China Research

Presentation by Hubert Fromlet at the LNU conference “Baltic Sea Region and Emerging Market / China Day” in Kalmar, October 17, 2022

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Summary

China and India are the two largest countries in the world when it comes to population. Both countries currently have the same size in population, around 1.4 billion people. China still has a larger total GDP but India may be currently catching up somewhat. Both countries have common problems but also diverging challenges. Altogether, none of these two giant countries is able these days to function as a main driver of the global economy in the way China did after the eruption of the global financial and economic crisis (“subprime crisis”) almost 15 years ago when China for a number of years was standing for more than one third of global GDP growth.

Nationalism is still increasing

Both China and India have moved to more nationalism in the past years. For China, this fact is really visible during the currently ongoing 20^th National Congress of the Communist Party of China (CPC; see Fromlet from September 2, https://blogg.lnu.se/china-research/).This convention will confirm the clearly strengthened power of CPC Chairman and President of China, Xi Jinping, with a lot of nationalist hymns and celebrations (https://www.chinadaily.com.cn/a/202210/16/WS634bb02aa310fd2b29e7cca1_3.html) – certainly more than India ever will be inclined to show domestically even if India’s Prime Minister Modi must be regarded as a convinced nationalist as well. But India is indeed interested in workable broad international relations all the same – also despite the presumable neutrality vis-à-vis Russia in the war against the Ukraine.

China on the other hand, seems to be more recognizable on Russia’s side during the ongoing war but will possibly look again at some point – as the main benefiter of globalization so far – for a better future image over the whole globe. In the forthcoming years, however, this cannot happen without a strategy change of the almighty CPC chairman and President of the People’s Republic of China.

At the same time, certain signs are showing that good or at least acceptable relations to the U.S. remain an important part of China’s foreign strategy. Sure, India’s democratic principles unite the U.S. and India more than it is the case between the U.S. and China. However, I found it quite interesting that an important Chinese voice very recently stressed the importance of Chinese-American relations (https://www.chinadaily.com.cn/a/202210/15/WS634a95eda310fd2b29e7ca98.html) – whatever this may mean.

Which country will be the winner in the longer run?

Some economic signals indicate that India may have escaped somewhat less damaged from the covid19-turmoil than China did with its rigid lockdown strategy which still is in place. Officially, the trend since the eruption of covid-19 pandemic  does not diverge substantially (GDP from Q4 in 2019 to Q2 in 2022: China: +8,8 %, India: +3.6 %, https://www.oecd.org/sdd/na/g20-gdp-growth-Q2-2022.pdf). But in Q2 this year, the Chinese drop of GDP was sharper than the Indian (-2.6 % compared to the previous quarter, for India this number was -1,4 %).

Altogether, one may conclude that no major difference between China and India can be found in their growth pattern from winter 2019 to summer 2022. But there is a catch: The quality of Chinese (GDP) statistics tends to be lower than in India.

Thus, the answer to the question about the economic winner in the long run remains uncertain. Considering all the structural problems in China (e.g. for institutions and their failures concerning transparency, corruption, supervision, bureaucracy, local government debt, corporate debt, non-competitive state-owned enterprises, etc.), one cannot predict that China still will have the lead 10-20 years from now. India suffers from similar challenges plus slow federal decision processes but is enjoying more Western sympathy points because of its democratic system.

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

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In my latest blog – to be found below this article in chinaresearch.se – I summed up a number of mostly economic areas which usually are influenced by demographic developments. There exists indeed a lot of scientific evidence showing many examples of relationships between demographics and, for example, labor markets, education or social welfare.

I certainly will come back to the topic of demography in the future for focusing on different angles. Today, however, I will mainly look at the demographic outlook for China and India. Many pages could be written about this specific issue. But the limited volume for this blog does not allow for extended articles or papers.

Statistics tells a lot – despite shortcomings

We know that there often exist major difficulties for responsible authorities to count more or less exactly the number of their country’s population. Human or administrative resources may be too limited. A substantial part of the population may be migrating farmers accepting time-limited works in cities, often badly paid. Many workers also stay temporarily abroad for making (somewhat) more money – often under quite miserable conditions. We also know very well about the destiny of many refugees having left their home countries.

Consequently, we have to accept the population statistics that is available. There is no choice if demographic trends in emerging or very poor countries shall be analyzed. Foreign companies entering or making business in such a kind of country certainly want to have a population number for the country they are (interested) in. Therefore, I use to follow for my own purposes https://www.worldometers.info/world-population / – but there are many other sources as well and quite easy to find.

Important data for population statistics:

Of course, there are many more indicators and specific calculations that confirm additionally that India has more favorable demographic preconditions than China. Furthermore, China will increasingly feel the consequences of its perennial one-child policy which was relaxed only a few years ago after having applied this kind of birth control during 35 years – also having led to an increasingly uneven distribution between men and women – with negative demographic consequences.

Nobel Prize winner Amartya Sen has been talking in such a context about the “missing women” which will be a burden for China many years ahead. The continuous urbanization process will give negative contributions to demography as well since the urban female labor force increasingly seems to change or reduce their family ambitions.

Demography favors India but more (other) progress is needed – China aims increasingly at new sources of economic growth

Altogether, China’s demographic outlook does not look encouraging. But what about India? The briefly summarizing table above seems to prove that India clearly will turn out to be the winner in the future demographic race and, consequently, the country with the better growth perspectives as many analysts predict. Indeed, this outcome could come true.

At the same time, we should recognize that also India will be facing growth obstacles in the forthcoming decades. Examples of these obstacles are, for example, India’s slow political reform procedures, insufficient financial resources, shortcomings in infrastructure and lagging broad education systems, etc. As one of India’s leading economists told me a few years ago, India is primarily enforced to improve and broaden its educational system – also geographically – for visibly benefiting from the demographic advantage.

Since we do not know to what extent India will be able to improve its weaknesses – education included – it remains uncertain whether India with its comparative advantage from demography will surpass China in GDP-growth terms in the very long run. China’s ambitions for the future are clearly based on mainly good infrastructure, broad education, new technology and the obvious upgrading of private consumption to counteract the negative demographic challenges. These efforts should be observed on a regularly basis.

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

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