China vs India – who will be the economic winner in the long run?

09:52 by Hubert Fromlet, Kalmar

Presentation by Hubert Fromlet at LNU’s
Baltic Sea Region & Emerging Markets / China Day
Kalmar, October 14, 2021

About 15 years ago, I published a paper trying to answer the question whether China or India will be the economic winner in the long run1. I concluded then:

“India and China have very much in common. But both countries are also characterized by major differences. At present, the Chinese economy seems to be in the lead. This analysis shows, however, that it is far from certain that China will maintain the lead 15 or 20 years from now…”

In this paper from 2005, I also made a qualitative analysis of different growth factors. In 2021, I landed at the following confirmed or revised judgments:

My judgments on GDP-growth factors in 2005 and 2021 – China and India compared*

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*Own judgements: ++ substantial lead, + some lead, 0 roughly equal positions.

1Source for 2005:
Fromlet, Hubert, “India versus China – who will be the winner in the long run?”
Economic & Financial Review: a journal of the European Economic and Financial Centre, London, ISSN 1351-3621, ZDB-ID 12001399. – Vol. 12.2005, 3, p. 111-143
2sources for 2021:
own studies of papers, (country)reports, newspapers, statistics.  

 

What will decide – democracy, demography or deregulation?

Looking at growth factors in the table above, the impression seems to be logical that it still remains an unanswered question whether China or India will become the long-term economic winner. India seems having improved its relative position a little bit more than China in the past 15 years. Both countries have achieved improvements of certain factor contributions to GDP growth – but face still also lagging developments. However – when summing up developments – it seems to be impossible to give the different economic growth factors really correct weights for enabling to add up to a total change. How should, for example, the growth indicator “democracy” be weighted?

Obviously, there are also three more growth-driving factors which have not been discussed (enough) in my article from 2005. But they are now mentioned below with the need to be considered more deeply. Here they are:

 

 

 

In my view, the three now emphasized  “D”-growth contributors can play an important role when designing the growth perspectives for the next 15-year- period. But we should be aware of the fact that the obvious relationship between democracy and economic growth is not shared by all economists. I myself believe in this relationship and join therefore the related research by, for example, the famous institutional economists D. North and D. Acemoglu. It also should be relevant for India to maintain what I call “Western political sympathy points”. In a Chinese perspective, choosing realistic positions for meeting future protectionism, presidential changes in the U.S., and the global environment commitments will remain very important issues.

India’s favorable outlook for demography can be seen as a strong growth factor which, however, should be accompanied by enough focus on education – a must if India ever shall manage to pass by China economically.

Summarizing questions: Will China’s supremacy of the Communist Party continue to dominate over Chinese commercial needs? Will the market economy lose further momentum compared to the objective of the Third Plenum in 2013? What will happen to what then was envisaged as “the decisive role of markets in the economy” (chapter 1, 2 in the list of goals)? This goal was, by the way, mainly set by the still ruling strong President Xi Jinping and Prime Minister Li Keqiang. And how much will more deregulation and/or marketization be accepted by the societies in China and India? How big is the future risk for social unrest (which, for instance, may be caused by painful or badly planned deregulation)? We simply don’t know.

But I feel relatively sure that the answer to the questions above and, finally, as regards the long-term economic winner of the two most populated countries in the world – will be decided in Beijing and not in Delhi. However, this does not mean that India can afford underestimating the urgent need of structural domestic reforms – with institutions, education, innovation, infrastructure, digitalization, productivity, and health issues in the first place.

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

 

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