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Sunday, May 26, 2013

Hindi-Chini buy, buy


A decade ago, China emerged as a role model for Indian politicians. All of them wanted to turn India into another China. Corporate honchos and political leaders even pledged to work together to turn Mumbai into another Shanghai. Fortunately, the project was abandoned quietly.

Dibakar Banrejee’s Shanghai (2012) captures the sleaze and shady dealings of the Indian political class as it continues to pillage the country in the name of economic liberalization, and emulating the Chinese model of economic development.

Middle class in India – as the middle class in the West – is enamoured by China’s rapid advances. And despite India’s stationary status on many fronts during the last decade under the UPA government, during which China has powered on, Indians are delighted to be put into the same bracket as China.

Indians who’ve been to China realize that the comparison between the two countries is silly because China is well and truly miles ahead of India on almost all economic and social parameters of comparison.

Some of these advances are truly amazing: China has succeeded in reducing absolute poverty substantially in the last decade. India’s performance on this front has been less than exemplary.

Economist Dr. Amitendu Palit is a former Indian bureaucrat and now researcher at Singapore’s National University. His book China-India economics: Challenges, Competition and Collaboration is an important contribution to the on-going debate on the growth trajectory of these two economies. Recently, he spoke at in Toronto’s Munk School of Global Affairs on the theme of his book.

The steady rise in the trade between China and India will have a deep impact globally. “Their economic relations will matter to everyone,” Palit said. He observed that both countries have had similar experiences despite different policies, and are facing an acute lack of solutions to the problems they face.

He delineated these similarities: Both are non-OECD countries; both are non G8 countries; 2nd and 10th largest economies; 2nd and 4th largest by the purchasing power parity; neither high income countries; large population below poverty line 41% in India and 15.9% in China; both countries have internal imbalances and both have rising inequalities.

The economic challenges that both countries face include the following:

Challenges

Urbanisation

China urbanisation is 50% and is largely migration driven because of the one child policy (28-2% slums)

India urbanisation is 32% and is driven by natural increase. 28.1% slums

Securing energy

Both countries consumer 1/3rd world energy by 2025
2nd and 5th largest crude oil importers
High cost of coal import
Illegal mining

Depleting water resources

China: Demand growth 61% (2030)
India: Demand growth 58% (2030)

High carbon emission

1st and 3rd carbon emitters
28% of global CO2 and additional 56% additional emission during 2005-30
Inefficient land market
Involuntarily land acquisition

High cost of business

China is 91 and India is 132
Volatile bilateral dynamics

Competition

Growing economies have pitchforked both countries to compete globally. Palit listed some of the key area of competition between China and India. These include:

Energy: As China and India have a phenomenal dependence on oil and coal, they are in a race for hydrocarbons in Africa, Central Asia, and Africa.

Water: India is a lower riparian state and there is growing competition (and concern in India) over the sharing of river waters. Of the five rivers that start in Tibet, four flow into India. The rivers are Indus, Sutlej, Brahmaputra, Ghaghara and Torsa and except the Indus, the other four are important for India’s economy.

Market access: Both countries are competing for market access across the global South, and have emerged as major donors in the Asia, Africa and South America. India is in the forefront of anti-dumping actions on China

Both have long-standing and irresolvable political differences. This includes claims over each other’s lands and constant skirmishes over the border. India accuses China of pursuing a String of Pearls approach by building antagonistic relations with India’s neighbours. China accuses India of Encircling Democracies policy where it is building alliances across the globe with democracies that inimical of Chinese dominance of the region.

Collaboration

Both countries are increasingly aware of their significance to each other and are learning in the process, and both have started to collaborate in a small way to secure economic advantages by not competing for the same resources openly. Both have realized that when they move into the market, the spot prices escalate and the bid prices hit the roof. It makes better sense to collaborate for the same set of resources.

Palit other observations include:
  • 69% of what we use from the time we get up and the time to go to sleep is made in China
  • China’s neighbours are dynamic economies – Japan, Korea, Malaysia, and Singapore
  • Except China none of India’s neighbour is an economic achiever; India thinks that it can grow without despite neighbourhood. India needs to match China pragmatism
  • Trade deficit that India has with China is 25% of its overall trade deficit
  • There’s an enthusiasm surplus but that is balanced out by trust deficit
  • B2B = Good
  • G2G = improving
  • P2P = low
  • India hasn’t had a situation where economics defuses political tensions as in the case of China

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