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China vs. India

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China vs. India

The intelligentsia at Davos concurred that China and India will be at the forefront of global economic growth during this century. At this time, China is in the lead in terms of GDP, GDP per capita, and average annual growth in real GDP thus far this century. But will China continue to lead India?

In terms of aggregate populations, there appears to be a draw. Both countries have large rural and unskilled workforces that need to be integrated into the modern parts of their economies. But because of China’s one-child policy, India has a younger and more rapidly growing population. Thus, India might have a labor force advantage.

China dominates India in infrastructure. China has invested heavily in developing its infrastructure and continues to do so.  In many areas, China has world-class infrastructure. India, on the other hand, has dreadful transportation, electricity and water infrastructure. India is making some progress, but the third-world status of its infrastructure is a drag on the country’s economic prospects and growth.

Corruption is widespread in both countries. Political connections and pay-offs are important. Both countries have far to go to overcome this problem. If we look at the largest companies in both countries, we find that the companies in China all have significant backing and investment by the government, and involvement by well-connected government officials. In India, there are many companies that do not have anywhere near the same level of government backing and involvement. Corruption is rampant, but it might be less endemic in India.

Thus far, Chinese companies excel at building upon the ideas developed elsewhere. They are not as good at innovation and pushing the technology frontier outward as companies in the West. Entrepreneurship is just beginning to take hold in China.

In India, entrepreneurship seems to flourish despite the roadblocks of infrastructure and corruption. Furthermore, while both China and India have superb engineering talents, Indians seem to be more innovative at this time. Perhaps, this is a reflection of a less top-down planned and driven economy in India than is the case in China. Maybe there are cultural differences.

Arcelor-Mittal is the largest steel company in the world. It was built by the drive and intelligence of Lakshmi Mittal. There are several Chinese companies among the top 10 largest steel companies in the world. They largely were created by the government and are run by well-connected individuals. There are similar examples in other industries. India does appear to have the edge when it comes to creativity and innovation.

So, which country will dominate? They both face obstacles. The one that overcomes the obstacles more quickly will be the one to first challenge the US’s economic preeminence. While I favor creativity and individualism over central planning and cronyism, I will wait to see if India can do anything about its abysmal infrastructure and systemic corruption before I place my bet.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

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1 Comment

  1. Ernesto Flores Vizcarra February 25, 2011

    Another advantage for India, they speak English.

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