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Indias best is not good enough to beat China, figures show
Manika Premsingh May 24, 2011
Follow @firstpostin
Manika Premsingh May 24, 2011
Follow @firstpostin
If the first decade of the 21st century was supposed to be about Indias emergence as a rival to China on the world scene, the figures show that China not only stayed well ahead, but actually increased its lead over India.
Consider these stats: At the start of the decade, Chinas gross domestic product (GDP) was 2.5 times Indias. Today, it is 3.8 times as large. Foreign exchange reserves were 4.4 times Indias in 2000; in 2010, they were nine times the size. Exports of goods and services were 2.4 times that of India in 2000. Ten years later, they are 3.4 times bigger (see table).
Influence on the World Economy
The most direct indicator of an economys growing significance in the world is its share in the global economy. Chinas share (at current prices) was at over 9 percent in 2010, more than double that at the start of the decade. By contrast, Indias share has risen at a snails pace, growing by less than a percentage point to 2.4 percent in 2010.
Owing to an already bigger size in 2000 two-and-a-half times that of Indias size and a faster growth rate, China has consolidated its position faster than India. Even if we look at share in the global economy in purchasing power parity (PPP) terms, which, roughly speaking, is a measure of standard of living and thus a reflection of the size of the real economy, Chinas position has improved further in relation to India.
A tightly controlled exchange rate regime and industrial capability has earned China the title of workshop of the world'. Reuters
As a result, the Chinese are now also contributing increasingly to the world economy. Over the 2000 to 2010 period, China has accounted for 15 percent of global growth, over four times Indias contribution.
Chinas openness to foreign trade is one of the cornerstones of its economic performance. A tightly controlled exchange rate regime and industrial capability has earned China the title of workshop of the world, as a result of which it is the top goods exporter with a global share of about 10 percent. It is also the fifth-largest exporter of services, according to World Trade Organisation (WTO) estimates for 2009, the latest available numbers, suggesting that it has more than cheap manufacturing products flooding the world market.
India, on the other hand, is still a more domestically-driven economy, with exports playing a relatively smaller role. No wonder then, India ranks a low 21 in world merchandise exports, though a large English-speaking population base and its advantage in technology have ensured a better commercial services exports ranking of 12. While both countries export growth took a beating during the global recession, Chinas volume of exports has bounced back faster than that for India, probably in reflection of a higher competitiveness of exports.
Interestingly, though China has maintained a devalued currency to promote exports, it has also protected domestic industry by making imports expensive. Despite this, China holds the No 2 and No 4 ranks in import of goods and services respectively, indicative of growing Chinese demand for foreign goods. The worlds engine of growth has a voracious appetite for imports, too. While India too has grown in the respect, lower per capita incomes, greater fluctuation in currency movements and lesser emphasis on industrial production (a major source of Chinese import demand) could be reasons for Indias position at No 14 and No 12 as consumer of foreign goods and services respectively.
Chinas going global strategy encourages Chinese companies to invest abroad. Since 1999, this policy has yielded fruit, and in 2010 China was the second-largest acquirer of foreign companies in the world. For the sake of comparison, however, we stick to 2009 figures, the latest numbers available with the United Nations Conference on Trade and Development (UNCTAD). Outbound FDI by Chinese companies for 2009 was at $48 billion, up from less than a billion dollars in 2000. Indias outbound FDI, too, has grown from a similar base, though far less at $14.5 billion, driven more by the growing ambitions of Indian conglomerates during the boom years of the mid-2000s than because of explicit government impetus.
It does need to be noted here though, that while the outbound FDI by both India and China is growing, both countries are net recipients of FDI. And here, India is fast catching up to China as investment opportunities get relatively saturated in a more heavily invested China. As a result, in 2000, Chinas FDI inflows were over 11 times those of India but are now down to less than three times Indias.
Rising trade flows and foreign inflows (both FDI and FII flows) have led the central banks to sterilize their respective currencies to keep them from appreciating to a point where they hurt exports. Sterilization consists of increasing the supply of the domestic currency by buying the foreign currency in a bid to keep the exchange rate unchanged. Because of this, both countries have seen a rise in central banks foreign exchange reserves.
This is especially true for China whose exports exceed its imports, resulting in a current account surplus (whereas India has a current account deficit) as well as foreign investment inflows. Chinas international reserves are estimated to be at $2.4 trillion as of 2009, over nine times those for India in comparison with 4.4 times in 2000. These foreign exchange reserves are then invested in foreign government instruments. It is estimated that 70 percent of Chinese reserves are held in US treasuries, which is larger than the size of the entire Indian economy.
Domestic economy and future prospects
More important, China seems better poised than India in handling internal economic issues as well, which are key to sustaining growth. Inflation has become a monster for India, averaging at over 13 percent in 2010 from 4 percent in 2000, while China keeps it contained at a more manageable 3.3 percent. A combination of lower inflation, faster decreasing population growth and faster paced economic growth ensures that Chinas real per capita income is improving much faster than Indias (see table).
lets give them reality check. 
