SUNDAY TIMES OF INDIA, NEW DELHI
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China has become the world’s second biggest economy. Should India worry about being swallowed whole?
THE BIG BITE
Saibal Dasgupta | TNN
Beijing: China is growing so fast it creates
some sort of world record every week. With
1.4 billion people, China has more mobile
phones than any other country. It has more
high-speed rail lines and wind power. It has
more Internet users. It is also the world’s
biggest importer of minerals. It has already
dislodged Germany from pole position as the
world’s number one exporter. Just a few weeks
ago, China became the world's biggest guzzler
of energy, though it accepted this particular
position with great reluctance.
So, when China overtook Japan as the world’s
second biggest economy earlier this week and
placed itself right behind the US, the news was
hardly a surprise — both at home and abroad.
China’s official media showed no signs of jubi-
lation. Even in Japan, the leading English dai-
ly, The Japan Times, paid little attention and
did not rush to write an editorial. It merely pub-
lished a London-based writer’s commentary on
China’s phenomenal rise.
But it was a significant milestone. For 43
years, Japan had been second only to the US in
economic might. Now, some experts say the Chi-
nese economy will outstrip the US in a decade
if both countries continue at their existing rate
of GDP growth — 10% for China and 3% for US.
Perhaps. Whatever happens, the possibility that
China will be the world’s number one economy
is already creating a buzz — and jitters — every-
where.
But, first to the immediate question. What
RISING DRAGON
Chinese economy at a glance
Rank 2nd
Fixed exchange rates US$1 = 6.7918 Renminbi
GDP $4.99 trillion
GDP growth 9.1%
GDP per capita $3,677
Population below 2.8%
poverty line All figures 2009
does Beijing’s move to second slot mean for the
world? There are signs it is already having some
impact. On August 16, Japan acknowledged it
had slipped below China even as it released
growth figures for the last quarter. That was just
one day after Japanese Prime Minister Naoto
Kan publicly apologized for World War II crimes
by Japanese soldiers against the Chinese and
others. And Kan made history by ensuring that
his entire cabinet stayed away from the contro-
versial Yasukuni shrine on the 65th anniver-
sary of Japan’s surrender in World War II.
Did Naoto Kan have China’s rise and rise in
mind when he issued the apology at consider-
able cost to his popularity at home? Perhaps. It
is clear that Tokyo can no longer ignore the stark
truth — that its weak economy has trimmed its
influence on regional issues such as the denu-
clearization of North Korea and territorial dis-
putes relating to the seas around China, Viet-
nam and Indonesia.
For the Communist Party of China (CPC),
there is a clear link between the country’s rise
and the Japanese prime minister’s public apol-
ogy. The People’s Daily, which is the CPC’s
mouthpiece, editorialized after Kan’s apology
that his cabinet's “decision not to pay respect
to the Yasukuni Shrine indicates the DJP’s (rul-
ing Democratic Party of Japan’s) upright stance
of facing up to history, and this is advanta-
geous for Japan to forge cooperative ties with
Asian neighbours in the years ahead”.
Any exuberance about its slotting into sec-
ond place after the US was limited to those re-
marks in the People’s Daily. Instead, a com-
merce ministry spokesman cautioned against
any sense of glee, pointing out that China still
had 40 million people below the poverty line.
“China remains a developing country. The qual-
ity of China's economic development still
needs to be raised. It needs more effort to im-
prove economic quality and people's lives,”
Yao Jin said.
It is a valid point and the Chinese authori-
ties’ public reiteration of their domestic chal-
RISE, FALL, RISE... RISE, FALL, RISE... RISE, FALL, RISE... RISE, FALL, RISE... RISE, FALL, RISE...
F
rom the 15th to 18th century,
China and India controlled almost
half of global trade. This pattern
continued till India became a part of
the British Empire, in the 19th century
and Chinese trade became
increasingly controlled by those who
controlled the sea routes — England,
France and the US. India became
independent and China turned to
communism in the mid-20th century
and both began to rebuild their
economies. In the 21st century, China
and India became the world’s fastest
growing economies and the centre of
gravity of global trade appeared to be
shifting east. A look at the growth
trajectory of the Asian giants over 500
years:
SPECIAL REPORT
lenges appear to indicate their focus. Overtak-
ing Japan in terms of gross domestic product
is not going to change the basic truth:
● China is 10 times the size of Japan
● it is a rapidly ageing country and its one-child
policy shows signs of becoming a liability
● the ongoing property boom has the govern-
ment caught between a rock and a hard place,
ie should it keep the elite happy or extend its
largesse to a wide swathe of poor and lower mid-
dle class people
In addition, President Hu Jintao’s drive to
develop the relatively backward western and
central provinces instead of focusing on the more
advanced eastern and southern provinces pos-
es a serious political problem in itself. The Com-
munist Party has managed to curb any stirring
of rebellion in the developed provinces but re-
mains unable to find suitable leaders in the trou-
bled western regions of Xinjiang and Tibet.
There are other problems too. With grow-
ing prosperity, more Chinese are learning Eng-
lish and with it a new philosophy — that it is
man’s right to be free and to have a democrat-
ic system of governance. The Communist Par-
ty is not ready to deal with this challenge. The
Internet’s growing reach and expanded trav-
el facilities have given the young a taste for
free speech and a rising desire for self-ex-
pression. This could pose a challenge to the
one-party system.
Unsurprising then that China’s greater suc-
cess has been in influencing people and poli-
cies abroad. There is no doubt that China’s per-
suasive capability in both the political and
diplomatic fields has grown in direct propor-
tion to its export surplus. Countries like Su-
dan, Pakistan and Myanmar, where the
regimes are linked to repression and large-
scale human rights violations, are major
beneficiaries of Chinese aid. In interna-
tional forums, Beijing backs these regimes
politically. This was evident at a recent
meeting of Asian political parties in
Kunming. The Japanese representative
candidly said there was “aid fatigue”
in his country, which can no longer fund
developmental programmes in poorer
countries. But China’s Communist
leaders reassured everyone that Bei-
jing was happy to take over as chief
paymaster of the aid and development
budget.
But what price the influence.
The west is yet to regard the
world’s second biggest econo-
my as a responsible power.
Some might say that
western approbation is
no longer required.
But China cannot ex-
pect endlessly to grow
at 10% or more. What
happens then will be
key in determining
who has the biggest
bite of them all.
16th Century
INDIA
As Arab traders ship Indian goods to Europe
through the Red Sea and Mediterranean ports,
India’s economy has a 24.5% share of world
income. It is the world’s second largest after
China. India enjoys a favourable balance of trade
— it earns gold and silver from the textiles,
sugar, spices, indigo, carpets, etc it sells.
CHINA
Direct maritime trade between Europe and
China begins with the Portuguese, who lease an
outpost at Macau in 1557. Other Europeans
follow. India and China trade with each other India dominated global
using overland routes. trade in the 16th century
17th Century
INDIA
At the turn of the century, Mughal India’s annual
income (£17.5 million) is greater than the British
budget. As the Mughal Empire reaches its zenith
under Shah Jahan, Indian exports exceed its imports
— it is selling many more things and lots more of
each. Chinese ships dock at Quilon and Calicut, while
in Khambat the volume of trade is so high, more than
3,000 ships visit the port every year.
CHINA
China continues to control a quarter of world trade.
The English establish a trading post at Canton in
1637. Trade grows further after the Qing emperor
relaxes maritime trade restrictions in the 1680’s. By
now, Taiwan has come under Qing control. But, the
sea trade makes the Chinese apprehensive about
conquest.
AUGUST 22, 2010
‘Chance to be bigger than Coke in China’
Sujit John & Mini Joseph Tejaswi | TNN But some Indian entrepreneurs are yet to ven-
ture into China. Sheth thinks they’re making a
T
his week, as China moved to number mistake. “It is time that India shed its negative
two position on the list of the world’s image of China. Indian industry should aggres-
top economies, one of India’s biggest sively invest in Chinese markets for its own ben-
business delegations was concluding efit. While India considers China as a major com-
a visit to Shanghai. The purpose was petition, China looks at India as a partner. China
partly to persuade the Chinese government to lift will be extremely receptive to Indian investments
non-tariff barriers to trade and create an envi- and business participation,” he says.
ronment more conducive to the expansion of In- Sheth believes that China will soon play the
dian enterprise in China. role the US did. China’s rise, he says, will create
It could hardly be better timing. After more an economic boom in Africa, the Caribbean, Latin
than three decades of focus on building a power- America, Central Asia and Russia. “So it is im-
ful export-based economy, the Chinese govern- possible for India to bypass China and become a
ment is beginning to look inwards. This is in or- global player as eventually the growth of many
der to meet its people’s needs. This focus on the other emerging geographies are going to be close-
domestic economy is expected to compensate for ly linked to China,” he said. There are many op-
the slowing of export markets. Jagdish N Sheth, portunities — across sectors — for India. China’s
the Charles H Kellstadt professor of marketing automotive and aviation sectors are on the up-
in the Goizueta Business School at Emory Uni- swing. Its service, hospitality, fast food industries
versity in Atlanta, US, is an expert on India and and infrastructure sectors are booming.
China. He says China has more than one-million Some see particular scope for India’s service
millionaires today. “All this wealth is now going industry. China is beginning to recognize the lim-
to create huge domestic demand,” he told TOI. its of its zealous focus on manufacturing. It has
China appears increasingly open to overseas polluted rivers, denuded forests and caused se-
investors willing to feed this demand. Chinese vere air pollution. By 2020, China is expected to
vice-commerce minister Chen Jian told the In- have 400 million tonnes of rubbish, which is equal
dian delegation: “I hope you can tell Indian en- to the entire waste generated on the planet in 1997.
trepreneurs that the Chinese government wants “So they are encouraging services,” points out
more and more products imported from India. I Som Mittal, president of IT industry body Nass-
hope large enterprises from India will have a larg- com. Every province is setting up an IT park. The
er influence than Coca-Cola in China.” government has just announced that it will not
Some Indian enterprises have recognized the
potential of the Chinese market and moved in ag-
gressively. Mahindra & Mahindra has made ac- CROUCHING TIGER
quisitions in China and has become one of the Indian economy at a glance
country’s largest tractor companies. Automo-
tive components company Sundram Fasten-
Rank 11th
ers’ Chinese unit supplies both export and Fixed exchange rates US$1 = Rs 46.6
domestic markets. GDP $1.25 trillion
Chennai-based Orchid Chemicals and
Pharmaceuticals has a 50:50 joint venture GDP growth 7.4%
with North China Pharmaceutical Cor- GDP per capita $1,031
poration and is focussing on bulk manu-
facturing and marketing of drugs for the Population below 40%
Chinese market. “In four years, we have poverty line All figures 2009
clocked $50 million in revenues and more
importantly, the operations were profitable levy the 5% operating tax on offshore service out-
from day one,” says K Raghavendra Rao, sourcing business in 21 key cities till 2013. Mittal
CEO of Orchid Chemicals. says China wants Indian IT companies to set up
Rao says China can be great for operations there and believes a Chinese base can
Indian business. “The (borrow- be used effectively to target Japanese and Kore-
ing) cost of funds is low. We an markets. “We have a service culture, we are
have accessed funds at 6% customer-centric and our service maturity level
per annum, which is im- is much higher than that of the Chinese,” he says.
possible in India. The Confederation of Indian Industry (CII) be-
Labour cost is less than lieves there is great scope for services sector co-
half of that in India. operation in areas such as R&D, biotechnology,
We pay a third for health, education and skill development, tourism
power and fuel in Chi- and the financial sector.
na, when compared with But there are challenges to overcome. Lan-
that in India. And physi- guage is perhaps the biggest. What’s more, in some
cal infrastructure is an in- sectors, China is not as open as India would like.
tangible benefit for all in- Indian IT has won some deals in state-owned en-
vestors.” terprises, but the sector is still not seen to be prop-
erly open to foreign participation.
China has been proactive in developing sup-
ply chains to feed into its excellent manufactur-
ing capabilities from the neighbouring countries.
“But for India to plug into these supply chains, it
will be necessary for both countries to lower non-
tariff barriers. We need a comprehensive study
on such barriers and work to eliminate them,”
says Chandrajit Banerjee, director general of CII.
China’s boom has also made parts of its econ-
omy overly expensive. This has led some global
players to look to India as an alternative location
for manufacturing. Nokia, which has been ex-
porting from its plant near Chennai, now says it
intends to make India an export hub. Dell is said
to have begun exports from India.
As China rises and focuses on services, expect
more manufacturing to shift to India. That will
be good for mass employment, which services like
IT has not yet been able to deliver. But can India
handle manufacturing growth without bringing
upon itself the environmental problems China
suffered because it became the workshop of the
world? For India, China’s rise offers no easy so-
lutions.
Illustration:
(Additional reporting by Rajesh Chandramouli
Neelabh in Chennai)
18th Century 20th Century
INDIA INDIA
Aurangzeb’s India has a 24.4% share of world In 1913, India’s economy has a mere 7.6% share of
income, the largest in the world. But as Mughal world income. In 1952, seven years after
power declines, the East India Company disrupts Independence, it has just 3.8%. By 1973, its economy
trade relations between India’s mercantile has grown to $494.8 billion, which is a piffling 3.1%
community and the wider world. share of world income. In 1991, economic
liberalization is initiated by P V Narasimha Rao. By
CHINA 1998, Indian economy accounts for a 5% share of
In 1760, as China’s share of global trade begins to world income. By 2005, India’s economy is $3,815.6
fall, the government sets out regulations for billion (purchasing power parity) or a 6.3% share of
foreigners and foreign ships. Canton is the only port world income.
open to alien traders. After their War of
Independence (1776), the Americans begin to trade
with China. It is a setback for the British.
19th Century
INDIA
In 1820, India’s economy —now
completely controlled by the East
Indian Company — is 16% of world The ‘Open Door’ policy has made China a world power
income. The Company promotes
the opium trade with China. The CHINA
Indian agricultural pattern is Before Communist China came into being in 1949,
changed by the Company. By 1870, the country mainly produces yarn, coal, crude oil,
India has a 12.2% share of world cotton and foodgrain. Mao Zedong puts the country
income. on a Socialist path. In 1980, under Deng Xiaoping,
China changes track and the first Special Economic
CHINA Zones are established in Shenzhen. In 1986, Deng’s
The Opium Wars led to China’s fall The Qing king refuses to open all “Open-door” policy encourages foreign direct
ports to foreign traders and seeks investment. In 1992, Deng accelerates market
to restrict the opium trade with India. War breaks out twice between reforms to establish a “socialist market economy”.
Britain and China. A defeated China accepts the opium trade and gives For the first time, China figures in the world’s top 10
Western merchants access to its most developed area. Tea exports economies. In 2001, it joins the WTO.
increase 500% in eight years from 1843, totalling 42,000,000 kg in 1855. Compiled by Shobhan Saxena