The Rise of India & China

Synopsis of the book
‘THE ELEPHANT & THE DRAGON’

By Robyn Meredith

As demonstrated in India & China, globalization never hurt the poor as was widely claimed by the activists protesting globalization.

China’s story

China opened its economy to the outside world in 1978. This led to a five-fold increase in average incomes.

China has had a sickening history during the times of Mao-Tse- Tung before its rise in the world . In pursuing his vision of egalitarianism (which is the basis of communism), he collectivized all land and paid peasants based on collective revenue. This only entrenched famine. Deng Xiopang, the architect of Modern China, who came in Mao’s wake decollectivized land, re-allowed trade of produce from privately owned land and China’s harvests grew back to decent shape.

China’s initial breakthroughs with capitalism came from its peasant class and not from industries. He observed the econonomy of Singapore & learnt the benefits of being pro-business and being industriallised. He pursued all this capitalism under the garb of communism. China though has provided economic freedom to its citizens,it hasn’t yet allowed any political freedom. It is far from a democracy & quashes all public dissent or freedom of expression. The mistake that China didn’t commit unlike its ally-in-principles USSR is that it chose an evolutionary approach in its economic reforms instead of a revolutionary one like the latter.

India’s story

India’s reaction from having been a colonized state proved dear for it. The very factors and people responsible for freeing a country from a colonizer may not be the most suited when it would come to post-freedom nation-building. Gandhi’s economic nationalism and Nehru’s socialism proved costly for the country. Gandhi’s insistence on self-sufficiency and his anti-industrialisation stand was retrograde for the country. With the agonizing experience of East Indian company, Nehru’s take as regards India being a globalized economy open to the world was highly negative. India decayed into a lazy, uncompetitive state-controlled economy.

It was partly due to Rajiv Gandhi’s abolition of anti-monopoly laws that India’s economic policy turned outward-looking. Even after having joined world economy, India yet remains a two-steps-forward-one-step-backward fickle-minded country. Indian politicians claim that unlike China, India lacks authoritarianism. India is very much accountable to its parliament & its press. Unlike China, India’s policy is not just survival of the fittest but also revival of the weakest. However, India’s edge is the hidden mighty resource of educated human capital that it has developed during the past years.

Made by America in China

Chinese government has left no stone unturned in wooing foreign manufacturers to set up shop in China. This has resulted in increase in average incomes of the poor. However the poor are only less poor now. It doesn’t mean China is no longer mired as much in poverty as before. The dark side of the Chinese story is that if an American company saves $ 100 by manufacturing in China only $ 15 goes back to China in the form of wages, transportation costs etc. The majority chunk viz.$85 translates either adds to the bottomline of the American companies or is passed on as price benefit to the American consumer.

The Chinese save as much as 30% of their incomes owing to social insecurity and volatility of its dictatorial government. The Chinese statistical data of growth just gives an illusion of strength while its prosperity is not truly as much as the numbers suggest.

Offshoring work to India

Unlike China which excelled in goods, India has proven its capacity in delivering services. It is the Y2K which acted as the trigerring point for the world to value India’s skill in the services sector. Offshoring has often been publicly criticised in the US owing to the emigration of jobs due to it to . But all hue and cry against offshoring has only led to its increase. Companies which didn’t think high of offshoring began to pay attention to it as a result of the wide publicity it got due to the nation-wide protests.However looking at it objectively , it is expected that the US wouldn’t lose more than 2% of its workforce due to offshoring by 2015. India has recently also taken heavy strides in mass production based industries to compete successfully with China one industry at a time. As is widely known, it is the Indian infrastructure which is the country’s biggest limitation.

The global supply chain

It is now a trend that the many parts or operations of a finished product be done in the country where it is the most cost competitive. China undoubtedly does well in this field due to its large pool of low wage workers. As a result of such large global supply chains, many countries no longer sell what they make or no longer make what they sell.As per world bank data, the combined growth of India and china put together has brought the percentage of people living in abject poverty in the world from 40% to 20%.

The scene in India

India has come back with a renewed sense of vigour. In the global village that the world is now, the Indians have developed the confidence that they can get into anything and win. The urban India is seeing a cultural revolution of sorts with the American brands and way of life becoming more and more popular,

However rural India is yet stuck up with the same problems. More than half of India’s female population remains illiterate. More than half of its girls are married before the age of eighteen only to become servants or farm labourers in their new homes.

However a range of factors have put India into a very strong position to grow beyond anyone’s expectations in the future. The demographers claim that very soon the average age of Indian workforce will be quite younger than the Chinese workforce or that of the rest of the world. This will be a double-edged sword for India. If it could create enough number of jobs for its vast population in the years to come, India could be a big global winner and if not, it would be doomed to extreme poverty. Many suggest that the way the Chinese government leads its country’s major decisions, in case of India, the corporates and business houses should be allowed more rein in governance and policy-making. They could wisely lead the country to growth.

The scene in China

The new middle class in India and China believes that they have earned their right to spoil themselves. The great Chinese savings rate of 30% is an indicator of the country’s political instability. An average American perhaps earns as much as 10 times that of an average Chinese and spends more than he earns that is he has a negative savings rate.

The young chinese believe that Taiwan shouldn’t be given political independence. Most of the Chinese like to settle for a stable economic life than asking for political freedom. Political freedom has no place in China and her abuse of human rights is tremendous. Chinese institutions are more or less top-down command-and-control structures.China has a literacy rate of 91% vis-à-vis the 65% literacy rate of India. However many of Chinese graduates are unsuitable for jobs in MNC’s owing to their poor English-speaking abilities and their lack of creative potential like the Indians. The Chinese education system stresses more on rote learning than on problem-solving. Religious freedom too is highly curtailed in China.

Energy needs of India & China

Of late, any country’s foreign policy is highly dependent upon its energy needs. From iron ore to coal , petroleum to oil and natural gas, the energy needs of the world are constantly expanding. India has huge deposits of Iron ore. As regards the distribution of energy needs across nations, there is a very lop-sided state of affairs in the world. A 400 million population USA requires about 20 million barrels of oil per day vis-a-vis the 7 million barrels required by China and the 2.6 million barrels required by India each of which which have a billion people more in their population.

Viewed from abroad, America shows breath-taking inconsistencies : consuming far more oil than any other nation while compalining about china’s and India’s increasing consumption, advocating free trade but complaining of job losses and of course decrying other nations of human rights abuses while detaining thousands of innocents without trial at Guantanamo bay.The US annual military budget is $500 billion more than that of the rest of the world combined while it complains of military build-up elsewhere.

Half of India’s energy comes from coal as two-thirds of China’s as both nations have large deposits of coal. Coal is a high-polluting fuel. India’s big cities are more than 8 to 10 times more polluted than America’s worst-polluted cities. China accounts for world’s 14% carbon emissions while India for 5%.

The effect on the USA

There is a different invisible connection between China and the US which dramatically helps the Americans. Trade with China indirectly but powerfully holds down U.S.interest rates and inflation, benefitting consumers every time they use a credit card or buy a car or a home.China exports more to the U.S. than the U.S.does to China. Hence China buys those US dollars in the form of US treasury bonds to keep its exchange rate steady against the dollar.Owing to having kept the interest rates low, China has been integral in creating the US housing boom.

American politicians accuse China of manipulating its exchange rates to hold down the Remnimbi’s value which gives an unfair price advantage to Chinese exports.American politicians argue that China has set the value of its currency about 40 percent below where it would be if traded freely.A political spat with the US which could result in massive bond sales by China would be the economic equivalent of firing a long-range missile on American shores.

The Americans face a far-off but stiff challenge in India and China but the American system is renowned for its ability to foster the kind of creativity and flexibility that has helped it rise above past challenges.

In mere decades we could have a tri-polar world with the United States, India and China sharing superpower status