China Research

Recently, in 2023, India has become the most populous country in the world – often commented with the additional remark that China on the other hand still has a much larger economy. This is certainly true. However, India’s economic growth rate is now exceeding China’s, causing quite some increase of foreign interest in this giant country. But there are also other reasons for the conclusion that India is on its way to become a political and economic superpower. I therefore finally decided to formulate the headline of this article without a question mark.

India seeks more international influence and recognition

India is a country with many (changing) faces. I remember my first trips to India in the early 1990s when foreign influence on merchandise and service markets was almost absent. I could observe this with my own eyes. Today, India looks quite different, modern at many places but not everywhere. India’s GDP per capita is still very low and indeed visibly weak when getting around – but the middle class is at the same time expanding quickly and the number of dollar millionaires as well.

In other words: India needs good economic growth to move on further. And we know that economic growth is a function of productivity gains, hours worked and capital accumulation. Improvements in these areas are necessary and will happen in India. But how fast in a country that historically has been moving slowly?

The answer to this question depends to a high extent on India’s opening-up policy and attractiveness to foreign investors. In this respect, it seems plausible to be fairly optimistic, both due to China’s structural slowdown of economic growth and to president Trump’s confusing economic policy which obviously favors India with its balanced foreign policy and good growth potential. So chances of quite rapidly growing FDI in India on trend are quite good – despite disappointing numbers in the past few quarters.

Both Western politicians and business people rush currently to India more than ever to find out more about the opportunities that India may offer in the foreseeable future. Both the U.S. and the EU are looking for (attractive) trade agreements with India. Other countries such as the UK are trying to do so as well. India is diplomatically and politically already treated as a global superpower. And what about the economy in such a superpower context?

Prime Minister Narendra Modi’s comment on the issue above last fall summarized nicely India’s optimism about his country’s future: ”India is becoming a prime center of diversification and de-risking as a hub of global trade and manufacturing. Given this scenario, now is the opportune time for … companies to make in India, and make for the world” (October 2024 at the 18th Asia-Pacific Conference of German Businesses).

India receives more Western “sympathy points” than China

Economic growth of China has been slowing down quite dramatically in the past two decades, from double-digit increases to less than half whereas the GDP development of India was the other way around. In 2007, China’s GDP-growth rate was almost twice as high as India’s, 14.2 compared to 7.7 percent. The corresponding growth numbers in 2024 were 5.4 percent for China and about 6.4 percent for India (without discussing here the correctness of Chinese GDP statistics). On the other hand, China’s GDP per capita is still much higher than India’s.

Sure, the world knows that there is also a lot of technological progress in China. However, the world also knows about China’s economic imbalances which will mean an enormous burden many years ahead – such as the worrisome private and public debt situation (see Fromlet, 2025 https://blogg.lnu.se/china-research/?p=3615), massive government support to many SOEs, the hidden huge amounts of bad bank loans, the high (youth) unemployment and the demographic challenges – developments and trends that do not exist in India or to a more limited extent.

As far as India’s challenges are concerned, progress is particularly needed when it comes to infrastructure, education on a broad level and – impacting the first two examples – the insufficient public fiscal position. But public debt is obviously considered – right or wrong – as little growth-impeding by the global community outside India. And – irrationally – even more in the case of China.

All these impressions and interpretations have led me since some time ago to the conclusion that India – as I use to put it – nowadays gains more “Western sympathy points” than China does (even if markets should not underestimate China’s strategies for its technological future).

India’s potential GDP growth should remain higher than China’s

Officially calculated GDP growth and real or underlying GDP growth are historically not always the same in China, sometimes are official numbers too negative but mostly too positive. Currently, official Chinese growth objectives may be too optimistic for 2025 with announced +5 percent (which could end up at 3,5 percent in reality).

For India on the other hand, GDP growth could be as much as around 6 percent in both 2025 and 2026. Such an outlook should look promising to foreign business people. Particularly since these increases could be close to current potential GDP growth in both countries – according to my guess 3-3.5 percent in China and 6-6.5 percent in India. In the long run, potential GDP growth may be even higher than shown here for India – and lower for China. But this cannot be predicted today.

Of course, my potential growth assumptions are not more than “guestimates”. The results of China’s technological voyage cannot be foreseen today – and certainly not either India’s possible catching-up process with all its complicated details.

Despite these uncertainties, India has relatively good chances to become an economic superpower also globally which makes the country most probably even more interesting to many foreign companies in the years to come. Sure, China’s GDP per capita is still around five times higher than India’s but this relation indicates also that there still should exist considerable potential growth reserves in India – if reasonable politics remain in place!

India from a business perspective

Possible or planned commercial activities in an emerging market country like India urges certainly for a lot of careful (analytical) preparation. Even if India is more transparent than China, India is neither easy to analyze nor commercially easy to handle (see Fromlet 2024 https://blogg.lnu.se/china-research/?p=3501). Foreign business people should not underestimate these two challenges. They should also observe that India still applies too much protectionism as well – a matter of fact that is often forgotten.

Currently, India has to navigate in the changing global economy. The world is shifting alliances, supply chains and growth centers which makes India increasingly interesting to the global business community for FDI, sales and purchasing.

A number of competitive advantages could favor India’s corporate development substantially. The marketing of India as an attractive market for sales, sourcing and IT development is particularly based on

¤ India’s pretty good potential GDP growth
¤ the advantages of dealing with a democratic country and the rule of law ¤ the relative political and economic stability of the country
¤ the independent central bank
¤ institutional progress in different areas
¤ the enormous size of the country and the market
¤ the young average age of the working force (28 years, 45 years in Germany)
¤ what the Indians call a “vibrant society”.

Interesting areas for foreign business are according to many Indian sources among others: manufacturing, digitalization, (financial)services, infrastructure, education, etc.

Conclusion: Without doubt, India is currently more and more developing as the new superstar on the global political and economic horizon – certainly to some extent at the expense of China. But things should not be exaggerated. Consider, for example, the long-term tensions or conflicts with Pakistan. Careful market analysis is unavoidable, both in political, macroeconomic and microeconomic (corporate) terms. Pure herd behavior should be avoided – despite the promising growth potential that India indeed offers.

It should not be neglected that also India has its future political, social and economic challenges. Maybe democracy and India’s favorable demographic conditions will be the biggest competitive advantages of India in the long run.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

Presentation by professor Hubert Fromlet at LNUs Baltic Sea Region/Emerging Market/China Day, October 23, 2024, in Kalmar

In recent years, China and India have been frequently quoted as the main future challengers for Western economies. This may still be the case but things are changing. Both countries have their future opportunities. But they also have their future risks and challenges – risks and challenges that are, however, increasingly drifting apart from each other in these two giant countries.

Conclusion 1: The mentioned diverging trend of risks and challenges between China and India should be watched closely by business economists in the forthcoming years. However, China and India cannot be measured and analyzed with the same yardstick.

The conumdrum of the latest growth-supporting stimuli – however, long-term trends are more important

The official Chinese GDP-growth objective for 2024 has been set at “around 5 percent” in the beginning of this year. After +4.6 percent in Q3, the numerical goal of 5 percent may not be quite achievable for the whole year. However, Chinese leaders probably still want to meet their growth target.

During many years, Chinese GDP-growth numbers were extremely predictable due to ex ante politically set numbers which were, consequently, (mostly) not correct.

However, having then met the official growth target numerically did not mean that such a result was in line with reality. At least not according to historical experience. One may wonder whether these statistical question marks are still in place.

In the past few years, I sometimes heard that the quality of Chinese statistics finally has been improving. May be – may be not. We simply don’t know. 

These doubts are the price for many years of poor statistical standards. Institutional shortcomings like this are always difficult to repair and need therefore quite some time for gaining new or renewed trust. 

Considering China’s still uncertain statistical quality and all the current existing transparency problems, it seems to be doubtful to expect much progress of the latest Chinese liquidity and fiscal injections for supporting sluggish growth. First, the volumes of these measures are not known. Second, the size of the problems to be addressed such as the bubble in the real estate sector is also terra incognita.

Conclusion 2: It is impossible to predict the effects of the latest stimulation measures. All this is in uncharted waters – despite certain encouraging comments from financial markets. Instead, my own feeling is more skeptical or even pessimistic about the short-term outlook. However, the long-term issues should be more interesting all the same.

China’s long-term future looks may be even gloomy…

Also China’s published GDP- growth numbers have been clearly dampened in the past years, i.e. more than halved. Such a slowdown was certainly not expected by most forecasters – but it was not either unforeseeable when having looked at the already then obvious imbalances.

Many of these “old” imbalances still exist today such as local debt, bad loans, struggling state-owned enterprises and the problems on the real estate market. Today, I would like to focus on three specific issues that really motivate to have a gloomy view on China’s long-term perspectives. They are

¤  the negative impact on markets and growth derived from autocracy  

¤  the ongoing growth-impeding effects of the real-estate bubble

¤  the more or less unmanageable demographic implosion.

China’s nowadays applies a more and more autocratic system which certainly impacts negatively on the market economy, (private) initiatives, entrepreneurship, innovation, risk capital, financial markets, competition, etc. – and, consequently, on economic growth. A change of this political system does not seem to be on the cards – neither in the foreseeable nor in the unforeseeable future.

Despite all lagging transparency, we know that the enormous Chinese real-estate bubble already has been bursting. Almost 100 million apartments seem currently to be empty – in a situation where the real estate sector stands for a quarter of Chinese GDP. The extremely poor development of the real estate sector also had – and will have for the time being – very negative effects on consumer confidence and private consumption. Improvements of this critical issue are not on the cards – most probably not even in a longer perspective. 

When looking at structural impediments to future Chinese long-term growth, the demographic challenges clearly look most worrisome from a long-term investors’ point of view. Today, China has a population of 1400 million people. If we believe in (uncertain) estimates by the United Nations, this number will have shrunk to 640 million by the year 2100. Even if this decrease may turn out to become less dramatic, one can easily single out that China’s demographic outlook will have enormously negative consequences on GDP and the market potential for most (foreign) companies there.

Conslusion 3: Companies with business in China should watch demographic trends carefully because of changing demand patterns

and volumes.

… which makes India to “win” probably in the long run

About twenty years ago, I published an article with the same headline as set as the title of this presentation. At the time, China still was a strongly booming country with high, double digit growth rates. Economic problems were visible – but not really taken seriously by most Western economists and corporations. 

Then, I published an article with the title “The run to China – another example of herd behavior” (Economic & financial review : a journal of the European Economics and Financial Centre. – London, ISSN 1351-3621, ZDB-ID 12001399. – Vol. 12.2005, 3, p. 111-143). By writing this piece, I wanted to point at my view that Western decision-makers then had explored China’s political and economic trends insufficiently, or as one of my friends – then working for a major global company – put it by saying: “We invest a lot in China because all our major competitors are there”. In other words: Decisions were not really based on deeper analysis. Herd behavior dominated.

Areas where China already then was superior to India were in the early years of this century (and still are), for example, GDP per capita, infrastructure, education and health on broad levels, and probably also productivity growth. China started two decades ago becoming a global powerhouse whereas India at the same time still seemed to be quite isolated from the global scene.

On the other hand, India had already in the beginning of the 2000s a number of competitive advantages compared to China, for example: democracy, better – though not good – institutional conditions (transparency), a more developed financial system, more fundamental market economy and what may be called “more Western sympathy points”. Particularly this latter observation has become much more visible in the past few years, partly as a reaction on China’s increasing political autocracy and state interventionist economic policy against market principles.

If we go back 40 years, India’s and China’s nominal GDP were almost about the same. Now China’s GDP is almost five times larger than India’s. These figures demonstrate clearly that China in recent decades has been more successful in GDP terms than India. Also the GDP per capita development points at a much more favorable trend for China. Today, China is the largest economy in the world when measuring in purchasing power (PPP) and India number three (and number two and five when calculated in USD). 

Anyway, three main factors seem to make India to a long-term winner when comparing with China. Advantages for India are mainly

¤  the more favorable population outlook though India may face (slightly) shrinking numbers as well by the end of this century,

¤  at least according to the knowledge of today: a better political rule,

¤  higher potential GDP growth,

¤  more optimism for the future (but for how long?).

Conclusion 4: For the first time, I see now India as the future winner in the overall competition with China.

However, India’s major challenges should not be neglected either. Infrastructure is still poor. Education needs to be improved sharply in order to bring literacy to Chinese levels and for managing global competition. The environment and sanitation must be improved substantially, the access to water included. Economic inequality and the agricultural distress should be tackled much better.

All this means that also India must work hard to meet all the positive expectations inside and outside India.

In this context, it may be guiding to quote Nobel Laureate Paul Samuelson who described globalization to me around 25 years ago as a development that means that “there is no longer room for comfortable ineffectiveness”.

This conclusion is also relevant for India which has in the meanwhile become increasingly globalized – and will so even more in the future.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

One month from now – on April 19 – general elections will start in India and include altogether seven stages until June 1. Almost one billion people are invited to vote – 150 million people more than last time.

Opinion polls point at a new victory for current Prime Minister Narendra Mori and his Hindi right wing Bharatiya Janata Party (BJP) together with BJPs coalition partners (see my article from February 22 this year with the title “India isn’t easy to analyze and to deal with”, including comments on the economic development and challenges, https://blogg.lnu.se/china-research/?p=3501). Most observers expect the oppositional alliance called INDIA to weaken the position of the BJP – but not strongly enough to win.

Strengthening India’s voice of the South

There is no doubt that Modi during his assumed third mandate period aims at further strengthening India’s role as voice of the South, certainly in competition with China. Both countries appear to be quite different in their political approach vis-à-vis the southern world.

India seems to see the South in a collective view with visions of necessary common achievements in important areas such as less poverty, better health and environment but also non-violence in Gandhi’s historical spirit.

More exactly, the Indian government made the following comment in this context: ”India hosted a special virtual Summit, called the Voice of Global South Summit under the theme – ‘Unity of voice, Unity of purpose’ from January 12-13, 2023. It was a new and unique initiative that envisaged bringing together countries of the Global South and share their perspectives and priorities on a common platform across a whole range of issues…”.

India obviously strives to integrate the global South more visibly with the Western hemisphere – in line with its philosophy to see the whole world as one family (Vasudhaiva Kutumbakam).

China’s strategies on the other hand tend to base quite openly on commercial objectives, for example by producing and financing new infrastructure projects and by receiving in return access to important commodities or Taiwan issues. However, China also uses, for example, BRICS and the trade agreement RCEP as platforms for meeting the South multilaterally.

It may be interesting to see how India and China will compete in the South in the longer run. It seems to be on the cards that this competition will become fiercer.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
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