It’s the season for India versus China
The next Economist, or at least the Asian one, is going to have “Contest of the Century: India versus China” as its cover. I just reviewed a book on India vs China by an Indian businessman. And there are more than a few oped items on this issue in the media.
What gives? Personally I think it’s largely about the fact it’s August. “The month nothing happens,” as an article in the Guardian UK recently noted. So media turn to lists of things. Predictions. Big picture stuff like India vs China. Especially since the future of Obama, future of Pakistan, future of climate change and so on have been done to death.
Otherwise, almost anyone you ask, including any Indian who’s actually been to China, will say there’s no contest. China is roughly four to five times wealthier, has done more on infrastructure – social and physical, has piled up huge mountains of cash, and has a political leadership who have effectively transformed into an executive class.
Besides it being the silly season let me list why a minority are suddenly talking about their actually being a fight.
One, is a very real expectation India’s economic growth rate will overtake that of China’s in a decade or so. India has to get a few things right, not too much, to push its growth rate from its present 8.5 per cent to about 10 per cent. Control government red ink. Pass the GST, unifying the country’s disparate revenue systems. Let its manufacturing sector continue to move, as it is, rapidly up the value ladder. And at least get some infrastructure right – power I think is doable in the coming five years. Mathematically that should be enough. China, on the other hand, can be expected to sink to about nine or 10 per cent as its ageing population begins to hoard money for their retirement.
Once India begins growing even a little bit faster, the gap between the two will shrink rapidly. India may never overtake. But it may be just a few steps rather than many leagues behind.Two, is the real economic difference between India and China is that one has a world class government while the other has a world class corporate sector.
By all accounts, the biggest Chinese firms are, inside, poorly managed and often little more than extensions of the government. India has come up with globally competitive industries at a remarkable rate. Its government is hopelessly dysfunctional.
Which will triumph in the long run? Looking at the historical experience of the United States, I would argue it is the corporate sector that matters the most. Not least because it transforms the state along the way. The state tends to suffocate the private sector if given half a chance.
Three, the biggest but not to be exaggerated risk is that the Chinese state has none of the resilience of the Indian democratic system. It is efficient because it cannot afford to be. If Beijing is perceived to have failed, all hell breaks loose on the streets. In New Delhi they wait for the next election.
This has been known but the argument was the Chinese Communist Party was too smart to make that sort of misstep. But I’m now seeing a lot of China watchers wondering if that is true. The party has made missteps and big ones. It is struggling with a needed economic transition because it can’t figure out how to sell the policy. It has also been unable to resist throwing its weight around the region, stirring up some anti-China geopolitical balancing. So we are seeing the rise of a school of China bears. They see speculative bubbles, poor demographics, a bloated heavy industry sector, bad geopolitical ploys and social unrest coupled with mediocre leaders. It is fair to say the Indian bulls are still pretty rare but the China negatives are at least raising questions.
As one China watcher told me, “The Chinese leadership know their growth rate is going to fall. And they worry about India beating them one day. But they calculate New Delhi will make a hash of it and miss the chance.”
Let me put it another way. China has some big flaws in the structure of its economy and polity. But it combines a decisive and far-seeing leadership with oodles of money to cover up and repair these flaws. If you doubt the leaders and the stash shrinks, then all these mistakes become serious. Which is why China is suddenly finding itself being thrown in the same league as India, at least speculatively. But the speculation has a core of empiricism in it.I went back and read a book or two about China during the early phase of its reforms. It was like reading about India. And this was all true until about 2002 or so. Not so far behind.