India and China are both vast countries just opening to development, filled with opportunity and risk for private equity investors. Inevitably, the two countries' rising economic fortunes invite debate over which offers the better climate for investment.
At first glance, India might not seem the safer bet, with its pitted roadways, tainted water and visible, widespread poverty. Yet those outward signs obscure solid underpinnings for economic growth, including a democratic government, a strong education system, widespread knowledge of English and a deep pool of expatriates experienced in Western businesses, according to Wharton faculty and experts in emerging market private equity.
Cheap labor and foreign direct investment have made China the world's manufacturing powerhouse under a government that has embraced Western-style capitalism. China has provided spectacular private-equity returns in recent years, but, the experts note, weaknesses in China's legal system and the possibility of political instability remain concerns for investors.
"Clearly there's enormous private-equity opportunities in both countries," says Wharton finance professor Jeremy Siegel.
Valuations Matter
As for the better investment climate long-term, Siegel sides with India. He says the country's "soft" attributes, such as a democratic government and a free press that is rooting out corruption, outweigh China's more impressive investments in "hard" infrastructure such ports, plants, and transportation systems.
Siegel notes that he is also concerned about China's system of "guanxi" in which business is conducted more through elaborate networks of relationships than on merit. The willingness of Americans to let an entrepreneur succeed, regardless of his or her social or political connections, has been the cornerstone of U.
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