China vs. India: The Favorable Investment Destination

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With a combined population of close to two-and-a-half billion people , China and India- neighbors across the Himalayas- control a significant portion of world demand. Add to this the high GDP growth rates shown by the two economies in the past five years and you get what is now well recognized as the CHINDIA effect. But what if the two countries are pitted against each other rather than in collaboration? Which of these then emerges as a more favorable investment destination and why?

On one hand there is People's Republic of China, a totalitarian state, with Mr Hu Jintao as President and the Communist Party of China (CCP) dominating the government. On the other, there is India, a democracy, historically under the control
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January 2005 witnessed the biggest land deal in India with Mukesh Ambani led Reliance Industries buying a Mumbai Metropolitan Region Development Authority (MMRDA) plot earmarked for a convention and exhibition center for an astronomical Rs 1104.1 Crores.

In technology space again, the competition is increasing very fast. While Cisco systems announced investment of over $1billion in India in October 2005, Microsoft Chairman Bill Gates bettered it with plans to invest $1.7 billion to expand operations. Intel, the world's largest chipmaker, also announced similar plans for expansion worth $1 billion over the next five years . It is the same story across sectors. From Toyota, BMW in automobiles to Nokia, Motorola in mobile technology, the entire who's who of the global corporate arena is planning to go big on India.
In the capital markets too, the growth story continues. The Sensex rose by over 250% from 3300 in December 2002 to 11192 at the last close on August 11, 2006 riding on huge investments by foreign institutional investors. It is often argued that valuations are stretched at this point of time and profit margins have almost entirely been squeezed out leaving no further incentive to invest. Indeed for short-term investors that is exactly the case. But in the long term, there's only one way the rewards will go- UP. And none other than the ‘Oracle of Omaha' Warren Buffett highlights the centrality of long-term perspective in investing when he says, "I never
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