Shankar Acharya: Not in China's league

A PIECE OF MY MIND

Over the past few months, there have been a number of articles in international magazines and newspapers extolling the rise of China and India in the world economy. Phrases like "the two Asian giants" have become commonplace.

More fanciful commentators have concocted new terms like "Chindia" to herald the rise of this new global force. Futurologists have speculated about a "tripolar" scenario of the US, China and India dominating global affairs in a decade or two from now.

All this has stroked our fragile Indian egos no end. It may even have fooled a lot of people into actually believing all this hyperbole. It's time for a cold dash of reality and a few comparative numbers.

Let's first acknowledge the germs of truth behind the hoopla. Yes, China and India are the only two countries with populations of a billion plus.

Yes, both countries have clocked strong economic growth since 1980, China at a spectacular 9 per cent plus and India at nearly 6 per cent. Yes, both countries have opened up to international trade and capital in the past quarter of a century, decisively in China and more hesitantly in India.

Yes, if present growth rates are sustained China will rival the US economy [measured at internationally comparable (PPP) prices] by 2020 and India could be the next largest economy, though trailing far behind. And yes, respected scholars estimate that in the 1950s India's per capita GNP was significantly higher than China's.

But that was back then. After the sweeping economic reforms of the late 1970s the Chinese economic juggernaut picked up astonishing momentum, which it has sustained over the past quarter of a century through brilliant, determined and pragmatic policies.

Per capita GDP growth has averaged 8 per cent in the 25 years since 1980, more than double the quickening growth rate of Indian per capita GDP. Somewhere between 1975 and 1985 Chinese average income is believed to have surpassed India's.

Since then it has kept forging ahead. By 2003 China's per capita GNP was at least 70 per cent higher than India's and her economy was more than twice as large as India's. Much of China's growth was powered by labour-intensive manufactured exports, which took the share of manufacturing in GDP to nearly 40 per cent, compared to a paltry 16 per cent in India.

Other indicators of living standards were just as decisively in China's favour by the turn of the millennium. China's poverty ratio (as estimated by the World Bank's dollar-a-day income criterion) was less than half India's 35 per cent. Female adult literacy was nearly double India's pathetic 45 per cent. Life expectancy in China was a solid 8 years higher that in India.

Perhaps most telling, the rate of malnutrition in children under five years in China was only about a quarter of the shamefully high 46 per cent level in India.

If you think of infrastructure as providing the essential sinews of current and future economic development, China's lead is even more striking. Electricity production in China is nearly three times higher than in India.

Ton-kilometres of freight hauled on railways is about 4.5 times greater. Air-freight ton-kilometres flown in China is nearly 10 times higher. Container traffic shipped through ports is an astonishing 16 times more in China (admittedly inclusive of Hong Kong's shipping prowess).

In India we take great pride in the telecom "revolution" of the past decade. Despite that, in 2003 the number of landlines and mobiles in India was only one-sixth the number in China.

There are still a few sceptics who question Chinese statistics. The one area where such doubts are most difficult to sustain is the external sector, where the presence of partner country data provides good checks. Here too China's dominance over India is remarkable.

In 2004-05 our economic spokesmen expressed satisfaction over 80 billion dollars of merchandise exports. But this figure pales in comparison with the nearly 600 billion dollars of Chinese goods exports in 2004, which generated many millions of good jobs for Chinese workers and swamped retail outlets worldwide, to the delight of consumers and the consternation of local producers.

Many of the exporting factories continued to be financed by foreign direct investment, which poured in at a rate more than 10 times higher than into India. The tourist trade was equally impressive, clocking some 33 million arrivals (exclusive of Hong Kong), compared to less than 3 million into India. Not surprisingly, in 2004, China's foreign exchange reserves were more than 4.5 times greater than India's and climbing fast.

Indeed, if one looks at the large multiples by which China's infrastructure and external indicators exceed India's, it is hard to understand why China's per capita GNP is only 1.7 greater than India's.

Perhaps it has something to do with the fact that PPP price "corrections" are much higher in the non-traded services sectors than in traded sectors of agriculture and manufacturing. And services account for well over 50 per cent of India's GDP and only a third of China's.

Thus, possibly, in the purchasing power parity methodology for arriving at internationally comparable prices, India's larger services share "enjoys" greater upward price adjustments relative to China's, thus damping the disparity in GNP (total or per capita) actually existing between the two countries.

Looking to the future, it is easier to foresee a widening of the existing economic disparities between China and India than a reduction. Just consider that in the decade between 1992 and 2002 China increased her railway freight traffic by an amount greater than India's total rail freight in 2002.

Even more remarkable, the increase in China's merchandise exports in each of the last three years was greater than total Indian exports for that year! At a more qualitative level, you have only to compare the hundreds of cranes deployed in adding to the thousands of gleaming skyscrapers in Shanghai with the handful dotting Mumbai's skyline.

During the last five years while we have debated the new Bangalore airport, China has built quite a few new ones! Finally, how can we hope to close the economic gap with China when almost every second Indian child is malnourished?

Let me put this bluntly: as an economy, we are simply not in China's league.

The author is Honorary Professor at Icrier and former Chief Economic Adviser to the Government of India. The views are personal.