Hindi Chini Bhai Bhai in Ease of doing biz

The 2016 'Ease of Doing Business' report of the World Bank mentions that both India and China have improved by simplifying their regulatory procedures, but ranks China 84th and India 130th among 189 nations that it surveyed. Both are much behind Singapore (which tops the list), New Zealand, Denmark, Korea, Hong Kong, UK, US etc

Most of us are aware of the fact that ‘Hindi Chini Bhai Bhai’ (meaning Indians and Chinese are brothers and they should foster this spirit of brotherhood) was the catch phrase of India’s diplomacy with China in 1950s. I have used this catch phrase in this short article to throw a debate on the issue of regulation and ease of doing business in India and China.

Normally it is believed that, when it comes to India and China, China is the darling of foreign investors. India is always the whipping boy. India is vehemently criticised for its lackadaisical regulation, bureaucratic inertia and for so many other factors that the foreigners feel are hindrances for doing business. There is a pertinent question that arises in this regard. Is it that, the ease of doing business in China is exaggerated fact and it is not as easy as it is made out to be?

In this regard, two articles caught my attention. These two articles, which gave diametrically opposite views is inspiration, for this short article. The first article titled ‘There will be no Indian Jack Ma’ written by Bhupesh Bhandari is a typical critique of regulation in India. The article lists out the reasons as to why Indian Jack Ma is not possible.

One among them is regulatory hassles, which would keep Indian Jack Ma at bay and prevent him from becoming the kind of figure he is now in Chinese economy after his company Alibaba got listed on New York Stock Exchange. This article therefore highlights the ease with which one can do business in China.

The other article, titled ‘China Turns on its own’ written by Rahul Jacob, which surprisingly bought home the point the uglier side of Chinese regulation, which is not much heard of, highlights the uneasy relations between Jack Ma and the higher ups in the Chinese political system. Chinese regulator issued a white paper, which became controversial because it criticised e-commerce giant Alibaba for failing to curb the sale of counterfeit goods on its consumer website Taobao.

The article quotes an official of China’s State Administration for Industry and commerce (SAIC) saying that fining the company only once would not be enough and it should be fined hundreds of time. Although the white paper censuring Alibaba was withdrawn, it is believed that much damage has been done and this episode will not go down well with the foreign companies who will now be quite apprehensive of arbitrariness of Chinese government.

The survey conducted by American Chamber of Commerce in Shanghai (AmCham), which regularly conducts survey on American business in China and which is one of the longest running surveys of American business in China has been very critical about the state of regulation in China. In 2013 report it mentions that the top regulatory challenges remained unchanged from those over the past three years.

80 per cent of respondents cited bureaucracy as the No 1 challenge, with 72 per cent declaring difficulties from an unclear regulatory environment and 70 per cent were concerned over problems with tax administration rounding out the top three leading legal and regulatory challenges that companies said hindered their business.

World Bank publishes a report every year called ‘Ease of |Doing Business’ which vividly describes the state of regulation in various countries. This report considers what is called as ‘Distance to Frontier’ (DTF) score. This score aids in assessing the absolute level of regulatory performance and how it improves over time. This measure shows the distance of each economy to the ‘frontier’ which represents the best performance observed on each of the indicators across the economies.

This shows the gap between a particular economy’s performance and the best performance at any point in time and to assess the absolute change in the economy’s regulatory environment. DTF is measured on a scale from 0 to 100. 0 represents the worst performance and 100 is the frontier. A score of 60 per cent means an economy is 40 points away from the frontier constructed from the best performance across all economies and across all time.

The 2016 report although mentions that both India and China have improved by simplifying their regulatory procedures, but gives a DTF score of 62.93 per cent to China by ranking it 84th and 54.68 per cent to India by ranking it 130th among 189 nations that it surveyed. Both countries are much behind Singapore (which tops the list with a DTF of 87.34 per cent), New Zealand, Denmark, Korea, Hong Kong, UK, US.

Finally all this shows that, although China scores a little better than India, it still is way behind the countries that top the list. I think it is right to say that as far as ease of doing business is concerned, ‘Hindi Chini Bhai Bhai’. (The writer is Faculty and Head, Infrastructure Policy and Regulation Centre, Institute of Public Enterprise, Hyderabad)

By Dr Rajesh Gangakhedkar