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ASIA Rule No. 1 Beijing is not Mumbai, Mumbai is not Beijing


The problem with India, a top executive at a Western metal company told reporters recently, is that it has too much democracy. The one Indian national at the table responded with a rueful nod—and he wasn't just being polite.

Of course, the metal industry executive wasn't calling for an end to India's multiparty political system, which makes it the world's largest democracy although also one of the most chaotic. The point he was making is that it can be tough to get things done in India. And in this regard, India is completely different from the other developing Asian giant China. This fact isn't always understood as clearly as it should be.

In news reports about the growing impact of Asian countries on the world economy, India and China are often lumped together as if they form an ill-defined yet somehow unified Asian bloc accounting for a third of the world's population. But anyone who has spent time in the two countries knows that they are at very different stages of economic development.

A visitor to New Delhi is immediately struck by the immense poverty that is visible on the streets of India's capital, even as the country's burgeoning middle class spend their weekends watching cricket and browsing the well-stacked aisles of the new supermarkets. China's far more sizeable middle class also spend their weekends shopping, although the prevalence of luxury goods stores in the country's biggest cities gives a hint to the comparative purchasing power of the two countries' nouveaux riche. But while there is certainly poverty in Beijing, and even more deprivation in the countryside, China's capital city enjoys living standards far closer to those of the developed world than does any Indian city.

In business terms, lumping together the two countries is equally as misleading. India and China have chosen completely dissimilar paths to development, and pose very different challenges—or opportunities or threats, depending on one's point of view—to the North American economy.

There's the oft-cited anecdote that despite 15 years of planning, the city of Bangalore, the center of India's high-tech industry, can't get a new airport built (it's now scheduled to open next year). In that time, it seems that almost every provincial city in China has managed to build a new airport and the country now has a highway system that rivals that of the United States.

The differences are as true in the metals industry as elsewhere. India produced 44 million tonnes of steel in 2006. That's only slightly more than 10 percent of China's output of 418 million tonnes, the vast majority of which was consumed in the domestic market.

China is a production and consumption powerhouse. Its impact is felt in the West mainly because of its sheer size rather than any unique features of its economy. China's development isn't fundamentally different from the rapid growth of the Japanese, South Korean and Taiwanese economies in the 1950s to 1970s—it's just much, much bigger.

For the North American metals industry, China's main importance is as a low-cost competitor for the provision of relatively basic goods, like steel, and as a voracious consumer of raw materials. But while the impact of China has been felt at steel mills and retail stores across America, Chinese companies themselves have been largely content to operate within China.

Take Shanghai Baosteel Group Corp., for example. In a few years, China's top mill is likely to be producing more crude steel than U.S. Steel Corp., Pittsburgh, and Nucor Corp., Charlotte, N.C., combined. But despite concerns that the company may be looking to expand its operations to North America, such a change in strategy seems unlikely in the near future. To put it simply, Baosteel doesn't need to buy American assets when there are literally hundreds of millions of tonnes of steel capacity in China it can snap up at much cheaper prices, if not for free.

The same goes for Aluminum Corp. of China Ltd. (Chalco), which after a secondary listing in Shanghai in April is now worth almost as much as Alcoa Inc., Pittsburgh. The company has made some overseas investments, most recently the purchase of Peru Copper Inc., but it has concentrated mainly on consolidating the Chinese aluminum market.

In India, the situation is completely different. The country certainly has market leaders in the metals industry—companies that may not be quite on par with their Chinese counterparts, but are not far behind. But unlike in China, there is almost no second-tier industry in India. There are practically no attractive takeover targets for the likes of Tata Steel Ltd. and Hindalco Industries Ltd. in the Indian market, which is why they have looked to Europe and North America to expand through recent multibillion purchases of Anglo-Dutch Corus Group Plc and Novelis Inc., Atlanta, respectively.

The development strategies pursued by the two companies also mirror wider trends in India's recent economic history. Although it is home to some of the world's poorest people, India's high-technology industry has taken off and the country now produces many of the world's best software companies and computer engineers.

Just as Tata and Hindalco aim to move up the value chain by acquiring Western companies, the Indian government has attempted to drive growth by developing high-tech industries. It's had a great deal of success, but until it hits on a formula to replicate this success in other areas it won't have the same impact as China on the global economy, or be able to lift so many of its citizens out of poverty.

So here's a prediction An American metals industry employee is much more likely to find himself or herself working for an Indian than a Chinese company in the near future. But if the same employee loses his or her job, it's far more likely to be as a result of economic decisions taken in Beijing than in Mumbai.

That's not China-bashing, or an open invitation to the next Indian takeover. It's just a reflection of the new economic realities that Americans have to live with and adapt to.

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