China or India: Where's The Best Place to Invest?

Dennis Unkovic
du@muslaw.com

For companies looking to sell their products and services abroad, both China and India seem to offer golden opportunities.  But in both countries, for every opportunity that exists there are also a number of pitfalls.

 

It makes sense that many western Pennsylvania companies would consider India – it’s the world’s largest democracy and a place where English is widely spoken.   Moreover, Pittsburgh’s research universities and high tech community have already created a number of successful ventures throughout the subcontinent. 

 

When 60 million people lost power in India recently, it symbolized India’s poor nationwide infrastructure of roads, bridges, railways, ports and electrical generating capacity.  Upgrading India’s infrastructure offers business prospects to engineers, equipment makers and other suppliers, but for other companies it could serve as an impediment to doing business.

 

Other drawbacks India must overcome include:

• An overly bureaucratic and frequently corrupt system of business regulation.
• A high and seemingly uncontrollable birthrate which threatens to tax the economic system.
• Historical political, religious and ethnic conflicts across India’s vast geographic expanse.

Given the current situation, India could represent a great investment opportunity for a company that needs a highly educated local workforce and for which an efficient distribution system is not essential. Other companies may run into some difficult challenges.

 

Now to China: While the Chinese economy appears to be slowing down, it is still the second largest in the world and growing.

 

Companies with plans to do business in China should keep in mind that there are really two Chinas: “Rich China” runs along the coast from Southern China near Hong Kong to north of Beijing and comprises 450 million people who are Westernized and clamoring for consumer goods.  “Poor China” refers to the rest of the country, still economically challenged.  

 

Other trends affecting China’s economy:

• China has pressing infrastructure needs. Water is not potable in many Chinese cities and railroad lines throughout the country are deficient.  Pollution in China is also a serious problem, as are power shortages that affect factories. China is committed to spending a lot of money internally to address infrastructure challenges, creating both jobs and wealth in China and for foreign companies.
• The Chinese government has announced that it is a national priority to acquire state-of-the-art technology from around the world to raise the level of its existing manufacturing competence and expand into new industries.
• Hu Jintao is the first major Chinese leader in decades to lead a comprehensive crackdown on governmental and institutional corruption.

Despite the recent slowdown of the Chinese economy, the 450 million people in “Rich China” and the government’s commitment to improving infrastructure everywhere means that China offers opportunities to many kinds of businesses, from those that design and build power plants and sophisticated manufacturing systems to those that make consumer goods for both the mass and luxury markets.

 

My conclusion: There are probably opportunities for a wider variety of businesses in China than in India at this point, but all companies should proceed with caution in developing plans for either country.

 

Dennis Unkovic is an attorney at Meyer, Unkovic & Scott who has helped many companies invest in Asia. He can be reached at du@muslaw.com.