Punjabee, India is way behind in China in many spheres including economy, politics, and influence. I am not saying this as some India hater, but rather someone who is trying to look at things objectively.
I don’t see India maintaining a 9-10% growth rate in FY10. Indian economy has grown by leaps and bounds but let’s not review the uneven, sector specific development, needs for massive infrastructural upgrades, and political stability. I like the current government and the leadership of your PM, but India’s chaotic growth is subject to many shocks of globalization (and not just this current global slowdown). This is not to say that China doesn’t have its own political issues, but considering the fact that the US is fearful of the world’s second largest economy, says something.
^ The premise of the original article is that China is nervous about India's rise and it will try to attack India to divert attention from its internal troubles :)
I don't have a crystal ball, but I am pretty optimistic about India's economy. Whereas China's economy is mostly dependent on US demand, India's economy is mostly based on internal demand. So while China may have seen huge growth rates due to a booming US economy, it will fall as hard with the downturn in US economy. India on the other hand will have a much more stable economy & economic growth rates.
Doesn't India's economy depend on US as well? namely IT services and such?
China has spydered into almost every manufacturing field there is. Also the fact that China-US are equally as dependant on each other, because China has financed a large chunk of US, can be the tipping point in decision making if China decides to venture out in terms of "regional conflict", i doubt US will do much more than shout or condemn any actions.
Nonetheless, any regional conflict at the scale of two nations going to war will have lasting consequences for the entire region, and specifically immediate neighbors who will definitely become a part of, party to, or victim of the conflict.
Doesn't India's economy depend on US as well? namely IT services and such?
China has spydered into almost every manufacturing field there is.
Contrary to perception, the portion of Indian economy dependent on US is very small.
80% of India's GDP comes from primary sector i.e. Agriculture. The Secondary sector is constituted by Manufacturers and Processors of the output of the Primary Sector. The third Sector is the Tertiarry sector which is constituted by all that Infrastructure required to enabling the product of secondary sector to reach the people. Thus, Transportation, Banks, Insurance, Financial Institutions etc come under this.
IT service etc. are part of the Tertiary sector and contribute less than 10 % to the GDP.
^ Brilliant article eh? Not so fast, Indian economic growth would be done in such a (nuclear?) conflagration.
Optimism is good but it shouldn’t be blinded by reality. I will give Indians credit for being optimistic and supporting their country no matter what. We Pakistanis suffer from the opposite problem, too much pessimism and getting bogged down in unnecessarily irrelevant domestic and foreign positions. But returning to the Indian economy question, the Central Bank itself has wildly scaled back its economic growth expectations well below the 9-10% mark that you are projecting.
Actually you’re wrong about Chinese economy being mostly dependent on US demand, while US is indeed China’s largest trading partner, their diversification both in sectors, and geographically extends well beyond the US. Also don’t forget that the trade imbalance and the Middle Kingdom’s purchasing in the U.S. Treasury markets have arguably fueled this growth and consumption in the US. If we’re talking about ownage, China has chunks of the U.S. in hand.
How is India’s economy mostly based on internal demands? If you bother to look at the high performing states within the Union and review their investment profiles, you will know how much India is dependent on the globalized economy. The economist article states the exact same thing. So yes, states like Kerala and Bihar might be comparatively unscathed by the economic downturn, but you can’t say the same thing for Andhra or even your home state of Punjab.
China much like Pakistan, has internal weaknesses where it needs to maintain the high growth rate to prevent internal rebellions and the potential overthrow of the current regime. That is why the PRC acts decisively to clamp down on internal civil unrest. Honestly, I think its more of an Indian paranoia thinking that China is somehow out to get India, when China is more concerned with more bread and butter issues like securing viable natural resource streams and further achieving global market penetration.
If India is able to solve the Kashmir issue with Pakistan and stop its interference in places like Nepal, Sri Lanka, and to lesser extent Bangladesh, it could truly shine as a global player. Your economy, well being is as good as your neighborhood.
Contrary to perception, the portion of Indian economy dependent on US is very small.
80% of India's GDP comes from primary sector i.e. Agriculture. The Secondary sector is constituted by Manufacturers and Processors of the output of the Primary Sector. The third Sector is the Tertiarry sector which is constituted by all that Infrastructure required to enabling the product of secondary sector to reach the people. Thus, Transportation, Banks, Insurance, Financial Institutions etc come under this.
IT service etc. are part of the Tertiary sector and contribute less than 10 % to the GDP.
True, but where has most of the growth occurred? In the secondary and tertiary sectors bit heavily influenced by external demand and investment. It was this transition from the agricultural economy to the capital and knowledge intensive economy which propelled the growth rates and the growth of the middle class in India.
^ Agreed. A decade or so ago, Indian economy was even more heavily dependent on Primary sector. The growth in services has diversified that to an extent. Tertiary sector which is reliant on US is growing but is still a pretty small portion of the GDP. A decade or so later, it might be a different story.
This article which is more recent than the Economist article talks about Chinese dependence on US economy, and the fact that it does not have a strong service sector base to bail it out. Those factors make it more susceptible to collapse than Indian economy.
The way in which the Chinese GDP was going to roll forward to become the No. 1 economy in the world was relatively simple. An expanding global need for cheap goods would drive a massive export machine. An expanding middle-class would become rabid consumers of items made both overseas and within China.
The system was fool-proof. Even remarkably intelligent economists and journalists talked and wrote about “the Chinese Miracle.” In 2007, the nation’s GDP was $3.2 trillion, but was growing at 11%. U.S. GDP was well over $14 trillion that year, but its growth rate was 3%. It was only a matter of time before the lines crossed.
China has been able to draw upon a huge reserve of rural labor. People have moved from rural China to a number of large industrial cities in the interior of the country, many of which now have populations in the millions. Factory complexes were built in these same areas. As long as demand for output moved up, the labor forces in these regions grew. China created its own middle class which made and consumed goods at record rates.
The central government has believed that as the demand for exports softened recently due to the global recession, the country’s new middle class would continue to help GDP growth through consumption.
**The plan has fallen apart like a cheap watch. According to The Wall Street Journal, “China’s exports in December fell 2.8% from a year earlier to $111.16 billion, while imports in the month fell 21.3% to $72.18 billion.” **
**What was unimaginable a year ago has now happened. China has entered a recession](http://www.time.com/time/world/article/0,8599,1855400,00.html) and it may end up being deeper than the one in the U.S. It is not clear that the government can mount and manage a plan to create about 10 million new jobs. This will be an even more difficult task if exports continue to fall sharply. China does not have a service industry which is anywhere close to being as large a part of the GDP as it is in the U.S. **
**The illusion developed over the last decade was that China had become an independent power with a population which could make and consume goods at levels which have never been seen before. During the last two quarters, it has become clear that the the opposite is true. China’s economy may be the most dependent large economy on earth. **
If GDP in the U.S., E.U., and Japan contract at 5% this year, China’s economy is very likely to shrink faster. It will be faced with a sharp drop in what it makes and exports. More importantly, large numbers of Chinese are leaving the huge new industrial cities and going back to rural regions where they can at least find work growing their own food. What is more than a trickle now could become a flood. Those who have gone back to non-industrialized sections of the country will not be net consumers at all.
With a short-lived and dwindling middle class, China no longer has the economic core to continue the “miracle.” China has just become another big country in trouble.
^ Agreed. A decade or so ago, Indian economy was even more heavily dependent on Primary sector. The growth in services has diversified that to an extent. Tertiary sector which is reliant on US is growing but is still a pretty small portion of the GDP. A decade or so later, it might be a different story.
Right, but what I am trying to say is that the tertiary sector has directly fueled the Middle Class growth increased the performance for IITs and IIMs, basically fueled the "Indian dream." Also due to the Govt reforms and increased Intl investment, the secondary sector has mushroomed. More FDI = Greater Income = Increased Domestic demand for goods and services. I could start posting various articles on the effects that the global downturn has had on India but I am genenuinely not interested in bashing India. So I will say that yes India is largely sheltered from the slow down, but the glitter of those smiling faces in the "Shining India" campaign that I saw in Davos, are not smiling as much. I think that is a fair statement.
I think that article is also spot on. Actually this internal unrest is what China has most to fear. My Economist article touched on similar issues, so I am not saying that China is going to emerge unscathed but neither is India.
Funny we’re talking about China/India, when I read this article from WSJ on the blackberry:
Unfortunately you need to be a subscriber to read the full text but the bottom line is that China also vigorously started a stimulus package to jump start it’s economy which has been working. In quantitative terms, the Chinese stimulus is yielding better results than US’s ARRA thus far.
And hypothetically, if the China falls, who do you think that it will be calling in its debts? The US of A So we’re ALL in this together.
I guess one need to have a social economic model to tie over the crisis.
USA is paying for its blinded capitalistic way of life.
Money is being taken out of the country and being put in china for more profit. In china the shares have gone up 70% this year. Chinese foreign reserves are overflowing. US on the other hand have to be financed by china by selling them bonds and securities. Budget deficit is 1.3 trillion.
The problem as you guys have rightly said, China cannot afford US to fail. Failure of US would devalue most of its foreign reserve and thereby causing inflation. This would make the chinese products more constlier and less attractive for exports. US needs china to finance it and china needs US for selling their cheap manufactured goods.
As someone said " if you owe 10,000 $ to the bank, then you have a problem, but if you owe 1 trillion $ then the bank has a problem."
Second case is very much true in Chinese and US case. US owes 750 billion $ to China.
So we’re ALL in this together.