China and India
Last week the Financial Times ran a series of articles on the relationship between China and India. Some high points:
Both China and India are growing, but can they keep it up? ("Asia's giants take different routes Martin Wolf looks at why Beijing has enjoyed the greater success in stimulating growth - and what New Delhi will have to do to catch up" - registration required):
- "... The principal internal constraints on China's growth are institutional: the lack of a rule of law, the consequent uncertainty of property rights, the inefficiency of state enterprises and the profound weakness of the financial system. Important symptoms of these weaknesses have been the reliance on foreign entrepreneurship and an offshore financial and legal centre, namely, Hong Kong.
Behind these weaknesses lies something more profound: a political system that is unlikely to prove suitable for an increasingly sophisticated economy and society... An important symptom of China's institutional weaknesses is the inefficiency with which capital is used...
... 60 per cent of all loans between 1993 and 2000 went to state enterprises. It is astonishing that, in the world's fastest growing economy, as much as 40 per cent of existing loans is considered bad...
China does not only confront domestic challenges. It may well also confront external constraints. China's extraordinary success in export markets has been a powerful engine of growth. Yet it is hard to believe that this can continue, now that China is such a huge player in world trade and its own economy is already so open...
If China's growth does remain rapid, can India match it? The optimistic view has been well expressed by Vijay Kelkar, a former senior civil servant.*** Mr Kelkar argues that India's political stability, well-entrenched democracy, relatively effective financial system, deepening international economic integration and improving environment for provision of infrastructure augur well for future growth.
More fundamentally, India enjoys a greater demographic dividend, with the population of working age expected to rise as a share of the total until 2050, unlike in China, while the quality of the labour force is also improving. The private savings rate should continue to rise as living standards improve and the child dependency ratio falls. Finally, the growth of productivity has been reasonably good in India since 1980...
Yet India, too, suffers from many constraints. Public sector dis-saving imposes a significant limit on capital formation. The political and legal systems, though well developed, are also cumbersome and inefficient. Politics lacks a focus on development..."
Edward Luce and Richard McGregor looked at bilateral economic relations between India and China: "India's prowess in services and China's manufacturing strength are complementary but both countries can also grow in sectors where they compete directly. Other nations should consider how to respond, write Edward Luce andRichard McGregor" - registration required.
- "To some extent China and India's strengths are complementary rather than clashing. Whereas China has become the world's workshop for manufactured goods, India is developing a highly competitive services sector...
Yet bilateral trade and investment ties are not simply about India selling software to China and China selling hardware to India. The division of labour is not so clear cut.
A few years ago there was deep fear in New Delhi about the prospect of cheap Chinese imports flooding into India. Yet India actually has a modest trade surplus with China, driven largely by the export of Indian raw materials such as cement and iron ore, but also by exports of manufactured goods including plastics and steel."
- "India's economic emergence is openly encouraged by the 10-member Association of South East Asian Nations, which has become increasingly concerned about the growing preponderance of China. In much the same way as the US hopes India will become a geopolitical counterweight to China over the next decades, Asean hopes India will become an economic counterweight.
That may be premature. India, with its sensitivity about sovereignty, bristles at being asked to play roles on behalf of other countries. But economic ties between India and China will continue to grow and a convergence of the two giants' broader interests at the World Trade Organisation and elsewhere will help bring them closer together."
- "With world energy supplies already tight, the question is not whether the rising demand from India and China will bring them into commercial competition with each other and with other big importers such as the US and Japan: that is already happening. The question is whether it will lead to diplomatic tension and ultimately increase the risk of military conflict in the Asia-Pacific region.
For the moment, the competition for resources is fierce but not hostile. The main evidence of concern is that Beijing, nervous about the possible use of US and Indian naval power to control oil supplies from the Middle East in the event of conflict, is rapidly strengthening its own navy. "The Chinese are building up a capability to defend those sea lanes," says Gary Samore, director of studies at the London-based International Institute for Strategic Studies. "There is a naval rivalry building up in south-east Asia and the Indian Ocean..."