Why China will overgrow india
Almost two out of every five people on the planet are either Chinese or Indian. China alone has more people than Latin America and sub-Saharan Africa combined. The economic rise of Asia's giants is, therefore, the most important story of our age. It heralds the end, in the not too distant future, of as much as five centuries of domination by the Europeans and their colonial offshoots.
What sort of economic performance have the two giants shown in the past quarter-century? Why did growth accelerate at much the same time in both? Why has China performed so much better than India? Will both continue to grow rapidly? Will India even catch up on China? These five questions need to be addressed if we are to understand the world of tomorrow and, even more, of the day after.
Let us start with what has happened. During the 19th and 20th centuries, the two Asian colossi fell far behind the rapidly growing economies of western Europe and North America. In 1820, China generated about a third of world output (measured at common international prices) and India about another 16 per cent (see chart); by the mid-20th century, China's share in world output was 5 per cent and India's 3 per cent.
After both of these giants gained independence in the 1940s, India became the world's largest democracy and China a communist despotism. Yet, though they differed in their politics, both embraced similar economic ideas. Scarred by their countries' experience with 19th century imperialism, their leaders feared renewed subordination to foreign economic interests. Both saw capitalism as both unjust and inefficient. Both, as a result, embraced socialist economics.
The pursuit of socialist self-sufficiency failed. By the 1970s, neither had begun to regain its historic position. Since then, however, a transformation has occurred. Both economies have begun the journey from state controls to the market and from would-be autarky to international economic integration. Both have begun to catch up on the world's leading economies. But China has done far better than its rival.
In the mid-1970s, the gross domestic products per head of the two giants, at common international prices, were similar, at roughly a twentieth of that of the US (see chart). By last year, however, China's real income per head had reached 15 per cent of US levels, while India's was roughly half of China's level.
If both have done well, China has done far better. Between 1980 and 2003, China's economy grew at an average rate of 9.5 per cent a year, against 5.7 per cent in India. China's real GDP per head (in constant domestic prices) rose faster than that of any other economy, while India's was ninth-fastest. At common international prices, China's real income per head rose by 300 per cent over this period, while India's increased by 125 per cent.
Since the beginning of its take-off into accelerated growth, in 1978, China's GDP per head has risen relative to that of the world leader, the US, in almost exactly the same way as Japan's between 1950 and 1973, Taiwan's between 1958 and the late-1980s and South Korea's between 1962 and the early 1990s (see chart). But it has done so from a much lower relative starting point. Today, China's income per head, relative to US levels, is roughly where South Korea's was in 1972, Taiwan's in 1966 and Japan's before 1950. For China, then, these are early days in the catch-up process.
For India, they are earlier still. Not only has its convergence on US GDP per head been slower than China's but it remains far behind. Relative to US GDP per head, India is today where China was in 1986. Even in absolute terms it is only where China was in 1993.
Now let us turn to the second question: why did the acceleration in economic growth begin in the two giants at much the same time? The broad answer is that both countries moved from the plan to the market at much the same time and for much the same reason: their economies were performing dismally.
Both of the giants were then able to exploit the opportunities created by their huge supply of hard-working people, on the one hand, and the yawning productivity gap with the world's leading economies, on the other.
In China's case the direction of reform has been both relatively consistent and remarkably well managed. In India's, however, it has been less so. A period of half-hearted reform ended in a balance of payments crisis in 1991. This proved the opportunity for a burst of radical reforms under the direction of the then finance minister (and present prime minister) Manmohan Singh. That came to an end in the mid-1990s and so, in due course, did the economic acceleration.
Now let us look at the third and, in many ways, most interesting question: what explains the superior growth performance of China, at least hitherto? To answer that, we need to appreciate the difference not just in economic strategies, but also in the polities.
Both are the heirs of great civilisations. But China's civilisation is inseparable from its state, while India's is inseparable from its social structure, above all from the role of caste.
This difference permeates the two countries' histories and contemporary performance. As Lord Desai of the London School of Economics has noted, “for India, the problem [is] achieving unity in diversity”. China, however, is a “unitary hard state, which can pursue a single goal with determination and mobilise maximal resources in its achievement”.*
These political and social differences explain, in large measure, the contrasts between the two development strategies. China has largely replicated the growth pattern of the other east Asian success stories, though its financial system is still weaker and its economy more open to foreign direct investment than those of Japan and South Korea. Its growth is based on high savings, massive investment in infrastructure, universal basic education, rapid industrialisation, an increasingly deregulated labour market and an internationally open and competitive economy.
India's pattern of growth has been extraordinarily different, indeed in many ways unique: it has been service-based and apparently jobless. Savings are far lower than in China, as is investment in infrastructure. India's industrialisation has hardly begun. Literacy is low, while elite education is well developed. India's formal labour market is among the most regulated in the world. Regulations and relatively high protection against imports continue to restrict competition in the domestic market.
China has accepted both growth and social transformation. India welcomes growth but tries to minimise social dislocation. The Chinese state sees development as both its goal and the foundation of legitimacy. Indian politicians see the representation of organised interests as their goal and the foundation of their legitimacy. Chinese politics are developmental, while India's remain predominantly clientelist.
Consider, in this light, the following contrasts between the two giants (see charts).
■ In 2002, China's gross national savings were 44 per cent of gross national income, while India's were only 22 per cent.
■ In 2002, China's trade in goods was 49 per cent of gross domestic product, while India's was 21 per cent.
■ In 2003, China generated 5.8 per cent of world merchandise exports, which made it the world's fourth-largest exporter, and 2.6 per cent of world exports of commercial services, which made it the world's ninth-largest. India generated just 0.7 per cent of world merchandise exports, which put it at 31st, and 1.4 per cent of world exports of commercial services, which put it at 21st.
■ By 2001, China's weighted average tariff was down to 12.8 per cent, from 35.6 per cent in 1992, while India's was still 28.4 per cent, down from 70.8 per cent in 1992.
■ In 2003, the stock of inward foreign direct investment in China was $501.5bn, against just $30.8bn in India. In the same year, the FDI inflow into China was $53.5bn (12.4 per cent of capital formation) against $4.3bn into India (4 per cent of capital formation).
■ In 2000, India's overall illiteracy rate was 35 per cent, against just 6 per cent in China. In 19992000, only 47 per cent of all Indian children had passed through five years of primary schooling, against 98 per cent in China.
■ In real terms, China is now spending eight times as much as India on infrastructure. As a share of GDP it is spending more than three times as much.
■ Between 1996 and 2002, private investment in Chinese telecommunications was $13bn, against $9.2bn in India. In energy, it was $14.3bn in China, against $7.5bn. In transport, it was $15.9bn, against just $2.3bn.
■ Between 1990 and 2002, China's agricultural value added grew at 3.9 per cent a year, against 2.7 per cent in India and its services grew at 8.8 per cent a year, against 7.9 per cent in India. But China's industrial value added grew at 12.6 per cent a year, against a mere 6.0 per cent in India.
■ In China, the share of the population engaged in agriculture dropped from 68 per cent in 1981 to 45 per cent in 2001, against a slower decline, from 67 per cent to 59 per cent, in India.
■ India's consolidated fiscal deficit is running at 9 per cent of GDP, against less than 4 per cent in China. India's public sector savings have been running at minus 3 per cent of GDP, against a surplus of 12 per cent in the 1990s.
■ The formal sector employs less than 10 per cent of all Indians in employment, with only a third of these employed in the private sector. The proportion of the labour force employed in the Chinese modern sector is at least 20 per cent and rising.
t is not difficult, therefore, to see why China's growth has been far higher than India's. China has not only saved and invested far more, it has exploited, to a far greater degree, the opportunities afforded by the global economy. Its population is also more skilled, while the social and economic transformation it has embraced is more profound.
This, however, brings us to our fourth question: will the two giants continue to grow as rapidly? They certainly can do so. The potential for rapid growth is determined by the gap in average productivity with the world's leaders and the quality of institutions and policies.
On the former point, if China replicated the catch-up performance of Japan or South Korea, relative to the US, it could grow extremely rapidly for another three decades.
On the latter, Transparency International ranks China 71st equal in the world for corruption, a little ahead of India, on 90th equal. In the 2005 Index of Economic Freedom, China is ranked 112th, while India is ranked 118th. The World Bank's investment climate and “doing business” indicators suggest that China and India both offer problematic business environments, with the law's delays and the insolence of office a slightly more serious handicap in India than in China (see chart).
The quality of institutions and policies is, in short, poor in both countries. Yet this also indicates the room for large improvements in the years ahead. Bad institutions are both constraints and opportunities.
Now consider the fifth and last question: can India match China? This depends on the performance of both countries. 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. The political transition from one-party state to a more democratic regime could prove highly problematic. An important symptom of China's institutional weaknesses is the inefficiency with which capital is used. As I have noted elsewhere, China's investment rate has been substantially higher than those of other fast-growing Asian economies at comparable levels of development, but its growth is not.** The explanation for this is partly the scale of investment in infrastructure needed by such a vast country. But it is also partly the fact that 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. The scale of the waste is breathtaking.
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.
The challenges ahead are large, by any standards. But it is a good bet that China will continue to grow rapidly for at least another two to three decades. This will require continuing and painful reforms. But the alternative of letting the economic dynamism slow must seem worse to China's policy makers.
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, with total factor productivity (the rise in output per unit of input of labour and capital) increasing at about 2 per cent a year.
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. Hitherto, in addition, the growing supply of labour has not been matched by a rise in demand. As a result overall employment has risen at only 1 per cent a year over the past decade. Literacy remains too low. There is also evidence that trend growth has slowed since 199697 to below 6 per cent a year.
Faster growth is certainly possible in India. But that will also need substantially higher savings and investment, greater inflows of FDI and significantly more rapid industrialisation.
What then should the world expect of the Asian giants? More of the same is the reasonable answer. Morgan Stanley concludes an excellent analysis with the view that “today it is India and China”.**** This is not wrong, even though it will remain more China than India for some time. Lord Desai concludes, in similar vein, that “China will again become a viable great power; India may become a great democracy”.
As Arvind Virmani of the Indian Council for Research on International Economic Relations has noted, by 2025 China is likely to be the world's largest and India the world's third-largest economy, at purchasing power parity.***** The impact of the rise of the two giants on the world's demand for resources, centre of economic gravity and balance of power will be enormous. Adjusting to such changes has always proved difficult. The rise of China and India is likely to pose the biggest challenges of all.
? “India and China: an Essay in Comparative Political Economy”,
www.imf.org; ** “Why is China growing so slowly?”, Foreign Policy, January/February 2005; ***“India: on the Growth Turnpike, 2004 Narayanan Oration, Australian National University, Canberra, April 27 2004,
http://ecocomm.anu.edu.au/nieb/KRNarayananOration2004.htm; **** India and China: New Tigers of Asia, July 2004; *****“Economic Performance, Power Potential and Global Governance”,
www.icrier.org. Tomorrow: the trade relationship
中国与印度：殊途同归的亚洲巨人
地球上差不多每5个人中，有2个不是中国人就是印度人。单是中国的人口就比拉美和撒哈拉以南非洲国家的人口总和还要多。因此，这两个亚洲大国的经济崛起，是我们这个时代最重要的一件事。它预示着，欧洲人及其殖民地傀儡长达5个世纪的统治行将告终。
过去25年中，中印这两个大国的经济表现如何？两国经济为何几乎在相同时间开始加速增长？为什么中国迄今的表现比印度好很多？两国是否都会继续快速增长？印度甚至会不会赶上中国？如果我们要了解明日乃至更遥远的未来，就必须研究这5个问题。
让我们从已经发生的事说起。在19世纪和20世纪，这两个亚洲大国远远落在快速增长的西欧和北美经济体后面。1820年，中国的产出占全球总量的三分之一(以共同国际价格衡量)，印度则占16%(见图表)；到20世纪中叶，中国占世界产出的份额是5%，印度则占3%。
20世纪40年代，这两个大国赢得独立，印度成为全球人口最多的民主国家，而中国成为一个共产党专制国家。然而，尽管两国政体不同，但它们都奉行类似的经济理念。19世纪与帝国主义接触的经历对两国造成了创伤，两国领导人都担心再次成为外国经济利益的附属品。两国都认为，资本主义既不公平又缺乏效率。结果，两国都实行了社会主义经济制度。
对社会主义自给自足经济的追求以失败告终。到20世纪70年代，两国都未能开始恢复自己的历史地位。但自那以后出现了一次转型。两个经济体都踏上了从国家控制走向市场、从自给自足理想走向国际经济一体化的历程。两国都开始追赶全球一些领先经济体。但中国一直比印度做得好很多。
20世纪70年代中期，这两个大国的人均国内生产总值(GDP)(以共同国际价格衡量)差不多，都大致相当于美国的20分之一(见图表)。但到去年，中国的人均实际收入已达到美国水平的15%，而印度大致相当于中国水平的一半。
如果说两国都做得不错，那么中国要出色得多。1980至2003年间，中国经济以年均9.5%的速度增长，而印度的年均增长率为5.7%。中国的实际人均GDP(按不变国内价格计算)比任何一个国家都上升得快，而印度则在增速方面排名第9位。按共同国际价格计算，中国的人均实际收入在此期间上升了300%，而印度则上升了125%。
中国经济于1978年开始加速起飞，自那以后，中国的人均GDP开始接近世界领先的美国，这种增长方式与日本在1950至1973年间、台湾在1958年至20世纪80年代末、韩国在1962年至20世纪90年代初的增长几乎完全相同(见图表)。但中国的起点要低得多。如今，相对美国的水平，中国的人均收入大致相当于韩国在1972年、台湾在1966年和日本在1950年前的水平。因此，对中国来说，追赶过程还只是刚刚开始。
印度则处于更早阶段。印度人均GDP向美国水平靠拢的速度不仅慢于中国，而且仍远远落后于中国。相对美国的人均GDP水平，当今印度相当于1986年的中国。即使以绝对数字计算，印度也仅相当于中国在1993年的水平。
现在我们再来研究第二个问题：为什么两个大国的经济在几乎同一时间开始加速增长？大致回答是，两个国家基本上是在同一时间从计划经济向市场经济转变，而转变的理由几乎一样：当时两国经济的表现都很糟糕。
随后，两个大国一方面都能利用各自大量的勤劳人口所产生的机会，另一方面也能利用与世界领先经济体在劳动生产率方面的巨大差距。
从中国的情况看，改革方向相对来说保持一致，而且管理得相当好。印度则不如中国。一段半心半意的改革在1991年以国际收支平衡危机告终。这一危机转化为机遇，使当时的财政部长(现任总理)曼莫汉?辛格(Manmohan Singh)领导实施了一系列大胆改革。这场改革在90年代中期结束，而经济加速也随即停止。
现在让我们来看第三个问题。从许多方面来看，这也是最耐人寻味的问题：如何解释中国的经济增长业绩(至少迄今为止)优于印度？要回答这个问题，我们不仅需要认识两国经济战略上的差异，还要认识两国政体上的差异。
两个国家都是伟大文明的继承者。但中国的文明无法与国家政体分开，而印度的文明则无法与社会结构分开，尤其是不能与种姓制度分开。
这一差异贯穿两个国家的历史和当代表现。正如伦敦经济学院的德赛勋爵(Lord Desai)所指出的，“对印度来说，问题(是)在多样性中达到和谐统一”。但中国则是一个“一元化的强势政体，可以坚决追求一个单一目标，并在此过程中最大限度地动用资源”*。
从很大程度上说，这些政治和社会差异可以解释两国发展战略的不同之处。中国基本上复制了其它东亚国家的成功故事，尽管中国的金融体系仍然较弱，而其经济对外国直接投资的开放程度高于日本和韩国。中国的经济增长基于以下因素：高储蓄、大量基础设施投资、基础教育普及、快速工业化、日益解除管制的劳动力市场，以及一个向国际开放且有竞争力的经济体。
印度的经济增长模式与中国大不相同，实际上在许多方面是独一无二的：它以服务业为基础，而且显然未创造大量就业机会。储蓄率和基建投资都远低于中国。工业化几乎尚未开始。文盲率高，而另一方面精英教育又很发达。印度正规的劳动力市场是世界上受监管最多的市场之一。各种法规和相对严格的进口屏障仍制约着国内市场的竞争。
中国已经接受了经济增长和社会转型。印度欢迎经济增长，但试图将社会动荡降至最低限度。中国政府视发展为目标，并将其视为执政合法性的基础。印度政客则将组织利益的代表性视为目标和他们合法性的基础。中国的政治是发展式的，而印度的政治仍主要是庇护式的。
有鉴于此，我们来考虑两个大国间的一些对比(见图)。
2002年，中国国民储蓄总额为国民总收入的44%，而印度仅为22%。
2002年，中国货物贸易量占国内生产总值的49%，而印度是21%。
2003年，中国创造了5.8%的全球商品出口，成为全球第4大出口国，还创造了2.6%的全球商业服务出口，成为全球第9大商业服务出口国。印度只创造了0.7%的全球商品出口，列第31位；并创造了1.4%的全球商业服务出口，列第21位。
2001年，中国加权平均关税从1992年的35.6%降至12.8%，而印度从1992年的70.8%降至28.4%。
2003年，流入中国的外国直接投资存量为5015亿美元，而印度仅为308亿美元。同年，流入中国的外国直接投资为535亿美元(占资本构成的12.4%)，而印度为43亿美元(占资本构成的4%)。
2000年，印度的总体文盲率为35%，而中国仅为6%。1999/2000年，印度儿童中只有47%接受了5年制小学教育，而中国的这个比例为98%。
以实际价值计算，目前中国的基建投入是印度的8倍。中国在这方面的支出占GDP的比例是印度的3倍多。
1996至2002年，中国电信领域的私人投资为130亿美元，印度为92亿美元；而在能源领域，中国的私人投资为143亿美元，印度为75亿美元；在交通领域，中国的私人投资为159亿美元，印度仅为23亿美元。
1990至2002年，中国的农业增加值每年增长3.9%，而印度为2.7%；中国服务业每年增长8.8%，而印度为7.9%。但中国的工业增加值每年增长12.6%，而印度仅为6.0%。
在中国，务农人口比例从1981年的68%降至2001年的45%，而同期印度的下降速度比较缓慢，从67%降至59%。
印度的合并财政赤字占GDP的9%，而中国则低于4%。印度公共部门储蓄占GDP的比例一直为负3%，而在20世纪90年代，这个比例是正1%-2%。
在印度就业人口中，正规行业雇佣的人数所占比例不到10%，其中仅有三分之一是在私人部门。中国现代化产业雇佣的劳动力至少占全国就业人口的20%，而且这个比例还在上升。
*《印度和中国：试论比较政治经济学》(India and China: an Essay in Comparative Political Economy)，
www.imf.org；
明日待续
作者简介：马丁?沃尔夫(Martin Wolf)是《金融时报》的副主编(associate editor)和首席经济评论家。他对全球经济有着精辟的深刻分析，获得了国际上各界广泛普遍的承认赞赏。最近，在他荣获2003年度“最佳商务记者奖”评奖中，他获得了其中的“十年杰出成就奖”等殊荣。沃尔夫先生1971年毕业于牛津大学，获经济学硕士。然后，他到世界银行任职工作，并于1974年出任世行资深经济学家。1999年以来，他一直是每年一度的“世界经济论坛”的特邀评委成员。
