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4.2.4 Comparison of Political Systems

Both China and India began as countries during the latter half of the 1940s, and both countries modeled their economic policies on the planned economy of the Soviet Union that existed at the time. For different historical reasons, both countries had completely closed their doors to the outside world at the time of their independence: China due to international political tensions between east and west, and India due to its past as a British colony. While they started at similar places economically, the two countries' political systems were completely different. China is, in reality, under one party rule of the Communist Party. On the other hand, India chose the path of democracy and elects its central and local government leaders by popular vote. This difference in political structures leads to very different investment environments from the perspective of foreign firms.

In comparing both countries, Tarun Khanna poses an interesting question, “Why can China build cities overnight, yet India can't build a single road?” (Khanna 2007). This question captures the essence of institutional differences between China and India. Under the leadership of Deng Xiaoping in the 1990s, China aggressively pursued policies to open itself to foreigners. This was carefully done by first examining the results of experimental policies in certain regions, and then determining it to be the path to take for the entire nation. In addition, India dramatically reformed its trade system in the 1990s, gradually opening its doors to the outside world. However, this was done as a decision to rebuild after running budget deficits, a decision that was forced upon them because of the fear of impending bankruptcy. In democratic India, the leaders of the nation cannot establish policies that went against the people's will. One can easily imagine that because of its history as a British colony, the national sentiment was to oppose opening the country to foreigners. In these circumstances, a strong motive such as a national crisis was necessary to promote the path to reform.

Let us examine the political systems of China and India in greater detail. The legislative body in China is called the National People's Congress, comprised of members from provinces, autonomous prefectures, and directly controlled municipalities who are elected by their respective People's Congresses. People's Congresses are organized for each local government organization below provinces—the cities and prefectures—and citizens may only participate in elections at the prefecture level and lower. However, many delegates are essentially recommended by local organizations of the Chinese Communist Party and are “elected” by the people through a vote of confidence. These delegates themselves elect the National People's Congress members; therefore, it is unlikely that members who are critical of the Communist Party will ever be elected. The National People's Congress not only fulfills its responsibility as a lawmaking organ but also acts as a supreme authority, even in areas of administration, judiciary, and prosecution. The National People's Congress is made up of roughly 3,000 members from across China, even though important policy decisions for the country are essentially made by the Communist Party's Central Committee, which had nine members as of September 2012. While these nine are ranked, decisions are made by a majority vote. The top ranking member is the head of state. Personnel decisions such as the heads of local administrative organizations in provinces and directly controlled municipalities are also essentially appointed by the Communist Party, making China a state run by one organization: the Communist Party.

On the other hand, India is a democracy much like Japan. India has many political parties, with candidates from each party competing for seats in the national parliament (bicameral parliament, consisting of upper and lower houses). It is difficult for one party to gain a majority, so coalitions are the norm, with a prime minister selected from among the representatives. In the 2009 general election of the Lok Sabha, or lower house, the United Progressive Alliance (UPA), India's largest party and a coalition led by the Indian National Congress, became the ruling party. The minority coalition is the National Democratic Alliance, with the Bharatiya Janata Party, or BJP, at its core. In general, the Indian National Congress takes up liberal policies of economic reform, while the BJP favors conservative policies for domestic protectionism. However, as a farming nation, the opinions of the country's farmers are important during election time, and domestic policies are always given priority over issues of foreign concern. With so many political parties, administering a government is also difficult. Another factor making political decision-making in India difficult is that state governments, which also hold direct elections, wield strong influence in the administration of policy.

These differences in political structure are well expressed in Khanna's observation that “China can build cities overnight, but India cannot build even a single road.” Likewise, these differences are prevalent in the development of foreign investment policies implemented since the 1990s. China implemented coherent policies with the aim of economic development through enticement of foreign firms. However, in India, things have not progressed as smoothly. Although India finally implemented policies favorable to foreign investment in earnest beginning in the 2000s, economic zone constructions have not moved forward as expected. This is because of the political power of landowner famers and the time taken to appropriate land. As the line “India cannot build even a single road” suggests, improvements on roads and railway infrastructures, in addition to the industrial parks, are not progressing as planned, instead becoming a barrier to attracting foreign investment.

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