Watching India overtaking China

Jonathan Power Forums ^ | May 6, 2004 | Jonathan Power

[CarrotAndStick]

LONDON - India is now in the middle of what many Chinese would give their right arm for- a general election. Yet China is the power that gets all the attention. When president Richard Nixon first went to China it was widely assumed at the time that the reason he ignored India and courted China was that China had nuclear weapons and could help balance the Soviet Union.

Since 1998 India has possessed nuclear weapons and can balance China. Slowly Washington is waking up to the fact that the tortoise soon might overtake the hare. Still the investors and the press continue in their old ways. Last year the inflow of foreign capital into China was two and a half times that into India. The press barely covers the Indian election whilst every day there is a story out of Beijing.

Jonathan Powers

This skewed appreciation has been going on since the time of Mao Tse Tung. Whilst in the 1960s and 70s China basked in accolades, India's economic planners were widely abused. India was mocked for its "Hindu growth rate". China's people were fed, housed, clean and tidy, while India's were ragged, hungry and sinking into a trough of despondency- "a wounded civilization" wrote V.S. Naipaul.

Neville Maxwell of Oxford University was one of the more prominent of the legion of Western intellectuals who in the 1960s and 70s thought China had found the answer to underdevelopment. In 1974, he wrote, "Mao and his party triumphed where Stalin cruelly failed, basically because Mao understood and trusted the peasantry". It was hog wash.

With the 1981 famine we could see, to use George Watson's phrase, "the intellectuals were duped". As Watson exposed the romantic gullibility of Beatrice and Sydney Webb, Stephen Spender and Andre Gide and their glowing reports of the Soviet economy in the 1930s, so too the China seers of the 60s and 70s were held up to the harsh light of day. China had to beg around the world for grain whilst India had managed to survive the savage drought of 1979 without having to import a sack.

Now with Mao long dead and the capitalistic reforms of Deng Xiaoping well into their stride the story is being repeated but in a more complex way. To many China's economic progress has been nothing less than spectacular. But inflationary pressures, bad bank loans, a fast increasing maldistribution of income and crime all threaten its economic stability.

India meanwhile has been gradually but with increasing speed loosening up its old Fabian socialist system. After a major economic crisis in 1991, finance minister Manmohan Singh (now Sonia Gandhi's principal economic advisor) introduced major promarket reforms and fiscal expansion and India's economy has never looked back. Annual growth averages above 5% and now thanks to a good monsoon is 8%. Singh believes that with more reforms than the present government has so far countenanced an average annual growth rate of 6.5% is sustainable- which is what he privately thinks China's over-hyped growth rate actually is.

In reality India is better placed for future growth. Its capital markets operate with greater efficiency than do China's. They are also much more transparent. Companies can raise the money they need. India's legal system whilst over slow is much more advanced and is able to settle sophisticated and complex cases. Its banking system has relatively few non-performing assets. Its democracy and media are alive and vital which provides a safety valve for the incoherent changes that modern day economic growth brings. India has religious riots, secessionist movements, urban squalor and bitter rural poverty. But the voters know they can throw the rascals out, and regularly do.

Moreover the massive flows of foreign investment into China are a two edged sword. It has become a substitute for domestic entrepreneurship. Few of the Chinese goods we buy are in fact made by indigenous companies. And the few that exist are besieged by regulatory constraints and find it hard to raise domestic capital. Its remaining state owned enterprises remain massive but bloated and possess a frightening number of non-performing loans from China's vulnerable banking system. It is India that has created world class companies that can compete with the best in the West, often on the cutting edge of software, pharmaceuticals and biotechnology.

India's trump cards are its language, English, its emphasis on maths in its schools (begun in Indira Gandhi's time), and the talents of its diaspora. For decades China has benefited from the wealth and the investment potential of its diaspora and the economic energy of Hong Kong and Taiwan. After years of ignoring its diaspora India is now welcoming them back- and they have much more "intellectual capital" to offer than China's, much of it coming from Silicon Valley where the Indian contribution has shone.

Watch the tortoise continue its course as the hare starts to lose its breath.

[Lessismore]

Either way the technological changes could shift the balance toward high tech despotism as well as toward participatory benevolent republic.

Technology may not generally favor either authoritarian or participatory institutions. However, a high rate of change in technology is likely to disrupt established patterns of power. Changes of technology also may favor one area versus another and disrupt balances of power between geographic areas. For example, the introduction of potato growing to the North European plain supported a much large population and increased northern power versus the south. The transition from smelting iron ore with charcoal to the use of coke raised the power of areas with metallurgical coal.

[Cronos]

The press barely covers the Indian election whilst every day there is a story out of Beijing

Because the leftist press doesn't want to praise a democracy but praise a communist state.

[Cronos]

Neville Maxwell of Oxford University was one of the more prominent of the legion of Western intellectuals who in the 1960s and 70s thought China had found the answer to underdevelopment. In 1974, he wrote, "Mao and his party triumphed where Stalin cruelly failed, basically because Mao understood and trusted the peasantry". It was hog wash

Yeah right, in the 70s, millions of Chinese died due to Mao's Cultural revolution.

[Cronos]

Neville Maxwell of Oxford University was one of the more prominent of the legion of Western intellectuals who in the 1960s and 70s thought China had found the answer to underdevelopment. In 1974, he wrote, "Mao and his party triumphed where Stalin cruelly failed, basically because Mao understood and trusted the peasantry". It was hog wash

Yeah right, in the 70s, millions of Chinese died due to Mao's Cultural revolution.

[Cronos]

With the 1981 famine we could see, to use George Watson's phrase, "the intellectuals were duped". As Watson exposed the romantic gullibility of Beatrice and Sydney Webb, Stephen Spender and Andre Gide and their glowing reports of the Soviet economy in the 1930s, so too the China seers of the 60s and 70s were held up to the harsh light of day. China had to beg around the world for grain whilst India had managed to survive the savage drought of 1979 without having to import a sack.

Shows that a democracy wins every time. In fact a study showed that no country that has a working democracy ever has a large scale, uncontrollable famine. Famines are political creations.

[Cronos]

Singh believes that with more reforms than the present government has so far countenanced an average annual growth rate of 6.5% is sustainable- which is what he privately thinks China's over-hyped growth rate actually is.

The Chinese figures, like all Commie figures is vastly overhyped.

[Cronos]

Pretty bike!

[Cronos]

Remember the time when Japan was looked at as an unstoppable juggernaut? The book "The Japan That Can Say No" was written? Unfortunately for them, they got smitten by a God that says "No" real well.

Get real. Why would God smite the Japanese? They weren't bleedin' commies

[Cronos]

Can anyone explain what road India is on now?

India's kicked socialism out the window and is moving towards a true American style capitalist economy. However, they are taking it slow as they can't have killer reforms like the Poles did, for the simple reason that the Poles had only 38 million people and India has 1 billion.

[Cronos]

India is riven with caste, religious, and class distinctions which will severely limit India's progress.

So, a country that has a myriad of classes and of religions and which is a functining Republic, will suffer and will lose out to a communist dictatorship? So, by that yardstick, America should have lost to the Soviet Union and we should lose to China as well.

[Cronos]

Are you sure? I thought Indians elected a Roman Catholic to be the leader of the country, who nominated a Sikh in her stead, who was in turn sworn in by a Muslim president. If that is not breaking of religious/caste/class barriers, then you tell me,what is?

touché!

[Cronos]

Tibetans are not Chinese, just as Poles were not Germans during WWII

[Cronos]

The only difference is they have pockets of propped capitalism

Like Hong Kong, a product of British skill

[Cronos]

The Congress party has this veneration of members of the Gandhi family, which is an odd, atavistic nostalgia for a monarchy/nobility in a supposedly modern social democratic party.

Oh, don't get me started about Political dynasties here in the US.

[Cronos]

However, English is the second language only for the top slice of society.

That is quite incorrect. English is the official national language along with Hindu. It's also spoken as a first language by most city dwellers -- at least 100 million folks and as a second language by half a billion others at least.

[Cronos]

Even the fact that Sonia is an important political figure shows how screwed up Indian politics

you mean the fact that in India they can get rid of a government by voting them out is a sign of how screwed up they are? Would you prefer a military coup as in the Phillipines?

[Cronos]

When China or India "stops" at Japan's level each will be stronger than USA.

EQUALLY strong econonomically, maybe. More importantly look at the GDP per CAPITA of India and China -- it is $600 and $700 per annum. That means the average folks in India and cHina make that amoutn per year. No way will they cathc up with us in the next half century.

[Cronos]

China is focusing on building an unsustainable export economy, while India seems to be developing its own middle class.

True, there was an article recently about Whirlpool -- it actually manages to sell fridges in India while it can't do so in China.

[A. Pole]

More importantly look at the GDP per CAPITA of India and China -- it is $600 and $700 per annum. That means the average folks in India and cHina make that amoutn per year. No way will they cathc up with us in the next half century.

I meant the strenght not the afluence. Actually comfort and afluence can make people weaker.

[Smiling-Face TIGER]

The British MNCs Corporation, made a major decision in around 1988 to invest big-time in India.There was then, a lot of big Hoo-Hah with the Brits tycoons sailing to India in the Royal Yacght "Britainia" and hosting their Indians Counterparts on the yacght. There were big press with the Indians proclaiming "The USSR was the PAST, the BRistish are the FUTURE"
What happened to the huge British investment???
I think, if I am not wrong, the end result was,--- a massive FAILURE

It was around the early/mid 1990s that US major MNCs Corporations began to invest big in China This, they did, after doing massive feasibilities studies in both INdia and China (in order to help them decide India or China?). In order to do a thorough study, they utilised the brains and talents of :

their own MBAs,(whiz-kids from HARVARD,MIT,WHARTON, etc)
the data from the US ambassies,
the US Dept of Commerce
the US State Dept
the CIA
the DOD
etc etc

So, bottomline, the US MNCs Corpns went into China WITH THEIR EYES WIDE-OPENED, having doing their home-work