Development Race: China and India

It will be nice if India can catch up with China.  We don't know the
full consequences but it is probably good.  The key phrase is 'India
is on the cusp of something big' which is the position Indian had been
stuck at for the past 60 years.


Tiger economies are snapping at US heelsBut it's not clear whether
Beijing or New Delhi will catch up first

Richard Wachman 
The Observer, 

China and India and are moving toward becoming the biggest economies
in the world: with 2.4bn people, or 40 per cent of the world's
population and annual GDP growth rates of between 8 per cent and 10
per cent, experts say that they could one day overtake the US.

Professor Pieter Bottelier, of the Centre for Strategic International
Studies, says: 'If these two countries continue to grow at the current
rate, they will overtake America, although that probably won't happen
for a number of decades.'

The countries are very different politically: India is the world's
biggest democracy, but China is under tight communist government
control. Economically, China has had a head start. Bill Emmott, former
editor of the Economist, says in his book 'Rivals' that India's time
has yet to come; to date it has been constrained by a poor
infrastructure, social divisions, a caste system and mind-boggling
poverty. But it is fast making up for lost time and no doubt Emmott
wouldn't disagree with Steven Roach at US investment bank Morgan
Stanley that 'India is on the cusp of something big'.

Bottelier says the challenges the countries face are quite distinct.
'Generally, China has gone much further than India in trade
liberalisation and in opening to foreign investment.' But he says
things are starting to change. 

Bottelier adds: 'Issues facing India are much more broad-based, such
as improvement in infrastructure and facilities, effective
administration and labour reforms. Minus points for China include a
lack of good quality software, a low pro****tion of Chinese who speak
English and a less mature outsourcing industry.'

India is hamstrung by bureaucracy: 'When the Chinese say they are
going to do something, they get on with it and you can see the results
much more quickly than in India where red tape is everywhere,' says
one analyst. On the other hand, the huge increase in trade between the
two nations has fuelled talk of the 'Chindia' effect.

In 2006, trade between India and China reached $18.4bn. However, there
is still mutual distrust. India remains suspicious of China's
relation****p with arch-rival Pakistan, while China is concerned about
New Delhi's growing ties with Wa****ngton, especially their nuclear
agreement allowing India access to civilian nuclear technology. 

Observers expect the US to deepen its ties with India, which
Wa****ngton views as a counterweight to China. America's relations with
the Chinese are more strained as a result of tension over Tibet and
Taiwan, not to mention the obvious ideological political divide. But
that hasn't stopped US companies investing heavily in China, more so
than British ones which have been quicker to spot op****tunities in
India, perhaps because of their historic affinity.

But these days investors tend to get more excited about India than
China. True, a superficial look would argue in China's favour: its
world class infrastructure, gleaming skyscrapers, huge supply of cheap
labour and ability to direct resources anywhere they are needed.
However, a re****t from Bloomberg says: 'For all the stories about
China churning out millions of engineers and scientists, innovation
isn't at the heart of the economy. Foreign investment and massive
government spending, not ideas or start-ups, lie behind China's boom.'
There is a dearth of internationally known Chinese companies that
operate on a global scale and market their products abroad.

In contrast, India has fostered globally known and competitive firms
like Infosys and Reliant Industries, and has done a better job
protecting intellectual property rights. China may get more headlines,
yet the steady increase of Indian billionaires (Lakshmi Mittal, to
name but one) is a reminder that India's markets are more developed.
The demographics also favour India which has younger population. 

A re****t by Deutsche Bank cites surveys indicating that India has
better cor****ate governance standards and its companies are more
commercially driven. The bank adds: 'Although India started economic
reforms a decade later than China, it is far more advanced in its
institutional and financial infrastructure. This is reflected in
contrasting outcomes: foreign direct investment is considerably lower
than in China, but returns on investment are better on average.'

A new measure of world economies, published by the International
Monetary Fund, indicates that China and India are closing the gap on
America. In a measure of purchasing power parity, adjusted to take
account of exchange rates, the US is ranked at the top with $13
trillion, China is a close second at nearly $10 trillion, while India
is fourth with $4.2 trillion, behind Japan. 

The Indian academic Jagdish Sheth expects China to become the world's
biggest economy by 2020, and India to overtake Japan to become the
third biggest in just two years' time. That sets the stage for the
next leg of the race between China and India in what promises to be
one of the most dramatic developments of the 21st century.