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The Chindia Effect:

What It Means for U.S.
Companies
The Ascendancy of Chindia Hong Kong-based
China’s Growth Driven By:
investment group
As the world watches in awe, China and India CLSA: • Foreign Direct Investment
are replacing their historic differences with a • Make up • Exports
• Large-scale Manufacturing
new form of cooperative relationship – forged 40% of the
world’s total • Economic Model: State
by closer economic links – and are rapidly Capitalism
population
emerging as • Consume 50%
“People ask me what about India two of the most of its natural
vs. China? But I ask them what resources
economically
about India plus China. It’s being • Become the largest exporter of manufactured goods
called Chindia.” powerful and services
nations in the
– Bill Gates world. For all the similarities in their rapid emergence, the
Chairman, Microsoft Corporation development paths of China and India could not
Fueled by massive have been more different. Let’s take a look at what’s
populations, huge powering this economic juggernaut:
domestic markets, cheap labor, and governments
pursuing investment-friendly policies, both countries China’s growth driven by
are projecting their influence in virtually every aspect of • Foreign direct investment (FDI)
21st century global business. • Exports
• Large-scale manufacturing
What will this Chindia Effect mean for U.S. companies? • Economic Model: State Capitalism
With the profound impact these two
giants will make on global commodities
and consumer markets, U.S. business
leaders can no longer afford not to
consider China and India.

An Economic Force
With annual growth forecasted at
8-10% for China and 8% for India in the
foreseeable future, Chindia is projected
to have a 10.5% share of Global
Domestic Product (GDP) at $6.3 trillion2
by the year 2020 and will, according to

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 India’s growth driven by: demand for household products and the raw materials
• Consumption used to make them. 6
• Vibrant capital markets
• World-class IT and services sectors By 2020, it is projected that Chindia will have:
• Economic Model: Private Enterprise • One third of the world’s mobile subscribers and a
$100 billion mobile handset market
It could be argued that China, with its massive • A $480 billion packaged food market, equivalent to
factories, serves as the world’s workshop, while 1-1/2 times the present U.S. market
India, with its fast-growing IT and outsourcing • Bank loans valued at $9 trillion – twice the current
sectors, is becoming the world’s back office – both GDP of Japan 7
complementing each other even as they compete
for resources. In China’s retail sector, the modern retail format
accounts for over
This phenomenon 30% of total retail
is the genesis of the
“China and India will be the two sales. China has been
word “Chindia,” coined pagodas of economic power in the 21st aggressively expanding
by Indian politician its retail landscape to
Jairam Ramesh century.” bring in more name-
to describe their brand retailers and
combined international luxury
economic clout. 3 – Wen Jiabao, brands to satisfy the
Premier, People’s Republic of China needs of its well-
heeled middle class.
Demographic
Drivers Conversely, India’s
China’s population – roughly 1.3 billion – is modern retail stores handle only 5% of total retail
rapidly aging, and its low birth rate, attributed to sales. As the “land of shopkeepers,” India’s protectionist
the government’s one-child policy, will cause a policies have kept large foreign retailers like Wal-Mart
demographic drag on growth, according to Ms. Jing and Carrefours out to protect the 100 million jobs in
Ulrich, Managing Director and Chairman, China this area. Changes are coming, albeit slowly, as India
Equities, JPMorgan. By 2015, one third of its population begins opening up its retail sector to foreign players
will exceed 50+ years of age. At that point, China’s through joint ventures and licensing agreements to
working-age population will peak at 1 billion and then meet rising demand for competition.
drop steadily.
Financial Market Drivers
India, with a population of 1.1 billion and a high fertility Financial sector assets in China are eight times larger
rate, will reap the dividends of a large, young, and than India’s, with new lending far
growing workforce. Projections exceeding equity and debt issues
indicate that by 2015, 58% of the India’s Growth Driven By: over the last six years. However,
population will be below 29. By • Consumption capital market fund raising is tiny
mid-century, India’s population is • Vibrant Capital Markets when compared to
expected to reach 1.6 billion and • World-class IT and Service bank lending.
220 million more workers Sectors
than China. 5 • Economic Model:Private With smaller financial sector
Enterprise assets, India’s distribution across
Consumer Market Drivers loans, equity and debt issues is
Seduced by la dolce vita, hundreds more balanced than China’s. India
of millions of new Chinese and Indian consumers are has the advantage of strong capital markets, which
set to ignite an investment and spending boom. The have grown 400% over the last five years as a result of
rise of this huge middle class will feed a rapidly growing increased foreign institutional investment (FII) and a
rise in domestic savings.

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 Common to both countries is a weakness in consumer The country’s FDI needs should also get a much-
credit that remains underdeveloped as a result of: needed B-1 shot now that S&P Rating Services has
• Banks tending to lend to upgraded India’s credit
companies and ignoring rating to investment grade
consumers India has begun: from non-investment
• A lack of established • Relaxing and simplifying regulations for grade or “junk” status.
credit bureaus setting up a business Analysts project that the
• Age-old attitudes • Showing greater willingness to allow more higher rating will boost
towards acquiring foreign ownership in selected sectors FII into stock markets and
personal debt • Establishing special economic zones (SEZ) FDI into new projects and
infrastructure. 9
However, as income levels
rise, and attitudes towards debt begin to change, India is also enjoying a strong and growing economic
consumers will demand and be supplied with more relationship
sources of credit. When matched up with a fast- with the U.S.
developing housing market, mortgages, plus credit
cards and personal loans, will become more attractive Bilateral trade has grown over the last five years with
growth opportunities for two-way trade in goods increasing from $14 billion to
Chindia’s banks. over $26 billion.10 The U.S.-India Trade Policy forum,
a key strategic agreement established in 2005, is
Opening India’s Economy enabling the enhancement of trade and investment
To accelerate its economic growth, India needs better flow, supporting economic reform, and improving
infrastructure, more foreign investment, and a more market access to goods and services between the
open policy towards foreign trade. Fortunately, the two countries.
Indian government has undertaken a number of
initiatives to address these needs by: A Sound Strategy for American Companies
• Relaxing and simplifying regulations for setting up a India’s burgeoning economic and business environment
business offers U.S. companies practical reasons and diverse
• Showing greater willingness to allow more foreign opportunities for operating there. Start with its
ownership in selected sectors inexpensive supply of talent, its deep financial markets,
• Establishing special economic zones (SEZ) and the one sixth of the world’s consumers who live
there, then consider its:
Historically, wherever the government has loosened • Educated and hard-working labor force
control and moved out of the way, industries like • 200 million strong – and growing – middle class
India’s renowned IT and services sectors have • Stable, free-market democracy
flourished. Combine this liberalization with an annual • Established legal system
private sector growth rate of 15%, and this bodes • English as the primary business language
well for India’s rapidly emerging retail, real estate, • Clear guidelines for Intellectual Property Rights
infrastructure, healthcare and energy markets. • Domestic consumption-led growth
• Export competitiveness
FDI for infrastructure, a in select industries
critical requirement for “Western nations must prepare for a future
India’s future, is expected dominated by China and India, whose rapid Factor in India’s young and
to double in 2006-2007, economic rise will soon fundamentally alter the burgeoning population
with huge investments balance of power.” over the next several
coming in the software, decades, plus a healthy
financial services and – James Wolfensohn, increase in infrastructure
manufacturing sectors, Former World Bank President investment and growth,
according to Kamal Nath, and you’ll quickly grasp
India’s minister why India is taking its
of commerce. 8
place as an emerging economic power.

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 Dancing With the Dragon and the Tiger There is no denying that Chindia faces significant
By the year 2050, the E7, the world’s seven emerging economic challenges. China’s state-owned companies
economies – China, India, Russia, Brazil, Indonesia, are financially troubled, the financial industry is debt
Mexico and ridden, and
Turkey – will the economy
overtake the is open, but
economies of the politics remain
G7 – U.S., Japan, tightly closed.
Germany, UK, India is weak
France, Italy and in industrial
Canada. fundamentals,
lags in
In this scenario, manufacturing,
China and India and lacks social
will lead the E7 infrastructure.
pack12 and create
exciting business For all of that,
and investment Chindia will
opportunities become an
for savvy U.S. economic
companies across superpower to
multiple markets, be reckoned with
including – and one that
consumer, agricultural, industrial, banking and logistics. corporate America must engage.

Bibliography
1 Pesek, William, India, China or Chindia – Which is Asia’s real sleeping giant?, The Age Company, Ltd. January 31,
2006.
2 Chindia Strengths, CLSA, Chindia Strategy, 2005.
3 Durner-Feiler, Zoe, Wolf, Greg, The Chindia Phenomenon, Passport to Profit, www.wtcak.org, June 2006.
4 Dhillon, Amrit, Return of the Silk Road, Sunday Business (London), July 30, 2006.
5 Engardio, Pete, Chindia - How China and India are Revolutionizing Global Business, McGraw-Hill, 2007, page 20.
6 Stevenson, Tom, Kleinman, Mark, China-India Tsunami of Consumer Demand Looming, www.telegraph.co.uk,
November 23, 2006.
7 Unstoppable Chindia, Hindustan Times, October 15, 2005.
8 Yee, Amy, FDI in India expected to double, Financial Times, FT.com, December 28, 2006.
9 India makes it to “investment grade,” The Indian Express.com, January 31, 2007.
10 U.S. and India Issue Joint Statement on Trade, Trade Facts, Office of the United States Trade Representative, www.
ustr.gov, March 2, 2006.
11 Iyer, Meenakshi, Chorus at WEF: Chindia has arrived, Hindustan Times.com, January 31, 2007.
12 Hawksworth, John, The World in 2050, PriceWaterhouseCoopers, March 2006.

Selected information sourced from: Ulrich, Jing, Chindia – Beyond the Clichés, “Hands-On China Publications, China
Equities, JPMorgan, November, 2006.”

Copyright 2008 J.P. Morgan Chase & Company. All rights reserved. Chase is a marketing name for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide.

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