Looking Eastward

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CHINA, just, but with India catching up fast, according to Augusto Lopez-Claros, who heads the World Economic Forum's competitiveness program. In his latest report, which measures national competitiveness using dozens of different criteria — from the quality of math education to the soundness of banks — China comes in at No. 49, one ahead of India. But the momentum is with the underdog: China dropped three places this year, while India moved up five, largely because of India's greater technological prowess. Both are marked down for corruption — a frequent refrain at Davos sessions this year — and a chronic lack of infrastructure.

INDIA, says Michael E. Porter, a Harvard Business School professor and expert on competitiveness. China is exporting massively, but "it's still adding relatively little value," he says. Moreover, China's companies tend not to be very profitable, and there is a dearth of Chinese brands. By contrast, "India is further along in building a productive business environment," Porter said. "It has talented high-end people with deep expertise in IT, software, pharmaceuticals. It has the opportunity to go much further." And as the Indian parties all over Davos this year proved, it already has a crop of companies — Infosys, Jet Airways and Mittal Steel — whose leaders are trying to become the next masters of the universe. Indeed, while Davos was in full swing on Friday, Mittal Steel made an audacious j18.6 billion bid for Europe's steel champion, Luxembourg-based Arcelor.

Naturally, such predictions depend on a huge number of assumptions that could easily be wrong. Both nations could be derailed by geopolitical instability or Western protectionism. Both need to overcome enormous regional disparities of wealth and spread their growing prosperity more evenly among their populations. Davos had a well-attended session that focused on the wave of protests against corrupt officials in Chinese towns and villages. Some experts, including Orit Gadiesh, chairman of consultants Bain, says this competition misses the point: the world economy is not a zero-sum game, and both countries are likely to end up winners. "We are not hostile rivals, but we are competing with each other," said Indian Finance Minister Chidambaram, pointing to such sectors as automobile parts, leather, textiles and food processing as examples.

Those in Davos from both countries know that their homelands have a long way to go. "China is like a student learning modern business management. We have only just graduated from junior high school," said Edward S. Tian, vice chairman and chief executive of China Netcom Group, which recently acquired 20% of the Hong Kong telecommunications firm PCCW. China watchers are expecting a wave of such transactions, as the nation tries to create its own brands. Already, Chinese firms have bought IBM's personal computer business and the television company that owns the RCA brand. But some attempts to grow internationally have run into huge obstacles, including cnooc 's thwarted attempt to acquire the U.S. oil company Unocal last year. And even though India has a pool of technology talent, it scores poorly for the quality of its education in general.

Concludes Harvard's Professor Porter: "Both will be good value over the next two to three years, but it is still very much in doubt that they will become advanced economies." To achieve that exalted status will take more than flying Indian chefs into Swiss alpine resorts.