China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Re-visited – will China or India be the long-term winner?

August 22, 2016

About ten years ago, I wrote an article in a British journal (Economic & Financial Review, 2005) about the topic whether China or India would be the economic winner in the longer term. I come to the conclusion that India would catch up, but not really take the lead – at least not before positive demographic trends should favor India more structurally and, thus, add visibly to potential GDP growth. This will take time.

As India’s main competitive disadvantages compared to China I identified then infrastructure, lower average education levels, slower public decision-making, weaker entrepreneurial incentives and ambitions to reform the economy as a whole. India showed instead more advantages in the higher quality segments of research and education, banking/financial markets, transparency, certain other institutional conditions and – which the Indians still strongly emphasize – democracy and the rule of law.

I also pointed a decade ago at forthcoming structural changes in production patterns that obviously were to come: an increasing share of services at the expense of manufacturing in China and the contrary development in India.

In the meanwhile, China has clearly increased the role of services in its economy, whereas India’s efforts to achieve substantially more production in competitive manufacturing – also in value-added terms – turned out to be more modest.

Consequently, experts on the Indian economy start to raise the question whether it may be too late for India to become a manufacturing superpower. This may be true to a certain extent. However, it also could be beneficial for India that it now – when applying experience from China – has a chance to avoid the establishment of a gigantic industrial overcapacity as China did in a number of sectors.

This latter phenomenon may also be one of the reasons why China currently seems to note slower economic growth than India. On the other hand, China has at least on the paper more economic reforms in the pipeline than India does. However, we still have no idea of the future results of Chinese reform policy. We have to wait for improvements of transparency also in this specific respect.

Consequently, it is still too early to make a prediction on the long-run winner in the global competition between China and India.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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China’s insurance business – more transparency and reforms urgently needed

August 9, 2016

Many foreign analysts are complaining about insufficient speed, volume and transparency when it comes to reforms of the (domestic) Chinese banking sector. Sure, such criticism may be motivated. It certainly is more urging to ambitiously reform the lagging domestic banking industry than speeding up the attempt of making the yuan an internationally widely used and acknowledged currency.

If one regards transparency of the banking sector and the official institutions behind it as poor, it certainly must be concluded that transparency of Chinese insurance business and insurance institutions is even much more insufficient. Particularly foreign insurance firms are waiting for more fairness, also pointing at the uneven application of regulations on domestic and foreign insurance companies. Foreigners feel discriminated.

To be honest, I do not consider Western insurance companies as very transparent either. However, I see transparency of the Chinese insurance business far behind the Western all the same. And this shortcoming is even more pronounced what concerns insurance products. China is an extremely underinsured country. The Chinese deserve better insurance options, even if not the whole people initially can benefit from all the necessary reforms (which, however, hopefully will not happen too far away).

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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E-health in China

July 12, 2016

About a dozen years ago, I visited Japan and got there the opportunity of watching some demonstrations of it- related health/sickness treatment connections from patients’ homes to hospitals.

I really got impressed then which resulted in an article in one of the major Swedish morning papers, thinking about future applications in Swedish precautionary and medical care. However, too little happened in Sweden in this specific area.

Now I have visions that China may take advantage of all the new opportunities that e-health may offer already now but particularly in the future. Swedish firms and institutions should make every effort to be invited to this development.

The theoretical potential is enormous. China is a gigantic country with almost 1.4 billion people living there. Demographic changes will be substantial in the forthcoming decades. The Chinese are getting older. More sickness from the poor environment will show up. Precautionary healthcare will become increasingly important.

China’s healthcare system is still very underdeveloped. Hospitals are underfunded, affected by bureaucracy, corruption and long waiting times. Improvements are really needed.

IT solutions could help, for example, to prepare bookings, medical information, consulting, diagnosis, treatment, e-prescriptions etc. – not only in the regional neighborhood but all over the whole country.

However, there is still a major catch. Appropriate regulations for the e-health sector do not exist yet. We remember that deregulation is not the only word for China’s future. Sometimes even regulation may be more suitable.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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