EDITOR’S note:

FEW are perhaps in a better position to compare the economic well-being of China and India than Huang Yasheng, professor in international management at the MIT Sloan School of Management, where he founded and heads the China Lab and India Lab.

He recently spoke to Shanghai Daily reporter Ni Tao about Chinese and Indian economies on the sidelines of a forum held by Fudan University’s School of Management to celebrate the 30th anniversary of its founding.

A: I think it is happening. If you look at the last two years, how many entrepreneurial companies have been created, there is a huge increase of that, which is a very good thing.

And if you look at Alibaba, Baidu, Tencent, every one of them is a private sector enterprise. And almost all of them are funded by foreign venture capital companies. They are listed on Nasdaq.

The success is a combination of the size of the Chinese market, entrepreneurial spirit, incentives and market-driven funding mechanisms. It is a classic example of those things.

In the 1980s there were a lot of entrepreneurial success stories, but mostly in the countryside. And then in the 2000s, you have technology, the Internet, and what is important is that you have access to venture capital and market finance.

But if you talk to venture capital people, they would tell you that a lot of these entrepreneurial enterprises are still mostly about business models rather than technology. I think Alibaba, Baidu, Tencent are all examples of that.

You can build a business model based on computer and Internet technology, but the backbone was not invented in China. So the true breakthrough in technology comes from societies that have more entrepreneurial freedoms and have universities like MIT and Stanford.

Q: Are conditions ripe for substantial financial reforms now that the central bank governor Zhou Xiaochuan said deposit rates are likely to be liberalized this year?

A: I don’t know if conditions are ripe. But what I argue is that the main financial reforms are not about opening up capital accounts or freeing the currency. I don’t believe those reforms are terribly urgent.

I believe the fundamental financial reforms — and this is something everybody knows — are two-fold.

One is removing the barriers to access to capital market by private sector firms, especially small firms.

If you create an Internet company, you don’t have to worry, because there is a very well-developed venture capital community to support you. But the vast majority of entrepreneurs in China don’t have any technology at all. They should be supported by the banking system, rather than by the venture capital industry, which may ask 10 times or 20 times the investment.

The benefits of those enterprises are mostly to create employment opportunities. The banking system should support them. But if you talk to private sector entrepreneurs, they still face a lot of discrimination. I see that as still the most important reform goal.

The other one is to provide a safety net for depositors. If you liberalize deposit rates, you really have to think very carefully whether you need to introduce deposit insurance programs.

Once you allow banks to use deposit rates to compete with each other, you are going to have a situation in which weak banks raise the deposits rates more. This is called “gambling on resurrection.”

But think about the consequences. Once you raise the deposit rate, you cannot raise the lending rate, because there is lot of competition there, and you will lose money. This is why even in the freest economies in the world, they always regulate deposit rate.

The yuan’s free convertibility, capital account sort of things, I don’t think they are important.

Q: What do you see as the biggest risks to Chinese economy in 2015?

A: If we can go beyond this year, looking out into the future, I believe the most immediate risk is the health of China’s financial system.

Since 2008, local governments have borrowed massively to build infrastructure, and they are not making money and cannot service their debts.

The monetary loosening in China is mostly to use new money to pay off old debts. In the long run, that’s just not sustainable. The problem is, whenever monetary policy is a bit tighter, then immediately there will be defaults, bankruptcies, and closures of factories. I see that as an immediate threat.

In the late 1990s, basically a number of things saved China. One was globalization; you could export your way out of trouble. Exports increased massively after the WTO accession. The other was the IT revolution that led to the outsourcing movement from the US to China.

Now let’s look at today. There is no more WTO accession. The artificial intelligence revolution is moving jobs away from China back to the US. It’s called “onshoring”; before, it was “offshoring.” I personally know people who established factories in China in the 1990s and now are moving back and setting up factories in North Carolina or South Carolina.

Going back to the question, suppose you have exactly the same problems as you did in the 1990s, but the technology revolution is moving production in the other direction, now what do you do? Technology is a curse now.

By the way, I’m not saying that only China faces that problem. The US itself faces that problem. Its blue collar workers don’t have any jobs. Africa is going to face the problem, and India as well. That’s something that’s going to be a shock. I’m not saying it’s going to happen this year or next year, but the possibility is there.

Q: What makes India do well? Is its growth broad-based and balanced enough to sustain the 7 or 8 percent growth rate?

A: First let me say just like China, India faces a lot of problems. I would argue that India faces more legacy problems than China does.

What do I mean by legacy problems?

Take education. Even if the Indian government is investing in education, the benefits will happen 30 years from now. The other legacy problem is that India has a terribly bad social system, crime and lack of gender equality.

It is also a much more complex country to manage than China.

Despite all the problems, they are growing now, actually growing faster than China. Most of the predictions are that in the next 10 years, they are going to outstrip China. When you look at a country that has all these problems, yet is still able to grow fairly fast, they must have done something else right.

So what is it that India has done right? The answer, I think, is a thriving private sector. And it faces fewer discriminations.

But let’s be very clear. For the Indian economy to be able to grow at 7 or 8 percent a year, it’s not just software. In the past, Indian growth was driven mostly by software, but it is no longer like that. It’s actually very broad-based growth already.

The service sector is growing, and manufacturing is growing quite healthily.

Q: In your TED speech in 2011, you said China outpaced India in growth rate even during the tumult of the “cultural revolution”, thanks to its human capital, a product of provisions of basic education and health care. Are these factors still relevant for China’s future growth?

A: Historically speaking, there is no question that China has invested more in education than India, not just in the narrow terms of government investments, but in terms of social investment. And especially in basic education, China is way ahead of India, although India now is catching up.

So in my speech, what I said was that the thing that really explained the Chinese growth was investment in human capital. Airports, skyscrapers, physical infrastructure and capital definitely help you with growth, but the problem is that they only help you for the current period. They don’t really deliver in terms of long-run economic growth.

If you invest in human capital, you don’t worry about sustainability. By contrast, a lot of physical capital now is wasted. There is so much corruption in the building boom.

My criticism is that in the more recent years, with so much emphasis on physical capital, even though China is still ahead of India, it could have done much better.

Q: Have you noticed any patterns indicating India might one day surpass China?

A: Even though the growth rate of India now surpasses that of China, I think it is many, many years from catching up with China in terms of level.

If India can avoid a financial crisis, and if it can grow at 7 or 8 percent a year for two decades, while China stops growing, it may well catch up with China.

Without a financial crisis (in China), I think it will be hard within the next 50 or 60 years for India to catch up with China — again, in terms of level. In terms of growth rates, I believe they are going to outperform China.

Q: Are you aware that you are occasionally criticized for being “blindly enslaved” to Western systems and values?

A: I’m aware that sometimes people criticize me for being a “blind admirer” of the West. Honestly that’s not true.

I’m not a blind admirer of the West. I believe that there should be a benign balance of power between the regulator and the market. I’m quite different from free market ideologues who want to see the government go away completely.

So it’s unfair to say I support India simply because it’s free. Sometimes you can be too free to be good.

My approach is driven by data and logic rather than by ideology.