Russia vs. China, the Smackdown
China is a Communist country. Russia is supposedly capitalist. Suppose a major business publication were to undertake a study of the two countries to decide which one presents a more horrific environment for foreigners to do business in: Which country do you think would come out on top – that is, on the bottom?
Did you guess Russia? You’re right! The study’s authors explain: “We applied a concept called the Capital Receptivity Index (CRI) that measures an EE using 23 specific factors — distributed among the four elements listed above. Countries are scored on each factor from 1 (world’s worst) to 5 (world’s best), which makes the maximum possible score 115. Tallied as a percentage, the CRI of the U.S. is 82% (94/115), Russia’s is 38% (44/115) and China’s is 46% (53/115).”
Here is the data breakdown (with each country’s score out of the total possible score):
- Corporate governance.Russia (11/30) scored poorly due to tight government control of companies and poor protection of minority shareholders — offset slightly by the absence of restructuring barriers. China (11/30) arrived at the same score as Russia, but it has slightly better protection of minority shareholders, with very little transparency and tight government control of companies.
- Financial markets. Russia (11/40) scored poorly due to low valuations, no market for initial public offerings, weak transparency, absence of long-term shareholders and limited depth. China (17/40), while sharing some of Russia’s weaknesses, got a higher score due to its higher valuations, limited IPO market and greater depth of market participants.
- Human capital.Russia (18/25) scored well due to excellent technical skills, training and labor rates — offset by weaker management skills. China (20/25) scored even better than Russia, sharing its technical skills, but enjoying more competitive labor rates and better management training and skills.
- Intellectual property regime. Russia (4/20) scored poorly due to weak IP laws and lack of enforcement. China (5/20) arrived at a slightly higher score because it has some IP laws — but they aren’t enforced.
“The investment climate in our country is bad. It’s very bad.” Those are not our words, they are the words of the President of the Russian Federation, Dima Medvedev himself. And given the foregoing data, none can doubt him. But People with actual qualifications in trade and economics are a bit more blunt. Here’s what authors of the China-Russia study say:
You can put new clothing on a formerly communist nation, but it’s hard to change what’s under its skin. Russia has really awful bones beneath its fairly unattractive surface. Unfortunately, Russia is under the illusion that it can use PR spin to dissipate investors’ concerns about its past abuses of capital providers and convince new suckers to invest there. If forced to pick one of the two to place my money in, choose China.
China beats Russia across the board, in every category, even though it is a Communist state. China even beats Russia in qualification of workers including education, and it crushes Russia in areas like wage rates. China is aggressively expanding and improving in every aspects of economic performance while Russia is stagnating, showing that even within an authoritarian model rulers who actually care about the fate of their country, as opposed to merely being interested in personal gain, can innovate.
There is lots more evidence out there, for anyone who chooses to look, about Russia’s virulent hostility to investors both foreign and domestic. The upcoming trial of Victor Bout threatens to thrown an even more terrifying light on the Russian government than that barbaric recent re-trial of Mikhail Khodorkovsky has already done.
And in this very issue, we report on yet another global study that places Russia at the very bottom of the world in terms of safety, honesty and civilized behavior. Russians are inundated with unquestionable proof that their government is failing. If they do not change it, they will take the consequences without sympathy or support.