Bagaimana bila India, China kalau bekerja sama?

Thursday, January 27, 2005

India, China And The Fate of Globalization

Joydeep Mukherji of Standard and Poor's has written a marvelous survey of India and China's economic progress, and the likely paths they will take.

Easily the most comprehensive and well-written such survey I've seen.

Unfortunately, the article is only for S&P subscribers. There are a few press articles -- The Telegraph, Risk Center and Funds Super Mart, but they're short.

I've excerpted key points from the article below. If you want the entire article, ping me.

Introduction: Why are these countries are so crucial to the future of the world's economic progress

Although China and India account for only 4% and 2%, respectively, of global GOP (or 12% and 6%, using purchasing-power parity), they account for more than one-third of humanity. Failure to modernize in one or both of these countries would limit the successfully “globalized” part of the planet to large pockets in the West and in East Asia—excluding half the world’s population and potentially threaten the stability of the global economy large pockets in the West and in East Asia—excluding half the world’s population and potentially threaten the stability of the global economy.

China and India are global success stories in reducing poverty and moving toward a prosperous market economy. Since China initiated economic reform in 1978, its national income has more than quadrupled; since India began liberalizing its economy in 1991, its per capita GDP has almost doubled.

Challenges facing these two countries

The main political risk in India is poor implementation of policies and a too-slow pace of reform that could undermine economic growth prospects. Under such a scenario, a combination of slow GDP growth and rising fiscal deficits could boost the Indian government’s already-high debt burden, weakening its creditworthiness. The biggest political challenge facing China over the medium term is to close the gap between economic and politic modernization without several disruption.
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China’s physical infrastructure is superior to that in India, boosting the competitiveness of Chinese firms. However, India has an advantage in its “soft” infrastructure – its legal and regulatory systems and the rule of law. India's bigger challenges are to build physical infrastructure, improve the provision of public services, liberalize trade, and deregulate to create a genuine national market for goods and services.

China’s higher savings rate provides enough funds for productive investment that generates a higher rate of economic growth than in India, despite the massive misallocation of resources through China’s inefficient banking system (appearing later as nonperforming loans). India saves and invests the equivalent of around 24% of GDP annually to achieve a nearly 6% GDP growth rate, while China saves a higher share of its GDP (around 40%) to achieve a modestly higher growth rate (around 8%). India gets more “bang” for its buck—but China has more bucks.
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Conclusions:
China and India are following different approaches to globalization. Comparisons of the economic performances of the two countries usually center on the merits of democracy for poor countries. Such debates often overlook the many other factors that explain economic performance. For example, Indians have long enjoyed political freedom—but little economic freedom until barely a decade ago. Much of India’s backwardness can he attributed to its “nonmarket” democracy for much of its recent history. In many ways, the gap in economic performance between the two countries today reflects the fact that China started economic reform about a decade earlier than India.

A comparison of the economic and human development record of the two countries may tell us more about the consequences of different federal systems and local political factors, rather than the consequences of democracy’ and dictatorship. Would democracy in India have produced better economic results if the country had moved sooner toward strengthening state and local governments to facilitate better provisioning of basic public services? The huge gap in economic and social performance within India shows that a broad range of outcomes is possible within a democratic framework. For example, some states (e.g., Kerala) enjoy a lower birth rate than and a comparable literacy rate with China, while others (e.g., Bihar) fail badly on both counts. The flaws of Indian state and local governments are due to many factors that “less” democracy may not have fixed.

India is a politically open society that is slowly embracing the market economy. China is a politically closed society moving to a market from a semi market economy. China may achieve first-world status before India, hut it will have to avoid a political hard landing.