India & China No Longer Delhi & Beijing

William Antholis, Managing Director, Brookings Institution, recently spent five months between India & China, understanding how the two countries have devolved power and authority. He visited many of the large states and provinces in both countries and met with local leaders to see how they were driving growth as well as sometimes blocking decisions taken by the Government at the Centre.

In his new book, "Inside Out, India & China", he describes how dealing with these two countries now means going beyond handshakes in Beijing and Delhi. He speaks to Govindraj Ethiraj on how understanding this emerging equation is critical in the new world order.

Antholis – a former White House and State Department official travelled to over 20 states and provinces in both countries in his five-month journey. A partly edited version of the transcript follows:

Govindraj: Once upon a time, doing business with China or India was simple. A handshake in Beijing or New Delhi and the deal was done. Well, that’s changed quite dramatically, and many people haven’t quite understood that.

One person who spent a year trying to figure this out and has written a book... Brooking Institution Managing Director William Antholis spent five months delving into this interesting new paradigm and has written a book on the subject “Inside out India and China”.

Bill, thank you very much for speaking with us and let me start by asking you, what made you think of a theme like this... something that is clearly quite close to all of us here in this part of the world ?

Bill: In my previous jobs, I would negotiate various international agreements and would often explain to people outside the United Sates that what happens in Washington often didn’t determine the final outcome of policy. Things have to go back and be implemented in places like New York and California and even places likes West Virginia and Louisiana.

When I first started travelling to India 10 years ago, I realised that a similar phenomenon was taking place there... and as I began to explore that, I read that the same was happening in China too; in the South Eastern provinces, Guangdong & Shanghai.

Govindraj: In the book, I read that you visited many states and provinces in India and China, met with leaders there. What are the stark differences that you noticed, apart from, of course, the form of Government, which is well documented?

Bill: Well, you know the obvious challenges, I think, that are often played out. You know, China is a lot less transparent than India, India sometimes is too transparent.

The free media in India is a true strength and that is across the country and in China, that is starting to emerge but it is not quite as it is in India. That said I was surprised to find out that the economic decision-making authority looks a lot more decentralised in China in some ways than it is in India.

The central Government in India, on some matters, still manages all the way not just down to the states but down to cities and even the districts. District collectors are also really quite empowered in India, in a way they are not; they do not have a counterpart in China. That was fascinating to see and I also think there were stereotypes that do not apply.

For instance, in India, certainly democracy is devolving into the states but the city and local-level elected officials do not have much authority. China, on the other hand, is not a democracy by any means but the level of robust debate going on in universities and social media, among others, is really quite vibrant. So, there are different strengths and weaknesses, different contrasts that I saw.

Govindraj: Bill, I am going to come to the fascinating comparison between Gujarat and Guangdong. You are really saying that you need to view these two states and provinces as entities having more in common than India and China.

Before that, you pointed out a lot of the growth came from eastern provinces from Guangdong, Shanghai, Jiangsu and so on. Now, the question I have is: Once Deng Xiaoping laid down his blueprint, did growth come from the power of the blueprint or the people who were appointed in these provinces? For instance, Wang Yang (now Vice Premier of the State Council Of The People’s Republic of China) in Guangdong, Xi Jinping (now President of the People’s Republic of China) in Shanghai and so on

Bill: Well, absolutely... you know the four eastern provinces that you mentioned - Jiangsu, Shanghai, Zhejiang and Guangdong - heading from North to South, those are the industrial powerhouse of China. These four provinces have only little more than 25% of China’s people yet they are responsible for 80% of exports from China. They are much more private sector oriented than the rest of China and much more export-oriented.

But there are also a couple of things to keep in mind. A lot of that export growth has come from western investments... or in China’s case, slightly to the east, a combination of Taiwan, Japan and American investment: building factories, exporting goods and employing people.

Then, there is the state-driven growth which also happened in those places: building infrastructure, roads, bridges and high-speed trains. So, it’s a combination of the state and the free market that makes those places happen. The rest of the economic machine that ensures productivity is state-funded and largely driven in the western part of the country over the last few years... and that is the part that seems significantly less sustainable to many outsiders.

Govindraj: So, to what extent would you give credit to people behind the kind of economic growth that these provinces have demonstrated in this 20-30 year golden period?

Bill: Well, it’s a combination. You know, there were certainly far-sighted entrepreneurs - both within and outside China - and political leaders made the right decisions in a few key places. Often times, those successful political leaders were unheard because they were very local leaders like Chief Minister Wang Yang who oversaw Guangdong for 10 years.

He largely got out of the way of people in Shenzhen, which was, you know, sort of a state-created city across from Hong Kong in the Pearl River Delta. They essentially identified free trade areas, free investment areas. The biggest and hardest political decision they took, frankly, was to confiscate land and build basic infrastructure and let business come in.

Govindraj: I think you quoted Wang Yang saying “We must shake off the wrong idea that the people owe their welfare and happiness to some dispensation from the party and government.”

Bill: Yes, that was practically revolutionary in China and in contrast with other leaders in China today. When he was in power, it was all about look to the state and the party will deliver economic growth and happiness for you. It was very different from the message Wang Yang was sending in Guangdong province

Govindraj: Let me come to Gujarat and Guangdong. You interacted with Narendra Modi for instance. The political leaders you met in India were democratically elected as opposed to China who were appointed. Yet, between states, there were some who were clearly more dynamic and who clearly seem to have a sense of the future and ambition to achieve that as oppose to maybe others who didn’t or couldn’t?

Bill: The key to success in India, whether it is Modi or Nitish Kumar or Jayalalithaa, is how well they work with Indian Administrative Service (IAS) officers all the way down to the district level. And on big issues like infrastructure, power sector development and management of state finances.

In all three of those cases, where you some success at state level, it been because Chief Ministers have taken their leadership role very seriously with the Central Government on shared roles and shared responsibilities.

There is no one-size-fits-all model within India. What’s important is working effectively with IAS officers.

Govindraj: Right, let me come to the Gujarat and Guangdong example... the equation that you have outlined, that it’s really regions like these that could be talking more to each other or collaborating with each other... we have seen similar examples in the past. How does it become different, if it does, in the India and China case?

Bill: Well, you know Gujarat have many strengths that Guangdong has and they are also complementary. You know the similar strengths - they are both costal land they already have infrastructure, ports and a manufacturing culture.

Gujarat’s strength is that it invested in petroleum refining capacity, which is something Guangdong does not have quite as much as while they are starting to quite aggressively. Largely, China’s growth was fuelled by coal and (in) India, coal sector is constrained in many ways.

Refineries and refining, particularly in Gujarat under Modi, is complementary. The second complementary angle, I think, is the power of the India IT sector. Gujarat still has extraordinary strength compared to some place like Guangdong, which is just starting to develop its own...

Govindraj: Let me sort of pause for a moment... you quoted, Kishore Mahubani, the academic in the book saying that he dearly values outcomes as much as the political process if not more. So, what are your takeaways when you were to look at these two countries? How much emphasis would you place on either of these two aspects?

Bill: Delivering effective service is certainly important, but political process matters quite a lot as well. I try to strike a balance between the delivery of services and value of free press over robust open political debate and leadership, which, I think, is important itself to you know government of, by and for the people. I really think it works fast and I spend a lot of time... I drill down as we were on environmental issue as one of those places where an engaged informed public is central to the solution.

I am a runner, and I would run outside every city in India that I lived or visited. I ran in Chennai, Mumbai, Delhi, Ahmedabad, Patna, Rishikesh, and Udaipur... there has only been one Chinese city where I was able to run outside because of pollution and that’s Shanghai now. Most of these Chinese cities are far more industrialised than their Indian counterparts.

The kind of street-level pollution you get in India tends to be from burning wood, little bit of industrial pollution... in China, the air is really so bad that it is just impossible for someone like me to run outside. and I think that reflects, in China’s case, a less vibrant, active and open society, I think it is critical to have informed and engaged public that can question the Government.

Govindraj: I think you have quoted your daughter saying at some point, if I got that right, you saying we just moved from India to China, India was dirty but China is polluted?

Bill: Yes, my kid had the best lines in this entire trip. That was certainly one of them, I mean what they saw in many cities that we lived in India, and they were quite surprised that you Indians are fashionable, have nice neighbourhood, walk on beautiful sidewalks... and you turn, and there would be pile of garbage... they didn’t quite understand that, and that was at times troubling them.

But then when we came to China, one of my daughters said this looks more like America. The buildings were more modern and there was less obvious street-level poverty and you didn’t come across people living in tin-covered homes amidst wealthy houses. A lot of street-level poverty was hidden in alleyways or poor people living behind the gleaming boulevards. When it came to that sense, it looked more like America. But they came to understand the industrial air pollution and even things like water pollution, which was much more severe in China.

Govindraj: Bill, in the first part of the book or the early part of the book, you laid out the whole structure... you talked about China’s well-off eastern provinces and the upcoming western provinces and shift of resources from the east to the west, and I will come to that in a moment. You also spent a lot of time in energy that seems to be your key sort of conclusion... not conclusion that seems to be the point you are driving towards with all of this, why is that?

Bill: Well, I tried to do two things in the book, and energy is the second. I think, first is, I am telling stories of these different places. I am talking about not just how they work on the inside but what that means for their engagement with my primary audience. I hope that perhaps it speaks to Indians and Chinese in some ways. But as an American at the US side, I really was trying to explain these two places to Americans and how internal decision-making will affect the global economy.

But then to give life, as you mentioned, I focussed on power and its connection to climate change and I do that for two reasons: one, it is an area that I have some familiarity with when I was in the Government, I was part of the team that worked on the Kyoto protocol negotiations.

I wrote a book about three-and-half years ago, which was about international climate change diplomacy... so I am interested in local engagement on these global issues and how important it’s become since India and China are the third and second largest greenhouse gas emitters in the world right now... actually, China is now the largest Greenhouse gas emitter... United States was (First) when I was with the Kyoto team but now it is second and India is third. If we are going to wrestle with this problem, the United States clearly needs to take the first step but India and China will also have to do it...

Govindraj: Bill, again, if I can ask, what you concluded... I mean, you talked about the whole movement of resources or wealth from the eastern part of China to the western part. You talked about how in some states in India, for instance Maharashtra, Gujarat and Tamil Nadu, constitute the significant bulk of GDP growth.

Then, transfer of resources takes place because in China, for instances, it is very well sorted out, money will go to the western provinces to build infrastructure, housing and so on, they benefit from all of this and also to prevent or contain migration... in India, of course if it is not well thought out and perhaps many things happen by default, well what in your mind or your understanding could this go towards? I mean, if we have come so far and this form in the last 20-30 years, where it could go next?

Bill: Well, it’s a real important question, and I do not think China is necessarily a better approach. I think right now what China has come to realise is that there has been over-spending in the central and western parts of the country. Part of that may be the way funds were spent, they were done by state-backed banks giving loans for largely real estate development as well as some infrastructure... even the infrastructure that was built, it was unclear whether that infrastructure can sustain itself.

Highways and trains sewer systems were built with no obvious collections to pay for their maintenance... in turn, India, in many ways, has been slower... when investment is happened in India, it tends to be relatively, economically sustainable at least compared to China - that’s my baseline assessment. So, I do not think, there is a one-size-fits-all in these things. I think what is the most important thing is to focus on effective governance at the local level and also places where investment is attracted to the right kind of industry they can develop.

Building rural roads connects to the right kind of industry, which is still for a long time going to be rural farms. You know, in China, the whole thing has been to get equal of the farms and then the factories... certainly that can help India. But I think break-necks like mass factory manufacturing may not be the most realistic way to go, especially if those factories are not built in an economically sustainable manner, let alone environmentally and socially sustainable manner....

Govindraj: Bill, in your book, as you come to the conclusion, you have put out many suggestions... like you said, this is really aimed at the American audience. What are the suggestions, for instance, for the US Government – should they be looking at more consulates in India and China? I actually did not realise till I read your book that they were so few consulates, particularly in China, which is such a large trading partner for United States. You said that there are six consulates in China and only five in India and this number needs to be significantly increased if the quality of local interaction needs to increase....

Bill: Yes, absolutely. I was kind of surprised, this comparison is not just between India and China. I came towards the end of book and started doing a little bit more research... you know, the population of China is 1.3 billion and is India 1.2 billion... each of these countries have as many people as all of North and South America plus the 500 million living in Europe, that is Western Europe, the United States, the rest of North America, Brazil, Mexico, the rest of South and Central America all combined are about 1.3 billion people.

All of North and South America and Europe have 100 diplomatic postings compared to 7 in China (6 consulates and an embassy) and 6 in India (5 consulates and an embassy)... I mean that is extra-ordinary. That means American businesses and American Government trying to engage in constructive manner with both the countries is just understaffed. We do not really have sense for the feel of what is going on... as a former White House state department official, one of the first people I would call when I arrived or travelled is the US consulate. I just like them to know I was there, get their insights on what it is like to travel as an American, what American businesses are there.

I think we all start with our own biases: while my family and I tried to really immerse ourselves in local cultures, we also wanted some basic mooring. What was really quite striking to me is how few of these opportunities these are in China and India where as in Western Europe, you can hardly travel to a major city without a consulate. You know, there is no consulate in Bangalore, there is no consulate in Udaipur, certainly no consulate in Rishikesh, the city of two million people. So, those things were fascinating for me to learn.

Govindraj: Bill, we have almost run out of time. Last question, if you were to write a sequel for this, when you would write it and what would you look out for?

Bill: Well, I am just really trying to start talking about this book and trying to get it out there. A couple of questions have become really quite fascinating to me that I would like to know more about. One thing that I was keenly interested in finding about is how these states feel about big international issues... but I think, in some ways, the sequel can only be written 4-5 years from now because both the countries, states and provinces have just started getting to engage on things like climate change and trade negotiations.

They are only starting to come to terms with those things. Right now, only one state in India has a ministry on climate change, and that is Narendra Modi’s Gujarat. Hopefully, 5 years from now, many states in India will have engaged on that issue, and that is a new story to tell. I am also really interested in India on the continuing devolution of democracy to the local level... that is a truly revolutionary development, and I think over the next 4-5 years, I will watch that very carefully.

Govindraj: Bill Antholis, thank you very much for speaking to us.

Bill: It was my pleasure and thank you all for hosting me in India and for treating my family so kindly when we here....

Govindraj: Delighted. Thank you very much.