Nov 27th 2017 | The Economic Times
Despite China’s economy being far superior to India’s, its neighbour has a clear edge: a thriving democracy and an open economy. Yet, China is producing more and bigger entrepreneurs than India. The rise of Tencent, Alibaba, Baidu and Xiaomi from zero to billions of revenue in just a few years has no parallel in India. How could an authoritarian state have bigger private enterprise than a democracy?
Low wages, subsidies, institutional reforms, foreign investment and a favourable demographic have no doubt fuelled the Chinese growth in the past decade, but the recent explosion of private enterprise can be best explained by its crazy internet boom that has pulled a big majority of its people into formal economy.
In his 2015 book ‘China’s Disruptors’ Edward Tse coined an acronym to identify factors that triggered the entrepreneurial explosion— SOOT, which stands for scale, openness, official support and technology. These factors can be best seen operating together in China’s growing digital economy marked by huge people participation, transparency, supportive government policies and, well, technology.
A study by Pew Research Centre that tracked internet use in the two countries from 2013 to 2016 found China had 71% internet users while India had only 21%. It defined an internet user as the one who used the internet at least occasionally or owned a smartphone.
Recently, India’s minister for information technology Ravi Shankar Prasad said the government was trying to push Indian digital economy to $1 trillion in the next five to seven years. China’s digital economy was $3.35 trillion in 2016, according to government data. It grew 18.9 per cent, much faster than China’s overall economic growth at 6.7 per cent. Digital economy accounted for 30.3 per cent of China’s total GDP. It contributed 69.9 per cent to the GDP. So many people formally involved in the the economy means its easier for Chinese companies to achieve scale and critical mass.
China’s digital economy grows not just due to consumers and investors. The government too supports it. Chinese Premier Li Keqiang started an ‘Internet Plus’ policy to promote integration of digital technologies into various economic sectors.
According to Dominic Barton, managing director of McKinsey & Co, the reason why China produces more entrepreneurs is the large economic base. More people in China participate formally in the economy than in India. “Companies such as Tencent came out of nowhere. What they’ve done using data analytics is that they are serving 300 million people, so participation rate of Chinese in their economy is higher,” he said in a recent interview.
“We’re just at an earlier stage. China has poor regions but not as black and white as India. But as more and more Indians get connected, get inducted formally into the system, it will happen,” Barton said.
India’s digital push, started with the government’s hugely disruptive decision to ban high-currency notes last year, may not have helped the government much in fighting the black economy as it had hoped to. But it can surely lead to more formalisation of the economy, pulling a large number of people into the economic mainstream. A bigger consumer base will not only make it easier for Indian entrepreneurs to scale up fast, but it will also attract new entrepreneurs to try out disruptive ideas.