The Rise of the Asian Giants:
China and India compared
Martin Wolf, Associate Editor & Chief
Economics Commentator, Financial Times
Leverhulme Centre for Research on Globalisation
and School of Economics, Nottingham University
March 15th, 2007
China and India
“Let China sleep, for
when she wakes, she
will shake the world.”
Napoleon Bonaparte
2
China and India
“China will again become
a viable great power; India
may become a great
democracy.” Lord
Meghnad Desai
3
China and India
• Potential
• Priorities
• Performance
• Prospects
4
1. Potential
• Asia’s rise is the third great transformation since the
industrial revolution:
– Early 19th century: rise of the UK
– Late 19th and early 20th centuries: rise of US, Japan and
Germany and Russia
– Post-second world war: from Japan’s surge to the rise of
China and India
• East and south Asia contain more than half of
humanity
• This is surely the end of the era of European
dominance
5
1. Potential
SHARES OF WORLD POPULATION IN 2015 (per cent)
Source: World Bank
4%
5%
20%
5%
12%
9%
5%
6%
17%
1%
9%
6
6%
China
Rest of east Asia and Pacific
India
Rest of South Asia
Latin America
Turkey
Rest of Europe and Central Asia
Middle East
Sub-Saharan Africa
US
Eurozone
Rest of high income
1. Potential
SHARES OF THE ASIAN GIANTS IN WORLD PRODUCT
(per cent, at PPP)
90
80
70
60
16
9
7
11
9
5
3
4
4
24
17
50
33
40
12
3
11
15
8
7
19
16
25
22
21
30
6
8
2
9
22
5
3
5
3
21
4
20
33
10
22
23
1700
1820
33
32
25
24
20
18
1995
2003
0
1870
EU-15
7
1900
1913
United States
1957
Japan
1973
China
India
1. Potential
Source: Maddison
CATCH-UP IN ASIA
(GDP per head at PPP, as a per cent of US levels)
100.0%
10.0%
China 1978 - 2004
Japan 1950 - 2004
8
India 1980 - 2004
South Korea 1962 - 2004
55
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
1
1.0%
2. Potential
RATIO OF DEPENDENTS TO PEOPLE OF WORKING AGE
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
0
Italy
9
United States
China
India
1. Priorities
• The two countries are both enormous and
homes to ancient and sophisticated
civilisations.
• But they are also fundamentally different:
– China has been unified for at least half of the last
2,000 years, while India was never brought fully
under a single centralised system of government.
– India was conquered by foreigners who brought
their culture with them; China’s were “sinicised”.
10
1. Priorities
– China’s had an imperial system; India had
dynasties.
– Chinese imperial dynasties endured; India’s were
brief.
– China’s is an integrated society; India’s is pluralistic.
– China’s historic source of stability was political;
India’s was social.
11
1. Priorities
• These differences help explain a number of contrasts
between today’s China and India:
– China’s meritocracy; and India’s policy of reservations
– China’s ability to mobilise resources; and India’s weaker public
sector
– China’s bureaucratic authoritarianism; and India’s democracy.
– Chinese elites think democracy is inefficient; without
democracy, there would be no India.
• These differences also are reflected in growth strategy
and performance.
12
1. Priorities
• China’s growth strategy is a hybrid:
– Like Japan and South Korea in the past, it relies on:
• Industrialisation through very high savings and investment;
and;
• Trade as an engine of growth;
– But China is far more open to trade and foreign
direct investment than its smaller predecessors;
and so
– China is a vast combination of South Korea and
Hong Kong.
13
1. Priorities
• China’s state plays a central role in
development:
– As mobiliser of resources;
– As investor;
– As manager of political consequences.
• China’s aim is “development without political
upheaval”.
14
1. Priorities
• India’s growth strategy has been unique:
– Growth without industrialisation;
– Driven by skill-intensive services;
– With low formal sector employment;
– Tyranny of interest groups;
– And relatively low trade and foreign investment.
• India’s aim is “growth without social upheaval”.
15
3. Performance
• Overview
• Openness
• Growth
• Contributions to growth
16
3. Performance: overview
Population(2004)
GNI (PPP)
GDP per head
growth
GDP per head
growth
Share of industry in
GDP
ECONOMIC
Units
millions
$bn
China
India
1,296 1,080
$7,634 $3,369
1970-2004
8.4%
3.4%
1990-2004
8.9%
4.0%
2004
46.0% 27.0%
Source: World Bank, World Development Indicators 2006 , UNDP, Human
Development Report 2006
17
3. Performance: overview
GNP per head
Life Expectancy
Male Adult literacy
Female Adult literacy
WELFARE
Units
2004 $s PPP
2004
2002
2002
Under 5 mortality rate 2004, per 1,000
Under 5 malnutrition
1995-2004
Poverty Ratio (per
2001 (China)
cent below $1 a day
1999-2000
at PPP)
(India)
China
India
$5,890 $3,120
71
63
95%
73%
87%
31
85
14.2% 44.9%
16.6% 34.7%
Source: World Bank, World Development Indicators 2006 , UNDP, Human
Development Report 2006, WTO, Recent Trade Developments 2006
18
48%
3. Performance: overview
PRODUCTION
Units
Electricity Production KWHbn 2003
Goods Hauled
2000-04 ton-km
(railways)
bn
Container traffic
2004 TEU
(ports)
million
2004 ton-km
Air freight
million
Telephones (land
and mobile)
2004 per 1,000
China
1,907
633
1,829
381
75
4
8,188
434
499
85
Source: World Bank, World Development Indicators 2006 , UNDP, Human
Development Report 2006, WTO, Recent Trade Developments 2006
19
India
3. Performance: overview
EXTERNAL
Units
Merchandise exports
Service exports
FDI inflow
FDI inward stock
Foreign Exchange
Reserves
2005 $bn
2005 $bn
2005 $bn
2005 $bn
December
2005 $bn
China
$762
$81
$72
$318
$90
$68
$7
$45
$1,066
$170
Source: World Bank, World Development Indicators 2006 , UNDP, Human
Development Report 2006, WTO, Recent Trade Developments 2006,
20
India
3. Performance: openness
TARIFF RATES IN 2004
40.0%
36.9%
Source: World Bank, World Development Indicators
35.0%
30.0%
28.1%
29.0%
28.0%
27.8%
25.3%
25.0%
20.0%
15.0%
10.0%
9.6%
9.6%
9.5%
6.2%
6.0%
5.8%
5.0%
0.0%
Simple mean
Weighted mean
All
Simple mean
Primary
China
21
Weighted mean
India
Simple mean
Weighted mean
Manufactures
3. Performance: openness
INDICES OF OPENNESS 2004
(per cent of GDP)
South Korea
Germany
FDI
inward
stock
China
UK
Total
trade
India
Japan
US
0
22
10
20
30
40
50
60
70
80
3. Performance: openness
MERCHANDISE EXPORTS OVER GDP
(per cent)
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
23
05
20
03
04
20
02
20
20
01
00
20
20
98
99
19
19
97
96
India
19
19
95
94
China
19
19
93
92
19
19
90
91
19
19
88
89
19
19
87
86
19
19
85
84
19
19
83
19
19
82
0.0%
3. Performance: openness
ASIA'S SHARES IN WORLD EXPORTS OF MERCHANDISE
(per cent)
30.0
25.0
20.0
15.0
2.5
10.0
1.2
6.0
6.7
7.5
6.4
6.4
5.9
2003
2004
2005
1.0
5.0
9.9
1.3
8.0
6.4
3.5
0.0
1948
1953
1963
1973
Japan
24
China
1983
India
1993
Other Asia
3. Performance: openness
MERCHANDISE EXPORTS OF LEADING COUNTRIES
($m, previous 12 months)
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
n
Ja
8 8 8
9
0 0 0
1 1 1
2 2 2
3 3 3
4
5 5 5
6 6 6
9 9
4 4
-9 y-9 p-9 n-9 y-9 p-9 n-0 y-0 p-0 n-0 y-0 p-0 n-0 y-0 p-0 n-0 y-0 p-0 n-0 y-0 p-0 n-0 y-0 p-0 n-0 y-0 p-0
a e Ja
a e Ja
a e Ja
a e Ja
a e Ja
a e Ja
a e Ja
a e Ja
a
M S
M S
M S
M S
M S
M S
M S
M S
M Se
China
25
India
US
Japan
Germany
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
3. Performance: openness
CURRENT ACCOUNT BALANCE
(as per cent of GDP)
10
8
6
4
2
0
-2
-4
-6
China
26
India
3. Performance: growth
A TALE OF TWO ASIAN GIANTS
(GDP per head, at PPP)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
50 953 956 959 962 965 968 971 974 977 980 983 986 989 992 995 998 001 004
19
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
Source: Maddison, IMF, World Economic Outlook
27
China
India
3. Performance: growth
GROWTH OF GDP IN INDIA AND CHINA
(per cent)
Source: EIU
16
14
12
10
8
6
4
2
China
28
India
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
0
3. Performance: growth
GROWTH OF GDP IN INDIA AND CHINA
(5-year moving averages per cent)
Source: EIU
14.0
12.0
10.0
8.0
6.0
4.0
2.0
China
29
India
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
0.0
3. Performance: growth
STRUCTURE OF GROWTH COMPARED, 1990-2000
(per cent a year)
Source: World Bank
16.0%
13.7%
14.0%
12.0%
10.4%
10.2%
10.0%
8.0%
8.0%
6.3%
6.0%
6.0%
4.1%
4.0%
3.0%
2.0%
0.0%
GDP
Agriculture
Industry
China
30
India
Services
3. Performance: growth
STRUCTURE OF GROWTH COMPARED 2000-04
(per cent a year)
12.0%
10.6%
10.0%
9.8%
9.4%
8.2%
8.0%
6.2%
6.2%
6.0%
4.0%
3.4%
2.0%
2.0%
0.0%
GDP
Agriculture
Industry
China
31
India
Services
3. Performance: growth
STRUCTURE OF GDP, 2004 (per cent)
120%
100%
80%
41%
52%
60%
40%
46%
27%
20%
21%
13%
0%
China
India
Agriculture
32
Industry
Services
3. Performance: contributions to growth
GROSS FIXED INVESTMENT
(as per cent of GDP)
50
45
40
35
30
25
20
15
10
5
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
0
China
33
India
3. Performance: contributions to growth
DECOMPOSITION OF GROWTH, 1993-2004
(percentage points)
12.0%
Source: Barry Bosworth and Susan Collins, "Accounting for Growth: Comparing China and India", January 2007
10.0%
8.0%
6.0%
8.5%
4.6%
4.0%
2.0%
1.9%
1.2%
0.0%
China
India
Employment
34
Output per worker
3. Performance: contributions to growth
GROWTH OF TOTAL FACTOR PRODUCTIVITY (percentage points)
4.5%
Source: Barry Bosworth and Susan Collins, "Accounting for Growth: Comparing China and India", January 2007
4.0%
4.0%
3.8%
3.6%
3.5%
3.0%
2.5%
2.3%
2.0%
1.6%
1.5%
1.1%
1.0%
0.5%
0.0%
1978-2004
1978-93
China
35
India
1993-2004
3. Performance: contributions to growth
CONTRIBUTIONS TO GROWTH OF OUTPUT PER WORKER,
1993-2004 (percentage points)
Source: Barry Bosworth and Susan Collins, "Accounting for Growth: Comparing China and India", January 2007
9.0%
8.0%
7.0%
6.0%
4.0%
5.0%
4.0%
3.0%
2.0%
2.3%
4.2%
1.0%
1.8%
0.0%
China
India
Physical Capital
36
Factor Productivity
3. Performance: contributions to growth
CONTRIBUTIONS TO GROWTH IN OUTPUT PER WORKER IN
AGRICULTURE (1993-2004, percentage points)
Source: Barry Bosworth and Susan Collins, Accounting for Growth: Comparing China and India
4.5%
4.0%
3.5%
1.8%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
2.1%
0.5%
0.7%
0.0%
-0.5%
China
Physical Capital
37
India
Land
Education
Factor Productivity
3. Performance: contributions to growth
CONTRIBUTIONS TO GROWTH IN OUTPUT PER WORKER IN
INDUSTRY(1993-2004, percentage points)
Source: Barry Bosworth and Susan Collins, Accounting for Growth: Comparing China and India
12.0%
10.0%
8.0%
6.2%
6.0%
4.0%
1.1%
2.0%
3.2%
1.7%
0.0%
China
Physical Capital
38
India
Education
Factor Productivity
3. Performance: contributions to growth
CONTRIBUTIONS TO GROWTH IN OUTPUT PER WORKER IN
SERVICES (1993-2004, percentage points)
6.0%
Source: Barry Bosworth and Susan Collins, Accounting for Growth: Comparing China and India
5.0%
0.9%
4.0%
3.9%
3.0%
2.0%
3.9%
1.0%
1.1%
0.0%
China
Physical Capital
39
India
Education
Factor Productivity
4. Prospects
• China has outperformed India so far
• China does have weaknesses
– A communist party-state
– Weak rule of law
• But also important strengths:
– Open economy
– High saving and investment
– High literacy
– Classic east Asian export-oriented manufacturing
– Big investment in infrastructure
40
3. Prospects
• India does have strengths:
– Stable political institutions
– A sophisticated legal system
– English as the business language
• But also weaknesses:
–
–
–
–
–
–
41
Lower investment;
Failure to industrialise;
Weaker integration into the world economy;
Misallocation of public spending and worse infrastructure;
Distorted labour markets; and
Lower literacy.
3. Prospects
Source: Goldman Sachs
GDP AT MARKET PRICES ($bns)
$100,000
$10,000
$1,000
$100
2000
2010
China
42
2020
India
Germany
2030
Japan
2040
UK
2050
US
3. Prospects
Source: Goldman Sachs
GDP PER HEAD AT CURRENT MARKET PRICES ($s)
$100,000.0
$10,000.0
$1,000.0
$100.0
2000
2010
China
43
2020
India
Germany
2030
Japan
2040
UK
2050
US
3. Prospects
• India is in an excellent position to exploit the
opportunities and, given its size, manage the risks
• Its performance has greatly improved over the past
one and a half decades.
• But China’s performance shows India could do much
better
44