to 238, in Guangzhou, the leap was from US$ 174 to 206 , and in Shanghai, the increase was from US$ 177 to 230. In contrast, in India the minimum wages increased by 10-15 per cent. The monthly wages for semi-skilled workers in automobile sector in Haryana and Maharashtra hover in between US$ 120 to 150 per month.

In China, salaries of skilled management positions are near to developed countries. Salary of an Engineer Supervisor varies in between US$ 25,000 to 40,000 a year, for a Marketing Director from US$ 100,000 to 130,000 a year and for a Regional Sales Manager from US$ 67,000 to 100,000 a year.

It is likely that Chinese wages will further escalate in US Dollar terms with Chinese currency yuan being appreciated further by the US pressure. The Chinese yuan has appreciated by about 8-10 per cent since the Chinese government partially succumbed to US pressure.

Chinese economy turned vulnerable with excessive dependence on export and low domestic consumption. In post Lehman crisis period, the downturn in Europe and USA led to a cascading impact on Chinese exports - the base for Chinese miracle growth in the economy. Apprehending loss of hope for revival in developed economies in near future, China contemplated to shift to consumption base model growth in 12th Five Year Plan. But, it was no more than a leap service, according to Prof. Minxin Pei., the noted Chinese economist

Over dependence on export reflects the hardship of doing business in domestic market. In other words, multiple complexities for doing business in domestic market compelled the entrepreneurs to export. Payment delay is one such important barrier which looms large in the domestic market. Customers and local governments are asking for 6-9 months payment terms, rather than 2-3 months earlier.

Official corruption, widespread counterfeits, stifling regulatory measures, weak payment discipline, poor logistic system and the distribution network are escalating the transaction cost and make it difficult for the entrepreneurs to thrive in the domestic market. Further, it is tough for private sector to compete against State Owned Enterprises (SOE), who enjoy implicit subsidies and politically encouraged bank loans.

China’s workforce is aging getting old. Chinese dependency ratio on working – age class (between 15 -64 age) has declined to 30 per cent. With one-child policy, only 5 million Chinese will enter in working age group of 34-54 in this decade.

In contrast, India has advantage for higher ratio of working age dependency - 57 per cent. India has around 800 million working population (between 15 and 64 age), of which 560 million are in countryside and China has 1 billion workforce, of which 600 million are in the rural areas. By 2020, India’s rural working population will rise to 600 million, while China’s will decline to 385 million.

SMEs played a significant role in China in making a strong pillar for the growth. It accounted for 59 per cent of GDP and 68 per cent of exports before the global downturn. With USA economy creeping into recession and EU being mired in stagflation, SMEs in China plunged into a fragile health. Every fourth of SMEs is sinking into losses after the global downturn, according to China’s Industry and Information Ministry. SME is a significant generator of employment in China. The weak SMEs impacted seriously the employment opportunities in China. The only hope lies for their survival is the growth in domestic consumption. Hopes belie with the weak institutional set up and the weak health of SMEs which impede the growth of domestic demand.

India has established a confidence for doing fair business in a truly democratic society. Its large pool of knowledge base manpower and the vast domestic market beckon for diversifying investment from China to India. The World Bank report said that India is fast catching up China’s growth. The recent reforms in foreign investment and the deferment of GAAR will be added attractions for the foreign investors, particularly the Japanese, who are in face-offs with regular anti-Japanese stir in China. (IPA Service)