The coming tide of Chinese power


by El Cid
21st January, 2006 at 3:56 am    

We knew it was coming but it still caught the eye when the news landed last month. Due to a statistical revision of 2004 GDP data China is now officially the world’s sixth-biggest economy.

Since China is the fastest-growing major economy and the closely controlled yuan currency was recently revalued, it is a virtual certainty that the country will leap-frog France and Britain into fourth place once the 2005 numbers are formally released this year.

On balance, the rise of China is surely good news for the human race because it suggests that the lives of a quarter or so of our kith and kin are catching up and improving economically.

But it also presents challenges – particularly for the global environment and for global security. Chinese culture is firmly rooted – it is one of the world’s great civilizations. The Chinese are natural-born problem solvers. So I’m hopeful. But the question remains: how will an economically powerful yet undemocratic China behave in the future?

We’ve already seen how berserk China can get over Taiwan and how immaturely it behaved over the SARS outbreak, but it has also behaved more responsibly in the case of bird flu and North Korea.

The dilemma is that a one-party polity hasn’t got the wherewithal to change internally unless there are political tensions, and those tensions aren’t likely to arise unless there is major social instability as millions of rural Chinese flock to the cities in search of work and the economy malfunctions.

Those tensions, in turn, are also more likely to lead to repression or foreign policy diversions rather than democratic reforms or a people’s revolution because the communist Chinese state isn’t on its last legs but has been reinvigorated by the economic reforms first unleashed by Deng Xiaoping, unlike the Soviet Union in the 1980s.

Yet, it’s probably in all our interests that the Chinese economy continues to expand.

Like India — currently the world’s tenth-biggest economy — China has plenty of catching up to do. Europe’s five biggest economies have a combined population that is barely one-fifth of China’s and yet their combined GDP is five times bigger than the Chinese economy’s. Compared with India, the population of Europe’s big 5 is more than four times smaller while the combined economic output is 14 times bigger.

But just as Spain was classified as a third world country barely 30 years ago and is now the world’s eighth biggest economy, catch up India and China surely will.

Since free flow of trade, capital and ideas is the common denominator, I don’t think the West need worry.

Worries about unfair, cut-throat Asian competition and lost jobs are surely offset by the long-term opportunities proffered by these new Asian super markets and by the fact that it has helped — together with the Internet — to keep a lid on global inflation and, by extension, global interest rates, thereby sustaining long-term growth everywhere.

(To paraphrase the Sage of Omaha — A rising tide of liquidity gives everyone a lift; It’s only when the tide goes out that you can find out who isn’t wearing any pants).

The old left might not like it and many might struggle to adapt but flexible labour markets, (re)training, perpetual innovation and shifts up the value chain in the West are necessary for the greater good of global economic development. There is nothing socialist in just looking after narrow syndicalist interests at the expense of the greater good, even if labour ought to be defended against the excesses of capitalism.

We can only hope that the example of Hong Kong, a growing middle class, and exposure to outside influences gradually loosens up China’s political apparatus. We can also only hope that technological innovation and a greater awareness help to address the environmental side-effects of China’s and India’s belated economic re-awaking.
——————–
This is a guest article by El Cid. He blogs on zones2and3


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  1. raz — on 21st January, 2006 at 5:32 am  

    It’s a really sobering fact for us in the subcontinent to see the progress made by China. While China continues its march towards becoming a new global power, the likes of India, Pakistan and Bangladesh are still firmly rooted in the third world. Moe than half of the worlds poor live in the subcontinent. Shameful.

  2. Vikrant — on 21st January, 2006 at 9:30 am  

    pfrrrt… India ‘n Pkaistan aint in same league dude.

  3. Vikrant — on 21st January, 2006 at 9:43 am  

    Though at same time i’d agree that China beats India hands down at everything except Software(where its givin India a run fer its money) and English.

  4. Neil — on 21st January, 2006 at 9:50 am  

    China is definitely making greater strides forward then India, but both countries have desperate need for affordable energy sources and the recent agreement between India and China to not compete excessively for the same reserves is a step forward.

    India still doing ok though but really needs some sort of agricultural reform to drag its large rural population into the money as well.

  5. raz — on 21st January, 2006 at 10:50 am  

    GNI per capita:

    China: $1290
    India: $620
    Pakistan: $600
    Bangladesh: $440

    Poverty (population living on under $1 a day)

    Bangladesh: 36%
    India: 35%
    China: 17%
    Pakistan: 13%

    Shameful. No wonder South Asia is regarded as one of the poorest, most backward regions on earth, along with sub-saharan Africa. Lets hope the 21st century will bring new hope for the poor of the subcontinent. The Chinese aren’t a great deal better off at the moment, but they’re making rapid proress. Let’s hope we can emulate their fine example.

    source United Nations:

    http://www.unicef.org/infobycountry/china_statistics.html
    http://www.unicef.org/infobycountry/india_india_statistics.html
    http://www.unicef.org/infobycountry/pakistan_pakistan_statistics.html
    http://www.unicef.org/infobycountry/bangladesh_bangladesh_statistics.html

  6. SURAJ — on 21st January, 2006 at 11:34 am  

    ITS A GREAT EFFORT PUT DOWN THE CHINESE PEOPLE WHICH MADE CHINA THE FASTES GROWING ECONOMY.INDIA IS ALSO ON THE BACK SEAT AND HOPE INDIA WILL ALSO EMERGE AS WINNER IN RACE.BUT I SEE MANY POLITICIAN IN INDIA STILL SAYING GO ACCORDING TO COMMUNIST POLICIES AND U WIN THE RACE AND THATS HOW CHINA DID BUT I WOULD LIKE TO REMIND THAT CHINA NEVER STAND STUFF ON ITS OLDCOMMUNIST POLICIES BUT STILL WHENEVER IT NEEDS A CHANGE THEY MORDERNISE THEIR OWN OLDER POLICIES FOR THE PROFIT OF COUNTRY.SO LETS ALL TRY TO DEVELOP OUR NATIONS NOT ONLY ON GOING ON OUR FORE FATHERS POLICIES INSTEAD BY STUDYING THE GOOD FROM THEM AND THROWING AWAY THE OLD.

  7. Sunny — on 21st January, 2006 at 12:33 pm  

    Suraj – please stop using capital letters, its really annoying to read.

    Vikrant – your defensiveness is embarassing and usually peperred with little idea of reality. Just because a few software engineers are doing well doesn’t mean the vast majority of Indians who still live in villages are suddenly seeing a big improvement to their lives. Get over it.

    This talk about overtaking China is pure fantasy unless something drastic is done about the political class.

  8. Geezer — on 21st January, 2006 at 12:44 pm  

    Neil from what I have seen China is outtbidding India at every possible opportunity for energy contracts….

    In overseas bidding efforts since 2004, Indian firms have faced competition from Chinese firms and in three different instances India lost to China in the race to secure overseas hydrocarbon assets. Angola was the first instance, where India bid for 50 per cent stake of Shell in Angola’s Block 18 field. In the $600 million offer, India had promised to include $200 million to support Angola’s ongoing railway construction project. This was outbid by China with a $2 billion offer. The bidding competition again surfaced when India wanted to buy the stake of Petrokazakhstan — a Canadian oil firm operating in Kazakhstan. In this case as well, China won the deal by offering $4.2 billion to Petrokhazakhstan against India’s offer of $3.9 billion. The third incident was in the case of India’s energy interest in Ecuador, where India and China competed for Encana’s stakes. China proved to be the winner in this race as well.

  9. Sandeep — on 21st January, 2006 at 12:48 pm  

    Sunny

    India has a lot to do, for sure, but lets be honest, can you really classify India with its nascent potential, growth rates, boom in info-tech industries, slow but steady opening up to global markets and the trend of economic liberalisation, to Pakistan? It is all about direction, investment and economic reality. That India has to drag Bihar and other third world states up with it as she strives to forge a place in the knowledge economy makes things tougher, but it doesnt mean we have to look at our feet shamefacedly and not acknowledge the positive things that are happening in the Indian economy as markets open and are opened.

    India is not Pakistan – they separated a long time ago for mutual benefit and it is time they stopped being classified together in economic prognosis and comparisons.

    India has the world to aspire to.

  10. raz — on 21st January, 2006 at 1:04 pm  

    Sandeep take a look at those statistics I posted above. Then you will see why economic jingoism is so pointless in the South Asian context. As I said before, more than half the worlds poor live in South Asia. Until we Asians drop this middle class attitude that ‘oh we have doctors and engineers and programmers’ and realise the plight of so many hundreds of millions of poor Asians that are scraping just to eat, then we will forever be backward in comparison to the rest of the world.

  11. Sandeep — on 21st January, 2006 at 1:29 pm  

    raz

    It is not economic jingoism to seek to improve the lives of all Indians by the steady growth of the economy, the nurturing of info-tech industry, investment in education and science, economic liberalisation. For anyone to deny that changes are happening, that the Indian economy is unrecognisable from what it was twenty years ago, and to characterise this as jingoism, is myopic to say the least. And it is simply a fact – I cannot see how the route and direction that India is taking economically, the cross political consensus that has grown on how the Indian poor can slowly reap the benefits of the growing middle class on India’s economy can be compared with what is happening in say Pakistan (Manmohan Singh, the reformer of India’s economy since the 1990′s, constantly talks of the need to include all the poor in the steady growth of the economy) – please tell me – how is the wealth to help the poor and illiterate out of their rut going to be created in the modern world? Have you invented a rich pill that gives people money and food? How is India going to compete unless it aspires to be a competitor in the world economy, as an equal in software, info-tech, bio-tech, high-tech industries? Do you have any idea?

    For you to characterise the asking of these questions as ‘economic jingoism’ is perplexing. What should Indians do, stare at the feet and bow their heads and rub trheir hands in shame and condemn themselves to guilt trips because of their poor? What are we going to do to help them? Unless you aspire, you go nowhere. India is looking at the right map, and for once, is moving in the right direction.

    I really dont see any confluence in the way India and Pakistan are developing in economic or institutional terms.

  12. Sandeep — on 21st January, 2006 at 1:33 pm  

    The Indian Prime Minister, Dr Manmohan Singh, in an interview from Time Magazine:

    ++++

    TIME:

    What do you consider your biggest challenge?

    Singh:

    The biggest problem in India is to get rid of chronic poverty and infectious disease, which still afflict millions and millions. This should be done by development and democracy, ensuring we move forward on the road to development and empower people to lead a life of dignity and self-respect. In that way, India’s development is unique. There aren’t many countries in the world which have undergone a social and economic revolution in the framework of a democracy. It’s the biggest experiment in world history.

    +++++

    No doubt, some people would categorise Dr Singh as an ‘economic jingoist’ too.

  13. Sandeep — on 21st January, 2006 at 1:39 pm  

    More from Prime Minister Manmohan Singh on the comparison between India and China:

    +++++

    TIME:

    How do you keep up with China?

    Singh:

    I admire a lot of what is going on in China, but India cannot become China. Within our own institutions, we are trying to provide as hospitable environment for investment—domestic and foreign—as we can. Comparisons are odious. I do not see India as most corrupt or our bureaucracy as most ineffective. Infrastructure is a big problem. [It's] not on par with our competitors’. As far as inefficiency and corruption is concerned, there is no short answer to that. But we cannot afford it. Currently the Indian economy is growing at around 6%. But 7.5-8% is the goal for the next five years.

    +++++

    http://www.time.com/time/asia/2004/india_singh/interview.html

    One more thing – India works as an imperfect democracy. It is corrupt and backwards and imperfect, but when a government is voted out – it gets out and a new set of people come in. When the BJP were expected to win the last election with their ‘India Shining’ campaign they were kicked out of office by the poor of India. At this basic level, democracy means that the masses cannot be ignored, and no party can take the poor for granted. This is the context in which the Indian economy has to operate. Over decades, generations, these institutions will become more nimble, transparent. I have no doubt that they will be major factors in the improvement of Indian lives. Will China still be a dictatorship? How to factor into these predictions these aspects?

    India has the democratic will of its people to consider when it makes its economic policies. But this is not weakness. It will be India’s ultimate strength in this century.

  14. Sunny — on 21st January, 2006 at 1:52 pm  

    Prime Ministers since the day of Nehru and Indira “garibi hatao” Gandhi have been talking about poverty, but have little in the way of effective policies of dealing with it.

    India has changed tremendously since 91, no doubt about it… but that mostly applies to the urban classes, not the villagers.

    All I’m saying is, the BJP had the same idea with their ‘India is Shining’ campaign and the people told them that their own version of India wasn’t shining so brightly. So while I have optimism, I wouldn’t start getting ahead of myself just as yet.

  15. raz — on 21st January, 2006 at 1:56 pm  

    “I really dont see any confluence in the way India and Pakistan are developing”

    What apart from the fact that they have a similar low GNI per capita ($620 vs $600), massive amount of poverty and similar economic growth rates (around 8%) ? Attitudes like yours as the reason South Asians are so backward. Instead of sniping at your neighbours you should look for inspiration. China has left the subcontinent behind – we should follow their example instead of indulging in the petty ‘my country is better than yours’ nonsense peddalled by the likes of you and Vikrant.

  16. Sandeep — on 21st January, 2006 at 2:11 pm  

    raz

    Did you actually read my posts? Can you explain to me how the trajectory of the Indian and Pakistani economies can be compared? What causes this angst that you resort to strange name calling when I ask a few simple questions – like how is India supposed to generate wealth without competing and seeking to create middle class wealth which is generated by the expansion of a high tech economy along all her other industries? This is about future positioning and direction. This is not jingoism – this is reality and how the world changes and how India will improve the lives of her people.

    Do you consider Dr Manmohan Singh to be an economic jingoist? Read what he says carefully without prejudice, read my lines without prejudice too, and then come back to me. In particular pay attention to the two extracts from the interviews with Sardar Manmohan Singh from TIME magazine.

    Sunny

    I really do not think you are saying anything different from me – and I really do not think that you can compare the statist India of Indira’s faribi-hatao phase with what is happening now. Simply, no comparison.

  17. Sunny — on 21st January, 2006 at 3:31 pm  

    I really do not think that you can compare the statist India of Indira’s faribi-hatao phase with what is happening now.

    The problems they identified were/are the same and the goals are the same. The only difference is of course that Indira Gandhi’s means of eradicating poverty was to create the state controlled “License Raj” while Manmohan Singh hopes to instead de-regulate the country and let free-market capitalism lift people out of poverty.

    From an economist’s perspective it is a big issue, and having been an economist I know what you’re saying. But my point is right now in absolute terms we are not that far ahead. The groundwork is being laid down for future expansion, but I’m not convinced this is the best way to lift the hundreds of millions out of poverty in a way China has done.

    Interestingly, while China has allowed more capitalism to drive the economy, it is still dominated by state owned enterprises that employ the vast majority of people. It has also done more to engineer this industrialisation (deliberate investment in basic infrastructure like roads and electricity for example) than India.

    So yeah, the beloved country is slowly lumbering towards the light at the end of the tunnel but the journey will remain excruciatingly slow for many like me and is driven by a set of priorities (aimed at urbanites) that I’m not 100% comfortable with.

  18. jamal — on 21st January, 2006 at 3:40 pm  

    I recently read that China jailed a man from writing on the internet that China was planning to convieniently forget the commemoration of the tiannimen sq massacre.

  19. Don — on 21st January, 2006 at 3:45 pm  

    Jamal,

    Not only was he jailed, he was informed upon by Yahoo;

    http://www.washingtonpost.com/wp-dyn/content/article/2006/01/18/AR2006011801875.html

    There is a thread on this over at Harry’s Place, should you be interested.

  20. raz — on 21st January, 2006 at 3:57 pm  

    You’re not making any sense Sandeep. Look at your quotes:

    “can you really classify India with its nascent potential, growth rates, boom in info-tech industries, slow but steady opening up to global markets and the trend of economic liberalisation, to Pakistan”

    All of these things apply to Pakistan as well (which actually has a higher economic growth rate than India at the moment) so I don’t have a clue what you’re talking about.

    “India has the world to aspire to”

    And Pakistan doesn’t? Looks like you’re nothing but a bigot. This is what the director of the World Bank had to say about Pakistan recently:

    http://www.pakistantimes.net/2005/11/22/business1.htm

    Of course, this is all irrelevant to my main point, which is that whatever progress Pakistan and India are making, its by no means enough. More than half the worlds poor live in the subcontinent – 400 million in India alone. Until this problem starts being addressed – in concrete terms – noone in South Asia has anything to be crowing about. Countries like Japan, South Korea and now China have lead the way, its up to the leaders of India, Pakistan and others to drag the subcontinent out of the gutters and up with the rest of Asia.

  21. Vikrant — on 21st January, 2006 at 5:36 pm  

    raz one sane advise, dont mess with Sandeep. Look even El Cid recognises India as a significant economy. Recently India was an invitee to an EU economic summit. Pakistan’s industries are no where near or as diversified as India’s. Call it economic jingoism if you like… face it dude… its the reality.

    P.S I’m still awaiting your reply on Pankaj Mishra at the other thread.

  22. Vikrant — on 21st January, 2006 at 5:40 pm  

    @Sandeep: Are the same Sandeep from sandeepweb?

  23. Vikrant — on 21st January, 2006 at 5:44 pm  

    Raz prolly you dont read financial newpapers these days.

  24. Sunny — on 21st January, 2006 at 7:34 pm  

    Oh for god’s sake Vikram, put your adolescent dick away and stop waving it around.

    There are two principle ways of measuring economic development.

    One is the size of the GDP. Due to the size of the Indian and Chinese population and the fact that both have a growing middle class, the absolute value of the Indian/Chinese GDP is going to be big. This is because those 100s of millions want food and clothing and that is manufacturing / service output, which is the GDP.

    The other way is to look at people’s earnings or purchasing power parity, and see how relatively well off they are, usually denominated in dollars.

    In the first category, for obvious reasons of population size, India is a significantly sized economy on the world stage. Same goes for China. In fact if the populations of both were about 100 million or so, no one would care about the Ch-India question.

    Going by the second category, Pakistanis on average are more well off – a point Raz is trying to make.

    You’re confusing different ways of measuring achievement. Please stop having this obtuse discussion – it doesn’t show that you’re intelligent. Its just the kind of jingoism I wanted to avoid by having a sensible discussion on issues that matter.

    Fucking Indians and Pakistanis come over here and all they’re obsessed about is each other. Well, some of us want to have a wider discussion thanks. That was the real point of El Cid’s article.

  25. Rohin — on 21st January, 2006 at 8:00 pm  

    I also have no desire to get embroiled in an India and Pakistan pissing contest, but Raz I have to object to one thing. You know I’ve written about China on here before and I am no stranger to the stats, so I have no qualms with saying China is leagues ahead of India in most things.

    But when you say: “While China continues its march towards becoming a new global power, the likes of India, Pakistan and Bangladesh are still firmly rooted in the third world” it’s a bit omissive. India and Pakistan ARE rooted in the developing world, but despite all of China’s achievements, one can hardly say it’s left its less developed side behind. I don’t recall any South Asian gov’t advocated killing poor people who refuse to move house…but China’s “making far greater progress”, right?

    And lastly, you know better than to take any Asian domestic statistic (i.e. announced by a government as opposed to an international body) at face value, especially Chinese.

  26. Rohin — on 21st January, 2006 at 8:02 pm  

    Oh and nice article El Cid, although perhaps a little more upbeat than my own personal opinion.

  27. shiva — on 21st January, 2006 at 9:25 pm  

    Raz,

    What is the secret of Pakistan’s success? Tell us.

  28. raz — on 21st January, 2006 at 9:33 pm  

    A few points,

    Sunny,

    I had NO intention of any Indo-Pakistani conflict on this thread – my original posts back this up. I was pointing out how Pakistan, India (AND Bangladesh) should learn a lesson from the rapid progress China has been making. It’s a shame how some people like Vikrant and Sandeep see even mentioning Pakistan/Bangladesh in the same breath as India as an insult. Says a lot about their mentality.

    Rohin,

    To be fair, if you read my post earlier I did mention (my exact words) “The Chinese aren’t a great deal better off at the moment, but they’re making rapid proress”. There’s no doubt that China itself has a long way to go before it can compare to the TRUE success stories of Asia – Japan and South Korea. But they are on their way, and I think all of us can appreciate that, in time, China is going to be a major global force. Hopefully, one day India and Pakistan can join them – but that is a long way away.

    Personally, as a South Asian, I do feel a sense of shame at the level of poverty and lack of development in our region. Our countries have NOT lived up to their undoubted potential so far – lets hope this century brings better results.

    Vikrant, you’re really getting boring now. And its not just me that’s saying it. Do you actually have a constructive reason to be on this blog?

  29. raz — on 21st January, 2006 at 9:39 pm  

    Shiva,

    What success? What the fuck are you talking about you?! READ what I posted at the start of this thread – here I’ll quote it for you with the salient bits highlighted for you (limited) comprehension:

    “It’s a really sobering fact for us in the subcontinent to see the progress made by China. While China continues its march towards becoming a new global power, the likes of India, PAKISTAN and Bangladesh are still firmly rooted in the third world. Moe than half of the worlds poor live in the subcontinent. Shameful”

    “Shameful. No wonder SOUTH ASIA is regarded as one of the poorest, most backward regions on earth, along with sub-saharan Africa. Lets hope the 21st century will bring new hope for the poor of the subcontinent. The Chinese aren’t a great deal better off at the moment, but they’re making rapid proress. Let’s hope WE can emulate their fine example”

  30. Sandeep — on 21st January, 2006 at 10:05 pm  

    Raz

    I have to say you have amused me.

    I really dont know why you have so many ants in your pants and why you are so highly strung and start throwing insults around calling me a bigot just because I cannot see the point in classifying India with Pakistan when it comes to issues of economics, especially regarding the specific dynamics and pressures and opportunities facing the Indian economy.

    It is evident that you have not read my posts with anything other than a skewed eye and it is obvious that we are not communicating – you are ranting, and talking in bad faith. So I wont bother inviting you to retract your cheap slander.

    All of my points stand true and correct.

  31. raz — on 21st January, 2006 at 10:09 pm  

    Glad to see you completely avoided the questions I asked
    But why let facts get in the way of your ignorance :)

  32. Sandeep — on 21st January, 2006 at 10:20 pm  

    Raz

    Please read my two previous posts and you will have your questions answered. It is my belief that the Indian economy faces pressures, opportunities, historical challenges and dynamics that are India specific. In particular, read what I have written about India’s democractic and governmental institutions, how they limit the remit of government economic policy, how they contrast with the statist capitalism of China, how ultimately I believe this, whilst in many ways tempering the Indian economy with coalition politics and other factors, at the same time provides an opportunity for the poor to make their voice heard in a manner that simply cannot be done in China.

    These are some of the issues that have to be acknowledged when comparing the Indian and Chinese economies.

    So whilst the rate of growth is slow, ultimately, these institutions will turn out to be India’s greatest strength. It is a point that Manmohan Singh makes. It is another reason why I cannot see similarities or a corrolation in the medium to long term between the Indian and Pakistani economy.

    And I leave you with a quote from Prime Minister Manmohan Singh, one with which I fully identify myself with:

    +++++++

    The biggest problem in India is to get rid of chronic poverty and infectious disease, which still afflict millions and millions. This should be done by development and democracy, ensuring we move forward on the road to development and empower people to lead a life of dignity and self-respect. In that way, India’s development is unique. There aren’t many countries in the world which have undergone a social and economic revolution in the framework of a democracy. It’s the biggest experiment in world history.

  33. Sandeep — on 21st January, 2006 at 10:32 pm  

    Sunny

    But my point is right now in absolute terms we are not that far ahead. The groundwork is being laid down for future expansion, but I’m not convinced this is the best way to lift the hundreds of millions out of poverty in a way China has done.

    What scope does India have to act as China has done? India has to do it her own way, under the restraints of her own polity. It is a slow start and I acknowledge your cautiousness to stave off the ‘India Shining’ complacency, but now is the time to support these foundations that are being laid down.

    Your point about state spending on infrastructure projects is something that I would like to know more about. It is definitely needed. Not only for short to medium term job creation, but because without basic infrastructure India will always lag behind.

    What Manmohan Singh has said is true – I cannot think of another example of a society attempting to do what India is doing now, especially now that a consensus on direction has started to form – to integrate an economy into a global economic system on the basis of high tech, knowledge workers, whilst carrying at the same time, and trying to alleviate, a large population mired in poverty. It will take generations. But there is one thing we should never deny people – that is the opportunity to participate in the growth of the Indian economy. To keep the wealth flowing downwards will be the key to harmonising the Indian economy with its people. This is the challenge – but can you think of any model in history for this, that has been attempted with the polity, the size, and the extremities of poverty and wealth that India has?

  34. Siddharth — on 21st January, 2006 at 10:38 pm  

    Interesting article. Would be interested to know if there’s a Chinese group blog that discusses Chinese politics in English.

  35. Rohin — on 21st January, 2006 at 10:49 pm  
  36. FOB — on 22nd January, 2006 at 1:32 am  

    The Chinese economic model is based on massive foriegn investment and very inefficient use of capital.In comparison, India uses capital much more efficiently and grows at only 1-2% less.The Indian economic miracle is also based in large part on homegrown entrepreneurship.
    There are parts of India paritcularyl the South, West and Punjab , Haryana and Delhi in the North which have per capita GDP of mid-level countires like Thailand.It is the BIMARU states that drag down the Indian per capita figures .
    What India needs to do and in fact has started doing is addressing infrastructure concerns.The Golden quad highway project, upgradation of ports and railways and expolsive growth in aviation are going to totally revolutionize Indian infrastructure. FDI in retail has been approved and modern construction standards are the norm in India. Just FYI, I worked in India’s top IT company and the infrastructure that we had access to was better than most companies in the US where I now work.
    According to various forecasts, India is likely to emerge as the 3rd largest economy by the first quarter of this century and is eventually expected to be the largest and overtake China too because of the demographic dividend of a very young population compared to China’s.

  37. Sunny — on 22nd January, 2006 at 1:58 am  

    What is the BIMARU states? First time I’ve heard that phrase…

    Sandeep: While I like Manmohan Singh, I do believe he is exaggerating slightly America was a democracy almost from the start as it developed into a modern economy, while taking in and successfully absorbing millions of immigrants throughout (and continues to do so).

    South Korea and Taiwan are democracies, if rather more consensual than the turbulent times we have had. Even Japan developed since 1950 (with a much much smaller industrial base) as a democracy and overtook us ages ago.

    So one could say, yeah its a rather big experiment, but I wouldn’t say India is the only democracy to have tried it. I’m not sure what “social revolution” he is referring to, but for example… Japan had to get over two nukes on its cities and having lost a world war with great humiliation. I’d say that was bad enough. South Korea and Taiwan have developed more recently, doing the same (trying to tap into the global knowledge economy) while dealing with potential problems (North Korea and China respectively).

    I don’t want to give too much credence to Singh because he doesn’t have much of a specific plan to lift people out of poverty either.

    The general theory in vogue is the Milton Friedman “trickle down effect”. Everyone hopes that as the top strata does well, the benefits will trickle down.

    Unfortunately it has never really worked like that, and the danger is you lead to more social unrest. India has never been more unequal and every day it grows more unequal. That is asking for trouble.

    YEah I sound like a pessimist, but that’s because I don’t buy the trickle down theory so readily despite growing up on a diet of The Economist :)

    The way out is hardcore investment into infrastructure – so much so that they become cheap and accessible to the poorest of the poor – not privatise the damn companies but to make them efficient and expand their activities. But little of that is happening.

  38. Sandeep — on 22nd January, 2006 at 2:34 am  

    Sunny

    But look at India’s social stratifications and backwardness, it’s religiosity and patriarchy. Put all that in a mix, a country almost the size of a continent, with one billion people, and the scale of India’s problems, and potential, differentiates it.

    I am with you on the dangers of trickle down not trickling down – your point about massive capital spending on infrastructure and education to ensure as much as possible equality of opportunity is something I agree with.

  39. FOB — on 22nd January, 2006 at 2:38 am  

    BIMARU = Bihar Madhya Pradesh Rajasthan UP, also known as the cow belt or the Hindi heartland…
    actually even Rajasthan and MP are doing much better now, its only Bihar and UP that remain a problem.UP alone has 120 million + people and Bihar around 60-70 million.

    M.Singh was the best Finance minister we ever had and will be one of our best PMs toot.He has the support and respect of people in India across idelogical lines.

    I agree with Sandeep’s contention that India is the wrolds biggest and most important social experiment.Japan , South Korea and Taiwan all had an American security guarantee and are under the nuclear umbrella, which allowed them to focus on development solely.They also benefitted from massive American aid and investment.Taiwan and South Korea both were under autocratic rule for the majority of their history.I am not bellitling at all their very impressive achievement, just trying to highlight how India is different.Also Japan, SK and Taiwn are all realtively ethnically homogeous countries.
    Coming to the US, it was a slave economy for almost 200 years after Plymouth rock.It was a democracy all right, a white, male democracy for much of it history.
    African Americans got their civil rights only in the 60s .
    India has had universal suffrage snce 1947.

  40. Vikrant — on 22nd January, 2006 at 4:40 am  

    Such open display of affection for me Sunny? Gee i’m touched. I do know that China beats India hands down at nearly everything…. but at the same i’m arguing with Raz that India and Pakistan are not in the same league. I for donot suffer from cultural relativist trappings. OTOH How is that interpal story linked to Asians? And why the fuck is a Class A bullshit spewing fundy blog (IndigoJo) linked to PP.While you are at it, why dont you link to http://www.jihadunspun.com!

  41. raz — on 22nd January, 2006 at 5:19 am  

    Ok, Sandeep, you’re making more sense now. I think your original post (no.9) was misleading. We’ll agree to differ on this matter :)

  42. shiva — on 22nd January, 2006 at 6:48 am  

    Raz,

    Your reply makes no sense at all.

  43. El Cid — on 22nd January, 2006 at 9:32 am  

    Japan may have developed rapidly after WW2 but it laid the foundations for its progress long before that, during the reign of Emperor Meiji (1868-1912), when it reinvented itself as a Western-style economy in order to stave off Western imperialist intrusion. It industrialised during this period, turning itself into an ambitious power capable of defeating Russia in a war in 1905 and building a ruthless empire of its own, as you all know.
    The point is it already had an industrial base before WW2 (minus a democracy) — Team Japan knew what to do — and was a ready example of successful economic development for the likes of keen rival South Korea.

  44. El Cid — on 22nd January, 2006 at 9:46 am  

    Thanks for the plug and the complements by the way.
    I too am unconvinced by the trickle down theory but I’m even less convinced by the idea of wasting scarce public money in order to make inefficient state companies more efficient and expand their activities. Capitalism, the private sector, profit, entrepreneurship — these are not dirty words for me.
    Capital spending on infrastructure and education is certainly a priority though. (How very New Labour!)

  45. Jay Singh — on 22nd January, 2006 at 9:56 am  

    El Cid

    Good article

  46. El Cid — on 22nd January, 2006 at 10:04 am  

    One of the interesting parallel themes thrown up by the inevitable Indo-Pak flamewar and China comparisons is the question of whether democracy or benign enlightened pragmatic dictatorship is best suited for piloting an economy onto the runway of sustainable takeoff. It’s something Singh alludes to. Believe it or not, but in financial circles it is widely accepted that General Pinochet’s policies helped to ensure Chile’s rapid progress!
    I agree with Singh when he says democracy will serve India well in the long-run. But in in the short-term, when you have over a billion people, it must seem like piloting an oil tanker at times.
    I’m glad Sandeep that you drill down to a regional level. It’s an overlooked theme. I suspect India would benefit economically if more power was decentralised and more decisions were taken at a regional level, but I’m not sure whether Indian nationalists would countenance that.

  47. raz — on 22nd January, 2006 at 10:54 am  

    El Cid

    The economic progress of Malaysia under autocratic rule is also worth considering.

  48. Neil — on 22nd January, 2006 at 11:15 am  

    China has outbid India on several key African Oil reserve projects but the fierce bidding is also detrimental to the final winner, its no good paying an over the odds price for something, hence there was a successful joint bid in Syria which both China and India have agreed is the way forward. I read the article in the FT so wil post a link later if i can be bothered

    Investment in Infrastruture is the key:
    With the exception of telecommunications, the cost of most infrastructure services is 50–100 per cent higher than in China, with Indian manufacturers paying twice as much for electricity and three times as much for rail freight.

    The gap is widening, too. China spent seven times as much as India on infrastructure in 2003, the latest year for which figures are available, and three times as much relative to the size of its economy – $150bn (10.6 per cent of gross domestic product) compared with $21bn in India (3.5 per cent of GDP), according to Morgan Stanley.
    http://neweconomist.blogs.com/new_economist/2005/11/india_the_expor.html#more

  49. Jay Singh — on 22nd January, 2006 at 11:36 am  

    I think Sandeep makes good points – and everyone is agreed upon the need for India to spend massively on infrastructure.

    El Cid – the degree to which New Delhi will be willing to cede economic policy to federal state level will be a test of the centre’s political maturity and confidence.

  50. Neel — on 24th January, 2006 at 4:51 pm  

    Read the FT today.

  51. El Cid — on 24th January, 2006 at 6:08 pm  

    I think this is the article Neel was referring to (or at least the intro).

  52. El Cid — on 25th January, 2006 at 8:02 am  

    And as if by magic, China is now officially at least No. 5 in the world — albeit with a GDP per capita comprable to Morocco.

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