The Telegraph
Since 1st March, 1999
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- Vajpayee tells Hu what Deng had said to Rajiv fifteen years earlier

In Beijing in December 1988, the octogenarian Deng Xiaoping told the 44-year-old Rajiv Gandhi that “if there should be an ‘Asian Age’ in the next century, then it could be realized only after India and China became developed economies”. When the soon-to-be octogenarian Atal Bihari Vajpayee met his 60 year-old Chinese counterpart Hu Jintao in St. Petersburg eleven days back, he remarked that “if the two countries were to cooperate this could even result in the 21st century turning into an ‘Asian century’ ”. Such hopes are, of course, not new. At least two other distinguished Indians in the 20th century — Rabindranath Tagore and Jawaharlal Nehru — had expressed similar sentiments more eloquently.

At the beginning of the 18th century, China and India certainly dominated the world and not just demographically, as seen from the graphic.

In some ways, therefore, the 21st century should see the re-emergence, not the emergence, of China and India as economic powerhouses. Why and how these two countries simply lost out over the past three centuries is a subject of continuing debate and scholarly analysis. Recently, Kenneth Pomeranz’s magisterial The Great Divergence, for example, has sparked a lively debate with his thesis that more than non-market and internal forces, its ecological environment and its colonies helped Europe surge ahead at the expense of both China and India.

Historical research apart, what of the future' Already, measured in the terms of international dollars or purchasing power parity, China is the second largest economy in the world, next to the United States of America. It is followed by Japan and India that crossed Germany three years back. At present growth rates, India is poised to be the world’s third largest economy by 2010 but the gap between it and China would still be substantial. But it is a moot point whether China and India will play the type of catalytic role in the regional and world economy that Japan, for instance, played in the Seventies and Eighties and whether they will emerge as engines of world growth alongside the US and Europe.

On present reckoning, China is more likely to assume such a role than India over the next decade or two. Demographically, of course, India will almost certainly surpass China by the middle of this century and the two countries would then account for around 40 per cent of world population. China is becoming the manufacturing fulcrum of the world with India becoming the pivot for knowledge-based industries, research and development, software and information technology-enabled services. This does not mean that China will not make inroads into the world’s services market or that India will not build up its own manufacturing capacity. What will actually materialize is a pattern of growth in the two countries that is both competitive and complementary at the same time.

China’s politics and society are fundamentally different from India’s. That is what makes a comparative evaluation of the performance of the two countries difficult. But this should not preclude a look at the comparative evolution. Till about the mid-Seventies, India and China were almost on par. But since then, China’s growth record has been spectacular while India’s has been steady and robust. Rapid urban renewal makes the impact of growth in China far more dramatically visible than in India.

One of the fascinating questions for students of contemporary economic history is this: why did China take off in the mid-Seventies after major agrarian reforms and why did West Bengal (and Kerala as well) not take off even though they were then at a similar stage as China’s' This is, incidentally, a question first posed to this columnist some months back by Debu Bandyopadhyaya, one of the architects of West Bengal’s highly acclaimed land reforms programme.

There is no mystery to why China has taken off in such a stunning manner. It has followed very pragmatic policies exemplified in Deng’s famous aphorism — what does it matter if the cat is black or white as long as it catches mice! Unlike India, it has not had restrictive labour laws or policies like that of reservations for the small-scale sector. It has not strangulated its textile industry or crippled manufacturing by fiscal policy like we have. It has invested more. And it has exported (and imported more). The answer to Bandyopadhyaya’s question is that unlike China, West Bengal has remained a prisoner of shibboleths and sterile ideologies. Mindsets may be changing slowly but set minds are wreaking havoc here.

It is now fashionable to decry Chinese statistics, although scholarly opinion is divided. Sure, gross domestic product growth may well have been overstated by 1-2 percentage points. Foreign investment inflows too may be exaggerated — according to an International Finance Corporation study done last year, roundtripping (that is, Chinese local investment going to Hong Kong and returning as “foreign” investment) reduces net foreign direct investment inflows from the reported annual average of around $ 40 billion to about $ 20 billion a year. But foreign trade figures are not suspect. All said and done, the Chinese economy is a “sweat” economy that grows more on the back of huge investments and less on the basis of productivity and efficiency.

Talk about “Asian age” or “Asian century” inevitably brings up the role of the diasporas. No question that the Chinese diaspora has made more constructive contributions than its Indian counterpart in both mobilizing investment and boosting international trade. An estimated two-third to three-fourth of all foreign investment inflows into China emanate from Hong Kong, Taiwan and Singapore. If you believe the Chinese numbers, anywhere between $ 25-30 billion of money pours into the Chinese economy from the overseas Chinese community which is about 50-55 million strong. But while the overseas Chinese have been large-scale investors, overseas Indians, because of their very nature, have been large-scale depositors and remitters. The stock of non-resident Indian deposits now amounts to about $ 28 billion.

Those Indians who point to FDI roundtripping in China with great glee should know that such roundtripping could well be happening here as well in the case of NRI deposits. FDI investment through NRIs has been very small, amounting to no more than $ 3 billion over the past twelve years but since the mid-Nineties another $ 3 billion of NRI money has come in for acquisition of shares. Remittances from workers overseas are more important with such inflows averaging about $ 7-8 billion annually.

Paradoxically, democratic India has been highly centralized while authoritarian China has been very decentralized. But transformations are taking place in both countries. India is becoming more polycentric while in response to the World Trade Organization accession China is becoming more of a centripetal system. Both countries are going through profound political, economic and social changes and each needs to understand the other better.

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