CIAO DATE: 11/2009
September 2009
Although it is only since 2000 that the growing economic power of the Chinese ‘dragon’ has emerged fully into the media spotlight, its GDP has in fact been growing at an average rate of close to 10% pa for the last 30 years. On a PPP basis, China is already the second largest economy in the world. The Indian ‘elephant’, on the other hand, has grown at a more sedate pace, but following a burst in the 2000s it now has the fourth largest GDP in the world on a PPP basis and has been close to emulating Chinese growth rates. With the global economy perhaps now starting to recover slowly from the deep recession, it is possible that India is better placed than China to benefit from what may prove to be a fairly slow period of growth in the developed economies in the years ahead, with the latter’s huge exports of manufactured goods struggling to recapture the momentum of the last ten years. For China, net trade will probably be a significant drag on growth in the year ahead, while the stimulus from state-led investment may begin to peter out. In order to maintain earlier rapid growth, the Chinese economy will need to rely much more heavily on domestic demand than before, especially if global over-capacity appears in certain key industries. Despite the apparent resilience of the economy to the global recession, there are a number of question marks over whether this shift can be made quickly. India’s fundamentals have become more favourable given the rise in its service sector and climbing FDI inflows (albeit both of these remain well below Chinese levels), and its lower reliance on trade will also mean that it is less exposed to what may be a lengthy period of sluggish world demand. But it also faces problems, including an inefficient agricultural sector, a still-burdensome bureaucracy and a cautious stance towards privatisation. Its fiscal position is also much weaker than China, which may be a long-term threat to greater foreign investment.
Resource link: Can India catch up with China? [PDF] - 216K