Eight advantages India has over China

April 6, 2016 admin

Narendra Modi greets Xi Jinping in New DelhiThings change fast these days, even on a global scale. Information and technology transfer moves at Mach 5 in the 21st century. So when people talk of China and the China Century, it sounds like an acoustic from the past. Thirty years ago we talked about Japan becoming the world’s economic dynasty. There were cries across America for an “industrial policy” of the kind modeled by Japan, as it was pummeling U.S. automakers and consumer electronics manufacturers.

Yet, Japan has been fizzling for decades, its economy in a state of suspended animation.

Now comes China on what appears to be an inexorable path to the world’s largest economy (which, as home to the world’s largest population, only makes sense). Suddenly, though, China is looking unstable. Its growth rate is slowing, its real estate market is over-inflated, corruption among the Communist Party faithful is rampant, construction and infrastructure projects are proving to often be ill-conceived and slipshod, citizen protests are erupting with greater frequency and ferocity, and China does not get along with its Asian neighbors.

I’ve been saying for a number of years that in another decade everyone will be talking about India rather than China. There are signs the passing of the mantle has begun. Here are just eight of what might be many more reasons why India has political and economic advantages over China:

  1. India’s growth is accelerating while China’s is waning. According to the International Monetary Fund, India’s growth rate is projected to hit 7.5 percent this year, surpassing China’s projected 2016 growth rate of 6.3 percent, a significant decline from its many years of 10 percent growth. And, unlike China, India has barely begun to realize its economic potential.
  2. India is the world’s largest democracy, while China is the world’s biggest totalitarian state. Chinese leaders foolishly consider their centralized control as an advantage, a way to move the country in one direction or another with much greater speed and efficiency. The problem: A bad decision made by central leaders reverberates across the entire country, having an outsized impact on the nation’s fortunes. Democracies may be slower moving and less efficient in some regards, but they have the advantage of more widely distributed decision-making, bringing a more portfolio-style approach to political and economic decisions. With this model, the ramifications of bad strategies are isolated to local or regional footprints, rather than hampering the entire nation. What’s more, the greater number of people involved in decision making and with a stake in those decisions’ outcomes, the higher the number of bright ideas brought forth and, hopefully, implemented.
  3. India’s population is among the world’s youngest, while the demographics in China point to a rapidly aging citizenry. The upshot: Young populations bring more horsepower to economic growth. Old populations, such as those in Italy and Japan, make economic growth difficult.
  4. India is an English-speaking country, the international language of business. It makes the country that much easier to do business with. And, even in a best-case scenario, the world is a very long way from supplanting English with Mandarin as the new international language.
  5. India’s leader is an inspirational figure, while China’s leader is driven primarily by fear. India’s relatively new Prime Minister Narendra Modi won a landslide election and is a pro-business rock star among his people, as well as to the millions of Indians living in America and other parts of the world. China President Xi Jinping has been tightening his stranglehold on the Chinese people and making it increasingly difficult for foreign multinationals to successfully conduct business in his country. Xi Jinping also eroded his reputation at home and abroad by panicking in the face of sharp stock market corrections.
  6. India’s education system and economy is more geared for the information age, while China’s is still an industrial age economy. Expatriates from India have played (and continue to play) a huge role in the development of Silicon Valley and the overall U.S. technology industry. China fancies itself the “workshop of the world,” but simply assembling or even machining and assembling what other countries create does not put China in a leadership role. The future belongs to those who innovate — again and again. China has yet to prove it has the ability to vigorously innovate, let alone become a Promethean hothouse of new scientific and information technologies.
  7. India is rapidly expanding its people’s access to information, while China remains committed to wholesale censorship of information. Westerners who do business in China speak of the frustration of conducting Internet searches, only to find that mountains of innocuous information are being withheld from the Chinese people and everyone else accessing the Internet within the country’s borders. Contrast that with India, a nation that is connecting three citizens per second to cyberspace. By 2030, more than 1 billion Indians will be online and will have far more access to productive information than their Chinese counterparts.
  8. India has a good and growing relationship with the United States, while China-U.S. relations are tense and growing tenser. Even if the United States’ best days are behind it, as many Chinese believe, there is an unquestionable advantage to forging strong economic ties to U.S. companies and policymakers, and that will be the case for many years to come. China has become so obsessed with eclipsing the United States as the world’s new superpower that it is spoiling the very relationship that will expedite its rise to that title.

Not all is hunky dory in India. It is still trammeled by its caste system, sexism, labyrinthine bureaucracy, vastly insufficient infrastructure and many other issues. And I’m not suggesting that China is on a downward slope toward implosion. I’m only pointing out India has some distinct advantages over China that could juxtapose the two nations’ economic standing in the world over the next decade or two — which would be a plot twist with very big implications for investors.

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Mike Consol is editor of Real Assets Adviser.

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