China and India are the two most dominating forces of Asia. But frankly speaking, China is big. It is the second largest economy in the world. It is also the most populated economy in the world. India is always compared with China and in such comparisons, comes out way below China in many aspects. In 1980, the economies of China and India were almost the same in terms of gross domestic product (GDP). India’s GDP per capita was, in fact, slightly higher than that China. Then, the Chinese economy grew at an average rate of 10 per cent between 1980 and 2010, leaving India behind. In fact, Chinese manufacturing sector is presently eight times the size of India’s.
But the comparisons always keep coming, year after year. Why? Because Indians take a deep interest In China. More often than not, China is thought to be emerging as a threat and it has always puzzled the economists whether India’s economy can compare to the runaway success of its northern neighbor. Not to forget the tensions over the Sino-Indian Border, that clouds all the recent political handshakes between the two giants. It is this interest that makes this topic very very important.
I have tried to keep things simple, but it’s still a very advanced topic. So just try to skim the basic facts.
Points against China / for India:
Better Labour Workforce: According to a leading human resource consultancy giant Manpower Group, the big benefit for India is that it has a much bigger young, literate English speaking relevant workforce, which is more relevant on the global level, as compared to the Chinese young people for instance, whereas, in China, the single child policy in the past, has meant that the country has 400 million less children now. Labour shortage is already fuelling hike in labour costs, putting India into advantage.
Average Worker age: Abut 20 years ago, the average age of a worker in China was 23. That is now the age of the average worker in India today, while the average age of a worker in China has risen to 37. So India’s current young, dynamic, and maybe somewhat undisciplined, workforce is at the same age and in similar numbers to China’s 20 years ago; the very same demographics that propelled China from 11th position in global GDP rankings 20 years ago, to the 2nd spot today behind only the United States.
Chinese model of Political Business: On both the Shanghai and Shenzhen stock markets, 90 percent of the listed companies are either partially or wholly state owned. China’s banks continue to pour billions of dollars into its SOEs (State Owned Enterprises), and are likely to continue to do so as many government officials are far from impartial when it comes to their financial involvement in these companies. Business therefore, in China, is politicized, which works against the very basic of business ethics. For example : In a diplomatic spat with Japan over some islands, China’s factories “forget” to process orders bound for Japan in certain strategic industries. Consumers are warned of buying Japanese products. China uses trade as a weapon. In India, business is majorly market controlled.
Less balanced growth: Thanks to its large manufacturing base, China is too dependent on exports and investment for its growth. Many economists believe that it needs to increase the role of private consumption to make its growth more balanced. In this case, India is already where China wants to be. Consumer spending plays a much bigger role in India’s economy than in China’s. India, in fact, buys more from the rest of the world than it sells. India’s growth is thus less susceptible to shocks from the international economy.
China late on socio-economic reforms: China just finished its annual meeting of the ruling political party and announced a slew of path breaking social and economic reforms in November 2013. On the social side, the one child policy has been done away with while on the economy front caps on interest rates and Yuan convertibility have been removed. Further, steps have been taken to improve reporting standards, making local governments more accountable for its finances and freeing financial markets. Larger foreign ownership in Chinese companies has also been permitted.
All these are already present in India. Interest rates in India are market controlled. Government borrowing costs are market determined. Indian government bond market, one of the most liquid in Asia, is well regulated by the RBI and is also fully electronic. As far as equity markets are concerned, reporting standards in India have global standards. China has a long way to go to prove to the world that it is committed on reforms while India is already up there with the best on economic and financial market reforms.
Communism in China: In China, decision making takes place at the top. There are inevitable frailties in a non-democratic system because mistakes are hard to correct. There is little recourse for victims of injustice. It has been seen that Chinese are willing to sacrifice human rights for the sake of an extra percentage point or two of GDP growth. Banning companies and media etc do not show the signs of a healthy trade-friendly nation that China claims it is. Most world economies are strongly appreciative of a democratic rule that includes many political parties, systematic free elections, uncensored media, free speech, and the independent standing of the judiciary, making it a friendly business destination.
Chinese economic data suspicious: The Indian rupee is largely market determined. It depreciates and appreciates depending on the market unlike the Yuan which is a managed peg. Experts have many a time questioned China’s current account surplus due to the managed peg value of its currency. Just recently China’s National Bureau of Statistics admitted that a county government had faked economic figures. The Xinua news agency reports that local officials had induced companies to inflate figures in exchange for loans from state owned banks and the gap between the national figure and the combined local figures was 2.7 trillion Yuan ($440bn; £280bn) in 2009 and rose to 5.8 trillion Yuan in 2012. That would have added 11% to China’s total GDP in 2012-13. Poor transparency standards render Chinese economic data suspicious. India’s reporting standards may have issues but the fact is that the data are out there for everyone to see and analyze. It is easier to put out independent data analysis on India and world markets can choose the right data to look at.
Points for China/against India :
Infrastructure Development: When it comes to infrastructure development, India is way behind China, both in terms of quality and quantity. China spends about 11% of its GDP on infrastructure development, as compared to 6% of the GDP spent in India. China invested US$220.27 billion (1.346 trillion Yuan) in civil engineering and infrastructure projects in the first six months of 2013, with the National Bureau of Statistics of China claiming a year-on-year increase of more than 21%., whereas in India, The 12th Five Year Plan period of 2012-2017, targets $1.5 trillion investment, something that China will beat in just a couple of years. Better infrastructure is suited for foreign investments and economic growth.
Economic Growth: Goldman Sachs in September 2013 raised its GDP forecast for China to 7.6%, even as it slashed growth outlook for India to 4% from 6% previously. Several other foreign brokerages including CLSA, Nomura, JP Morgan and HSBC followed suit, cutting India growth estimates by up to 2% as official GDP grew at a four-year low of 4.4% in the first quarter of 2013, and other macro-economic indicators deteriorated. A signal of healthy consumer confidence in the economy is strong auto sales figures. July 2013 passenger car sales in China were up 10.5% from last year. Indian automakers on the other hand reported a 7.4% decline in passenger cars compared to the same month in 2012 with overall growth this fiscal expected to be in the negative territory. All this makes China a more profitable and stable market for investments, with a healthy consumer base.
Inflation Control: In India, the wholesale price inflation hit an 8-month high in October 2013, while retail inflation has hit the double digit mark. Goldman expects headline inflation to ease to 6 per cent range and Consumer Price Index (retail) inflation to 8.3 per cent by 2014-15, which is still way out of RBIs comfort zone. China on the other hand shows inflation anywhere between 2.7% and 3.5% upper limit.
Yuan is appreciative: A recent poll by news agency Reuters shows that Chinese Yuan will continue to appreciate as the Chinese economy improves. In fact the currency is now within kissing distance of its recent all time highs with the dollar and in line with the Chinese central bank’s decision to allow its currency to slowly appreciate. This is always a good sign for the economy when it comes to keeping check on Inflation as well as improving FDIs and FIIs. The rupee meanwhile, after a 20% plunge could have bottomed out but is unlikely to appreciate further this year says the same poll – which means inflation will continue to remain high.
Women Empowerment: Not just economic performance, China is ahead of India when it comes to social causes as well. Recent studies have ranked China at No.61 in terms of gender equality as against India’s 113 among 134 nations. In another attribute – economic empowerment of women – China is holds the No.50 spot, compared to India’s 131 today. Labour force participation by women in China is 74 per cent, while it is just 34 per cent in India. In women’s education, China is at No.85, against India’s 121. Women, as of 2011, are also deemed eligible for military combat by the Chinese government, which is not the case in India.
Quality of Life: The far greater gap between India and China is in the provision of essential public services, a failing that depresses living standards and is a persistent drag on growth. Inequality is high in both countries, but China has done far more than India to raise life expectancy, expand general education and secure health care for its people. India has elite schools of varying degrees of excellence for the privileged, but among all Indians, nearly one in every five males and one in every three females are illiterate. And most schools are of low quality; less than half the children can divide 20 by 5, even after four years of schooling. Chinese boasts of 95% literacy rate. India may be the world’s largest producer of generic medicine, but its health care system is an unregulated mess. The poor have to rely on low-quality and sometimes exploitative private medical care, because there isn’t enough decent public care. While China devotes 2.7 % of its gross domestic product to government spending on health care, India allots only 1.2 % of the already dwindling GDP.
There are many other factors on which we can compare India and China, but owing to the huge capital investments and ever increasing GDP, China is likely to perform way better. It has made sure that the one party rule doesn’t transform fully into an archaic rule and the recent socio-economic reforms and past performance by China are stepping stones into making it a worth noticing economy by the international community. However, another striking difference between India and China is the demographic dividend, as India’s youth bulge coincides with the greying of China. While India’s workforce will increase by 110 million over the next decade, China’s will increase by less than 20 million. This could push Indian growth rates ahead of China’s, making it a peer. For a sustainable growth, both countries should strengthen relations, to foster trade in the whole of Asia. There is too much to learn from one another.
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