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By almost any measure – GDP, life expectancy, literacy, exports and more – India has fallen far behind China since 1978 T.N. Ninan The debate in a small group earlier this week was about how far India is behind China.

The quick numbers tossed out varied all the way from 10 to 25 years and more. Figuring out the gap between the two “rising giants of Asia” is in fact an instructive study. For instance, China’s GDP in 2011 was $6.99 trillion, or nearly four times India’s $1.84 trillion. If the Indian economy were to grow at an annual average of 7.8 per cent (the rate for the past decade), it would take 18 years to get to China’s current size. If growth were to accelerate to nine per cent, it would still take 15 years. Could India have avoided falling so far behind China? After all, when China began its Four Modernisations in 1978, the two economies were of roughly the same size ($145-148 billion). Even in 1991, when India began its reforms, China’s economy was only 40 per cent bigger than India’s $268 billion.

The answer is that, in many ways, India in 1991 was already two decades and more behind China on key indicators, and it has not closed the gap. For instance, China’s literacy rate in 1991 was 78 per cent, whereas India’s was just 52 per cent. Even today, India’s literacy rate, at 74 per cent, is short of where China’s was in 1991; meanwhile, China has moved ahead to 94 per cent literacy. Ditto with life expectancy; China’s in 1991 was 70 years.

Twenty years later, India had a tally of only 64 years. Of course, China’s life expectancy has improved slowly in the last two decades, and is at 73; still, it will take India two decades and more to get to that figure.  Some seemingly large gaps might be closed more quickly.

Thus, China’s goods exports are about six times India’s. However, India’s exports have multiplied nearly seven-fold in the last decade (from $43.8 billion to an expected $300 billion this year), so it could conceivably replicate China’s current export figure in less than 10 years. No such hope can be applied to industry, where too China’s is more than six times India’s. Move to research, and China has a citation index that is twice as good as India’s. In the space programme, China sent its first man into space in 2003; India hopes to do it in 2015, but is likely to take longer. As for infrastructure, China has more than 30,000 km of expressways on which traffic speeds go up to 120 kmph; India has a few hundred kilometres. China has a whole inter-city network of high-speed trains, five times as many Internet users, and nearly a million MW of power generation capacity. India has only fractionally increased its train speeds since the first Rajdhani Express of 1969, and even if the country doubles power generation capacity every decade, starting from 150,000 MW in 2010, it will take more than a quarter century to get to where China is today. As for agriculture, China applies fully three times the fertiliser per arable hectare that India does.

The smallest gap is in the mobile phone population. And the largest gap perhaps in the quality of political leadership — China is able to produce a new crop of top-rung leaders every decade, in Beijing and in the provinces and large cities, whereas India’s political parties offer little beyond an upper crust. China’s project execution is of course in a league of its own. As for sport, India got one gold medal in the last Olympics, China got 51.

The cold message to all Indians: stop talking of the two countries in the same breath, and dump the “Chindia” coinage. For why does India not bracket itself with Iran, whose economic size in relation to India (1:4) is broadly the same as India’s to China?    

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Stop the “Chindia” Talk

From WSJ’s Davos blog:

Standard Chartered PLC remains bullish on the major Asian economies of India and China, encouraged by the policy outlook for the two countries this year, the bank’s Asia chief executive said.

The U.K.-based lender, which focuses almost exclusively on Asia and emerging economies, also sees European rivals retreating from those markets as they are beset with challenges at home, Standard Chartered Asia Chief Executive Jaspal Bindra said in an interview on the sidelines of the World Economic Forum.

In India last year, Standard Chartered confronted a range of challenges including slowing growth, rising interest rates and a depreciating rupee. Revenue from the bank’s India unit fell by 12% in the first half of 2011 and by the “mid-teens” in the third quarter, Group Finance Director Richard Meddings said earlier.

Mr. Bindra blamed higher interest rates. “Interest rates went up almost 400 basis points in a short period, and it is very difficult, if you do wholesale business with the best clients in the country, to pass on a 400 basis point increase at any one time.”

But the central bank’s surprise move to loosen monetary policy this week has sent a “clear signal” that there will be no further rate hikes and the government is shifting its focus to promoting growth, Mr. Bindra said.

The Reserve Bank of India Tuesday held its key lending rate steady for a second straight policy meeting but cut the minimum cash reserve requirement by 0.50 percentage point to ease liquidity.

“The government has for a long time shown a huge preference to manage inflation through monetary policy,” he said. But following the RBI cut, “I think we will see a more balanced approach.”

Mr. Bindra also said that the recent “normalization” of the rupee exchange rate — it is up 6% against the dollar so far this year after declining 15.1% in 2011 — will encourage renewed foreign investment.

In China, Mr. Bindra believes authorities will be successful in guiding the economy to a “soft landing” ahead of a leadership transition at the end of the year.

“The priority for all of 2012 and beyond is going to be ‘how do we keep things stable,’ as they have this transition of power at the top,” he said, adding that not just the top political leadership, but also the leaders of major financial institutions and regulators are all due to be reshuffled. “It is quite a massive-scale change of power.”

As European banks regroup and retreat from Asia, Standard Chartered sees an opening. The trend is especially pronounced in industries including shipping and commodities and in markets like Indonesia and India where dollar liquidity is scarce, he said.

“It gives us an opportunity to scale up market share, and second, it gives us a little bit of pricing advantage.”

– Aaron Back. Follow him on Twitter @AaronBack.

In recent years, China has re-invigorated its support for leading state-owned enterprises in sectors it considers important to “economic security,” explicitly looking to foster globally competitive national champions.

In 2009, China announced that by 2020 it would reduce carbon intensity 40% from 2005 levels.

The government has also focused on foreign trade as a major vehicle for economic growth.

The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.

The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society.

The technological level and quality standards of its industry as a whole are still fairly low, notwithstanding a marked change since 2000, spurred in part by foreign investment.

China’s increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem.

The growth in both outbound investment from, and inbound investment to, China reflects the nation’s rising economic power and attractiveness as an investment destination.

” Although the figure is already “quite amazing,” the volume is “not large enough” considering China’s economic growth and local companies’ expanding demand for international opportunities, Shen said.

It also aims to sell more than 15 million of the most fuel-efficient vehicles in the world each year by then.

Although China is still a developing country with a relatively low per capita income, it has experienced tremendous economic growth since the late 1970s.

Since the late 1970s, China has decollectivized agriculture, yielding tremendous gains in production.

China is the world’s largest producer of rice and wheat and a major producer of sweet potatoes, sorghum, millet, barley, peanuts, corn, soybeans, and potatoes.

China ranks first in world production of red meat (including beef, veal, mutton, lamb, and pork).

Growing domestic demand beginning in the mid-1990s, however, has forced the nation to import increasing quantities of petroleum.

China’s leading export minerals are tungsten, antimony, tin, magnesium, molybdenum, mercury, manganese, barite, and salt.

Major industrial products are textiles, chemicals, fertilizers, machinery (especially for agriculture), processed foods, iron and steel, building materials, plastics, toys, and electronics.

Brick, tile, cement, and food-processing plants are found in almost every province.

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Davos: StanChart Bullish on China, India

A top U.S. lawmaker is applauding political reforms in Burma, but says more change is needed.  Senate Minority Leader Mitch McConnell recently returned from a trip to Burma, where he met with democracy leader and Nobel laureate Aung San Suu Kyi and President Thein Sein.

The Senate’s top Republican took to the chamber floor to deliver a hopeful and cautiously-optimistic message on Burma, which he described as having been one of the world’s “most isolated and oppressed” nations.

“Many of us wondered if things would ever change in Burma.  After my recent visit, I am pleased to say that change is clearly in the air,” said McConnell.  “It appears Burma has made some progress towards democracy in the past six months, made more than it has in decades.  I can tell you this is welcome news.”

Mitch McConnell is a lead author of annual bills imposing sanctions on Burma.  He praised the country’s transition toward civilian rule and the freeing of political prisoners, including Aung San Suu Kyi, who spent much of the past two decades under house arrest.  The two met last week in Rangoon.

“By her courage and her patience, that justice delayed would not be justice denied, Aung San Suu Kyi has kept the hope of freedom in her country alive,” added McConnell.  “Never did I think I would get to meet the Nobel laureate in person.  And, Mr. President, it was quite a moment.”

McConnell said Burma’s government has taken “undeniably positive steps towards reform,” and endorsed the exchange of ambassadors between Washington and Rangoon, but he said more must be done.

“The government of Burma still has a substantial way to go to achieve real and lasting reform,” said McConnell.  “I do not support, and I do not think the [Obama] administration would support lifting the [U.S.] sanctions that have been imposed unless there is much further progress.”

McConnell listed upcoming parliamentary elections as an important test of that progress, and urged a full reconciliation between Burma’s government and the country’s ethnic minorities.  He also demanded full disclosure of Burma’s dealings with North Korea.

In a recent interview with the Washington Post newspaper, Burma’s president argued his country has complied with Western demands, adding he would like to see U.S. sanctions eased and eventually dropped.

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US Lawmaker Notes Progress in Burma

Reuters Malaysia’s opposition leader Anwar Ibrahim talked to his supporters earlier this month. Malaysian Prime Minister Najib Razak and arch-rival opposition leader Anwar Ibrahim are taking their battle to for the center-ground of Malaysian politics in an unexpected direction: the Chinese-language pages of Facebook. Mr. Najib launched the first salvo last week, his team putting up a  Chinese-language page where he is called “Ah Jib Gor,” or “Brother Najib,” which had 18,700 “likes” by Wednesday. Mr. Anwar’s team retaliated quickly, putting up their own Chinese-language Facebook page under the name of “Brother Anwar,” or “Ah Wah Gor.” So far, he is in the lead, at least among Malaysians who can be bothered logging on, attracting 38,137 “likes.” Mr. Anwar’s tally also appears to be benefiting from a fake version of Mr. Najib’s Mandarin page which might be siphoning votes away the premier’s official profile, though it is unclear who is behind the spoof page . Both Messrs. Najib and Anwar are campaigning to win over Malaysia’s ethnic-Chinese voters, who could help determine the outcome of the next national elections.

The vote is likely to be among the most fiercely contested in the country’s history and could come any time between now and 2013. Mr. Najib is wooing voters by pledging more reforms to roll-back the affirmative-action policies that for decades have afforded a competitive advantage to the country’s majority ethnic-Malay community in a bid to help them catch up with Malaysia’s Chinese, who make up a quarter of the population. Many Malaysian Chinese, though, along with some of the country’s ethnic-Indian population, view Mr. Anwar’s opposition alliance as a better bet for bringing change and expanding the country’s economy, making the community a key battleground in the election fight. Mr. Najib already is an avid Internet user, employing both Facebook and especially Twitter to connect with potential voters. His aides say switching to Mandarin is a natural extension of that. In a recent interview with The Wall Street Journal, Mr. Najib described how he had to move with the times, even if some of his more conservative advisers look askance at his willingness to go online. Last week he celebrated getting his 400,000 th follower on Twitter by—what else—tweeting about it. Political analysts expect Mr. Anwar, also a compulsive tweeter, to ramp up his campaign, too, after the Kuala Lumpur’s High Court on Jan. 9 acquitted him of charges that he had broken Malaysia’s strict sodomy laws – a charge which Mr. Anwar says was politically motivated. Mr. Najib denies having anything to do with Mr. Anwar’s sodomy case.

State prosecutors appealed the verdict late last week. In the Facebook face-off, though, Mr. Anwar could well retain the upper hand. His key political partner is the predominantly ethnic-Chinese based Democratic Action Party.

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Malaysia Rivals in War of Chinese Words

The release of more than 200 political prisoners on January 13 and the subsequent decision by Washington to announce its readiness to send an ambassador to Burma are the latest steps taken by both governments to normalize relations.

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Author: Doan Hong Quang, World Bank

Consensus-based policy making is a salient feature of Vietnam, where important decisions are collectively made.

Consensus is needed not only for the formulation of a reform vision but also for the elaboration and implementation of this vision. Doi Moi, the most successful economic reform to date, would certainly not have occurred in 1986 if no consensus were reached at the VI Party Congress.

A series of events in 2011 indicate that a vital consensus for the acceleration of economic reforms has been attained. Vietnam’s first major economic event for 2011 was the Communist Party Congress held in January, which set out Vietnam’s development strategy for the next 10 years. Like its predecessor, the 2011–2020 Strategy adopted at the Congress places great emphasis on rapid economic growth, with a target of 7–8 per cent average annual GDP growth over the next decade. The strategy puts increased attention on the quality of growth, including targets on macroeconomic stability and requirements for clarifying the role of the state in a market economy. Nevertheless, the ambitious quantitative growth target suggests a continuation rather than a fundamental break with previous strategies.

But events took a significant turn just a few weeks after the Congress. In late February the government issued Resolution 11, aiming to restore Vietnam’s macroeconomic stability and cool down an overheated economy. Specifically, the resolution sought to address high levels of inflation, tension in the foreign exchange market, high nominal interest rates and declining foreign exchange reserves. The implementation of Resolution 11 remained a top priority in the government’s agenda throughout 2011, and reviews of its implementation continue to take place regularly. Resolution 11 represents a decisive switch from growth to stability. For the first time, there is an official government policy document that completely neglects the term ‘growth’ in its targets. Its longevity signals a significant change in the mindset of Vietnam’s policy makers.

Signs of a radical shift in economic strategy became more evident when the new administration came into power in July. Several workshops and focus group discussions were held to facilitate policy dialogues regarding the restructuring of Vietnam’s economy to improve efficiency and competitiveness. From this process, consensus was reached on Vietnam’s strategic development priorities, identifying major areas for reform in the coming years. This consensus argues for radical transformation in three areas: state-owned enterprises (SOEs), the financial sector and public investment. The need for reform was also officially documented in the Socio-Economic Development Plan (SEDP) for the period 2011–2015, which was approved by the National Assembly in November.

Following these events, Vietnam recorded good economic growth in 2011, with an estimated rate of GDP growth at 5.8 per cent. Exports performed very well, increasing by 33 per cent despite a significant decline in global demand. This robust GDP and export growth prevailed over a significant contraction in fiscal and monetary policy, and Vietnam’s strong export performance contributed notably to the reduction of trade deficits and the foreign exchange market’s stabilisation. The rate of inflation also slowed in the last four months, largely due to the implementation of Resolution 11.

The adoption of Resolution 11 and the SEDP in particular indicate that Vietnam has achieved consensus on accelerating market-based reforms in ‘difficult’ reform areas, namely SOEs, the financial sector and public investment. The recent release of an ambitious proposal for SOE reform through to 2020, developed by the National Steering Committee for Enterprise Reform and Development, provides further evidence of this consensus. According to the proposal, about 44 per cent of the remaining 1300 full SOEs will be equitised in the next four years.

In this context, 2012 will be a very challenging year for Vietnam. The country still has to deal with an overheating economy, and inflationary pressures remain a genuine threat to the country’s economic stability. The banking sector is vulnerable, with a rising share of non-performing loans resulting from a long period of extraordinary credit growth. Challenges also lie in transforming the SEDP’s vision into specific actions. The plan calls for a fundamental restructuring of the economy, and while many agree on the vision of the reform, the formulation of a feasible action plan will take time, owing to the likelihood of resistance from economically strong interest groups.

The Vietnamese government is developing a detailed action plan for its ambitious restructuring strategy. It is expected that this plan will be approved by the end of the first quarter of 2012. The timeframe looks very ambitious as consensus for detailed actions still needs to be built. But there is a significant factor which may speed up the implementation process: while the market economy was an unfamiliar concept in previous times, it now receives strong support from the vast majority of Vietnamese people.

Dr Doan Hong Quang is a Senior Economist at the Poverty Reduction and Economic Management Unit, World Bank, Vietnam. This is part of a special feature: 2011 in review and the year ahead.

1. Malaysia’s economic transformation
2. Managing the risk of inflation during economic recovery – the case of Vietnam
3. Vietnam sails through the crisis but needs reform to sustain the growth

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Vietnam: the beginning of another economic transformation?

Mumbai: Reserve Bank of India Deputy Governor KC Chakrabarty on Friday said efforts were being made to explore ways to pay for oil imported from Iran, which has been subjected to international sanctions. Chakrabarty termed the issue as one arising purely out of international sanctions on Iran and not a financial one. “We are finding, something is happening,” he said when asked about the way ahead to pay Iran for the crude which the country imports. When asked about the recent visit by an Indian team to the Gulf nation for settling the issue, he said, “They have to find a way out. “It is very difficult. It is international diplomacy. It has nothing to do with finance,” Chakrabarty said, speaking on the sidelines of an event here this evening. “The problem is we are not able to route the transactions through some banks because of international sanctions,” he added. Iran is the country’s second largest supplier of crude after Saudi Arabia. Earlier, payments for crude were made through multi-lateral settlement mechanisms which stopped about a year ago due to UN-imposed sanctions. Later, a novel way of payment was worked out wherein the Iranian Central Bank opened rupee accounts with Indian commercial banks, but that also is reportedly in trouble. US President Barack Obama on December 31 signed into law measures that deny access to the US financial system to any foreign bank that conducts business with the central bank of Iran. A report earlier this week said Iran was exploring the idea of increasing imports from India to compensate for its export of oil.

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India trying to find ways to pay for Iran oil: RBI

Taiwan’s opposition Democratic Progressive Party leader Tsai Ing-wen made history by being the island’s first female presidential candidate, but her wider-than-expected defeat last Saturday to incumbent Ma Ying-jeou of the Kuomintang has raised questions about the future of her moderate approach.

Ms. Tsai finished with 45.6% of the vote to Mr. Ma’s 51.6%, a loss that prompted her to say she would resign as DPP leader.

A professor before she became a politician, Ms. Tsai is often credited with lifting the pro-independence DPP out of the mire after former president Chen Shui-bian’s rocky and scandal-ridden tenure at the helm.

“She brings gentleness and sensibility to the party,” Joseph Wu, a former Taiwan envoy to the U.S. and a top advisor to the DPP, said shortly after the election. “She is also very capable in facilitating talks between the factions in the party and consolidating opinions.”

That conciliatory leadership style and approachable personality were what drove her surging popularity both within and outside the party, he added.

But Ms. Tsai also won support by dialing back the DPP’s pro-independence rhetoric, analysts said. An example of that more moderate China policy was her appeal for further dialogues with Beijing and her promise to accept all 16 cross-strait trade agreements signed under Mr. Ma’s leadership.

Although she adamantly rejected the 1992 Consensus—a tacit understanding between the KMT and the Chinese Communist Party that Taiwan and China are one country but each is free to define the term as they see fit—her proposal of a new “Taiwan Consensus” did not completely shut out the option of an eventual unification, a sharp detour from the policy pursued by Mr. Chen.

Despite that softening, Ms. Tsai’s candidacy still did not appear sit well with leaders in Beijing, who warned that any deviation from the 1992 Consensus would compromise the growing harmony on the Taiwan Strait. During the campaign, the “Taiwan Consensus” became one favorite points of attack for Mr. Ma and the KMT, who pointed to it as evidence that Ms. Tsai was naïve to the realities of cross-strait relations.

Yet some analysts said they expected Beijing might still be open to dialogue with a Tsai administration — a notion considered far-fetched during the previous DPP regime.

What effect Ms. Tsai’s loss will have on the party’s platform remains to be seen. The fact that she lost by six percentage points – late polls had her losing by between 3% and 5% — is already being interpreted by some as an indictment of her decision to emphasize social equality and her deviation from the party’s anti-China orthodoxy.

“Obviously, a campaign focused on social justice was not enough to excite the traditional DPP supporters,” said Wu, adding in the future, the party should incorporate more of the possible threats to Taiwan’s sovereignty under the KMT such as China’s continual interference in Taiwan’s quest for more international participation.

Shelley Rigger, a professor of political science at Davidson College expressed similar views, saying that while Ms. Tsai should be lauded for restoring burnishing the DPP’s image, she might have overlooked a key constituency – the “green” pro-independence die-hards—who might constrain the DPP from moving to the center.

“[Tsai] did as well as anyone could have done at pacifying the deep greens, by refusing to accept the ’92 consensus, and at the same time minimizing the role of those ideological issues in the elections, by trying not to talk about that anymore than she had to. The result was still hitting that 45% ceiling,” she said.

Ms. Tsai’s tenure as party leader will officially terminate on March 1, the DPP said, and it’s unclear what she plans to do next. She has said she plans to maintain an office and rumors suggest she may take the reins at a think tank she helped set up.

Analysts say Beijing is concerned less about Ms. Tsia’s future and more about who her successor might be and whether that person will continue the moderate stance she has championed.

“Beijing takes a great interest in the DPP’s leadership because there is always a chance that the DPP might return to power. But I think no matter who becomes the next DPP chairman, the party will retain the more moderate stance,” said Shih Cheng-feng, a dean at National Dong Hwa University.

Party heavyweights Frank Hsieh and Su Tseng-chang are widely speculated to be vying for the seat, though some political commentators on the island say the party should allow up-and-coming stars, such as some of the current DPP county magistrates, to have a shot.

Whether or not Ms. Tsai tries her luck again in 2016, her contribution to the DPP seems likely to be remembered as revolutionary, in a moderate way.

– Jenny W. Hsu

Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2009 stood as the second-largest economy in the world after the US, although in per capita terms the country is still lower middle-income.

In 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years.

The People’s Republic of China is the world’s second largest economy after the United States by both nominal GDP ($5 trillion in 2009) and by purchasing power parity ($8.77 trillion in 2009).

Available energy is insufficient to run at fully installed industrial capacity, and the transport system is inadequate to move sufficient quantities of such critical items as coal.

The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP.

A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history.

The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

China now ranks as the fifth largest global investor in outbound direct investment (ODI) with a total volume of $56.5 billion, compared to a ranking of 12th in 2008, the Ministry of Commerce said on Sunday.

In 2009, global ODI volume reached $1.1 trillion, and China contributed about 5.1 percent of the total.

China reiterated the nation’s goals for the next decade – increasing market share of pure-electric and plug-in electric autos, building world-competitive auto makers and parts manufacturers in the energy-efficient auto sector as well as raising fuel-efficiency to world levels.

In large part as a result of economic liberalization policies, the GDP quadrupled between 1978 and 1998, and foreign investment soared during the 1990s.

Even with these improvements, agriculture accounts for only 20% of the nation’s gross national product.

In terms of cash crops, China ranks first in cotton and tobacco and is an important producer of oilseeds, silk, tea, ramie, jute, hemp, sugarcane, and sugar beets.

Horses, donkeys, and mules are work animals in the north, while oxen and water buffalo are used for plowing chiefly in the south.

Coal is the most abundant mineral (China ranks first in coal production); high-quality, easily mined coal is found throughout the country, but especially in the north and northeast.

There are also deposits of vanadium, magnetite, copper, fluorite, nickel, asbestos, phosphate rock, pyrite, and sulfur.

China also has extensive hydroelectric energy potential, notably in Yunnan, W Sichuan, and E Tibet, although hydroelectric power accounts for only 5% of the country’s total energy production.

Other leading ports are rail termini, such as Lüshun (formerly Port Arthur, the port of Dalian), on the South Manchuria RR; and Qingdao, on the line from Jinan.

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What Next for Taiwan’s Opposition?