Japan Wants Less of China, Finds India a Better Option

Reviewed by Hitoshi URABE

Article:
Japan Wants Less of China, Finds India a Better Option
(Reuters) The Economic Times (IndiaTimes)
http://economictimes.indiatimes.com/articleshow/1168760.cms

Comments:

The article reports a trend among Japan's businesses who, now recognizing all the risks in China, political, social, currency stability, and otherwise, are beginning to consider India as the next site for new investment opportunities.

The report acknowledges that China remains by far Japan's most favored and heavily invested region in Asia, and will likely stay so for some time. Indeed, there are more than 4 thousand Japanese companies operating around the world and more than half of them do business in China, compared with just 150 in India. However, India's strengths include its 1bn-plus population, a rapidly emerging rich middle class, well-skilled but still relatively cheap labor and political neutrality with Japan.

India has come a long way. After winning independence in 1947, India adopted a form of socialist economy akin to that of then U.S.S.R. The structure never did function well, and bogged down before other similar economies all failed and a shattered economy was left. In 1991, lead by Prime Minister Narasimha Rao, turned the framework around 180 degrees, and introduced a market oriented mechanism dubbed as the New Economic Policy. Since then, India's GDP growth rate topped 6% annually on average, and the recent foreign reserve figure shows 132 billion dollars, surpassing its foreign debt of 121 billion, at the end of 2094.

Some experts point to the political/social stability of India. There are still many regions in the country administered by communist majority local governments, but social unrests are in fact minimal, if any - compare this to China. And the result of last year's general election impressed many watchers. General prediction was that the then ruling party would win easily because of the significant economic growth achieved during their reign. But they lost. The explanation was that the economic gain had not yet "trickled down" to the poor majority, and such people opted for balance rather than growth. The impressive part here is not that the ruling party lost the election, but the majority of the people expressed their wills, and a new government was formed in accordance with their choice. It was that a true and healthy democracy was displayed in action.

India's demography is astonishing. In year 2000, Japan's population aged between 20 and 39 was 35 million, against India's 317 million. The figures are estimated to change, by 2025, to Japan's 24 million against India's 432 million. This means there will be 18times more working population in India than in Japan.

India obviously needs to find jobs for the increasing population, and the most effective method, in terms of number and efficiency, is to absorb them in the manufacturing industry. This is why Japanese manufacturers can seek a good prospect in investing in India. Eventually India could function as a huge market for the goods produced locally.

There are issues and obstacles. The most critical might be that there is too little understanding in Japan for India's people, culture, and business practices. Japan is way behind European, American, or even Korean businesses in this respect.

Nevertheless, considering the industry and capital structures, and the demographic compositions and social needs of both countries, there is a huge potential of Japan and India becoming a perfect match for the coming decades.