China or India 2020 & Beyond- To Be or Not To Be The Next Superpower...That's The Question

China Reigns Supreme

On paper and looking at the current statistics China wins the race...and by a long way!!

Global Trends (the latest one is Global Trends 2025) is an excellent strategic analysis produced by the US National Intelligence Council (NIC) on how world developments could evolve, identifying opportunities and potentially negative developments that might warrant policy action.

http://www.dni.gov/nic/PDF_2025/2025_Global_Trends_Final_Report.pdf
That report, which was published in November 2008, indicated that China was going to be the world's 2nd largest economy by 2025, behind the USA.

However, on the 21st of January this year John Hawksworth, head of macroeconomics at PriceWaterhouseCoopers (PWC), said in a report published in London, that China could overtake the United States to become the world's largest economy as early as 2020!! underlining the "seismic change" in global economic power.

Jim O'Neill, chief global economist for US investment bank Goldman Sachs, and the one coined the term 'BRICs' to refer to the four emerging market powerhouses Brazil, Russia, India and China (which have since formed an informal grouping to discuss global issues and economic policies) indicated in a Global Economics Paper (No. 99) entitled: Dreaming With BRICs: The Path to 2050 (published 01.10.03) that China's economy was going to overtake the United States by 2041.

In other words, the speed of growth and development of the Chinese's economy is surpassing the most optimistic forecasts...currently expected to overtake the US's economy 21 years earlier than predicted by Jim O'Neill and his team at Goldman Sachs only 7 years ago!

Size of Top 10 World Economies in 2010 (GDP in US $ trillion)

1 USA 14.8
2 China 9.7
3 Japan 4.3
4 India 3.9
5 Germany 2.9
6 Russia 2.21
7 UK 2.18
8 France 2.15
9 Brazil 2.14
10 Italy 1.8

Size of Top 10 World Economies in 2020 (GDP in US $ trillion)

1 China 28.1
2 USA 22.6
3 India 10.2
4 Japan 6.2
5 Russia 4.3
6 Germany 4.0
7 Brazil 3.9
8 UK 3.4
9 France 3.2
10 Mexico 2.8

Comments ref. changes in world economic order from 2010 to 2020

1. 
   
   India will displace Japan from 3rd place as early as 2012.
2. New arrival in the top 10...another emerging economy Mexico.
3. Brazil's economy becomes considerable larger than both UK & France.
4. Russia moves ahead of Germany into 5th place, making the largest Western European economy only 6th in the world.
5. The gap between India in 3rd and Japan in 4th is equivalent to the size of the German economy in 2020 (i.e. US $4.0 TRILLION!!)

R & D...a key competititive advantage

Moreover, it's expected that China will lead the world's scientific research by 2020. Vast state investment in schools, universities and research programmes has driven the rapid growth, with academic discoveries rapidly tapped for commercial potential. Chinese scientists are particularly strong on chemistry and materials engineering, both considered central to the country’s industrial development and economic future.

The figures, compiled by the publisher Thomson Reuters for the Financial Times , showed that Chinese scientists had increased their output at a far faster rate than counterparts in rival 'BRIC nations'. Although India has long been tipped as the most likely threat to US academic supremacy, the study found it now lags well behind China.

So...game over then...2020 China is the Next Superpower! Maybe...just Maybe

The case for India
1. The reigning superpower would like to see India, rather than China joining the ‘elite club’

A recent US strategic review, Quadrennial Defence Review 2010 (Feb. 2010), suggests that the US is more comfortable with the rise of India than it is with the ascent of China. According to the review, Washington wants India to play ‘a more influential role in global affairs.’

The Pentagon review, issued every four years, broadly sets the US security and military policy and worldview. So it’s interesting that the rise of China and India is the dominant theme of the 2010 review.

If the US finds itself more at ease with India, rather than China, and it makes perfect sense. Their religious and cultural pluralism, English language and the fact that the US and India are home to the two biggest and most successful film industries are some of the other factors. Some of the brightest minds in the Silicon Valley and US universities are from India. These ties in recent times have expanded to military and economic cooperation making it a truly win-win partnership.

Understandably, China makes the US uneasy with its pace of economic and military growth as well as its growing political clout. The tightly controlled, single-party ruled socialist China also worries the US because it defies and challenges Washington’s global supremacy.

2. The population issue

India will overtake China as world's biggest country by 2026 said a report published in July this year. India's current population of 1.1 billion will swell by 371 million in 2026, the report said, taking it beyond China's current 1.35 billion. At the same time, China is aging faster than any other country in history, largely due to its one child policy.

China’s working-age population will begin to contract starting around 2015 and will experience negative growth rates beginning around 2020. By 2025, the size of India’s working-age population will overtake China’s, and by mid-century will be a staggering 50 percent larger.

China will start ageing and suffering from a declining workforce, and will be forced to revalue its currency. So its growth will decelerate, just as Japan decelerated in the 1990s after looking unstoppable in the 1980s.

Roughly a fifth of the world’s children reside in India, and about a third of its population is under 14 years of age, one of the highest ratios in the world. Astoundingly, over the next two decades, India will add about a quarter of a billion workers to its labour force — a figure that nearly approximates the entire current US population! As a result, by 2020 India will provide 25 percent of the global workforce.

Over the next 25 years India will reap a demographic dividend of high economic growth...but only if they make huge investments in human resources and health. Pavan K Varma, one of India's most influential social commentators, recently explained that India already produces 160,000 newly qualified engineers and more than one million technicians every year, which will increase as its population and investment in education rise.

3. The faster GDP growth

Already this year India’s GDP growth is expected to be higher than China’s whose GDP will likely grow by between 8.3% and 8.8% next year, while a bountiful monsoon this year and impending tax reforms mean India may reach 9.0 per cent in the financial year that runs from April 2011 to March 2012.

China’s economy has been growing at a double-digit pace for much of the past decade but is starting to slow as the government in Beijing eases back on stimulus measures and seeks to put a brake on runaway property prices.

India has also made better use of invested capital than China. China's investment as a share of GDP is twice that of India, but its GDP growth rate has been only 50 percent higher. Rising domestic investment is likely to lift India's trend GDP growth rate way above 7 percent for some time...

India's economic reforms, which formerly were driven by responses to crises, are now driven by policy and several key sectors, including pharmaceuticals, power, telecommunications, civil aviation, insurance and real estate, are now open to foreign direct investment. Many other positive steps have been taken, such as recognising product patents on drugs, lessening of bureaucratic controls and the recent announcement by the main opposition party that they will support ongoing reforms.

China's export-oriented model will erode sharply - the world will no longer be able to absorb its exports at the earlier pace. Meanwhile, India will gain demographically with a growing workforce that is more literate than ever before. The poorer Indian states will start catching up with the richer ones. This will take India's GDP growth to 10% by 2020, while China's growth will dip to 7-8%.

India is definitely picking up pace in its GDP growth, though inflation remains a significant risk factor. As a consequence, Reserve Bank of India Governor Duvvuri Subbaraor raised interest rates for the fourth time since mid-March on the 27th of July to cool prices. India’s wholesale-price inflation rate has stayed above 10 percent since February and the finance ministry expects it to accelerate as the June 25 fuel-price increase filters into the economy. The increase was by 0.50%, which was more than the expected 0.25%.

So...it's India Then...The Next Superpower! Well...Yes and No

Improving private consumption, capex and capital inflows will lead to strong growth in 2010-11, but sluggish structural reforms, liberalisation and removal of supply-side bottlenecks will prevent a return to 9-10 per cent growth rates in the coming years. India has not had a full year of double-digit growth in the six decades since gaining independence at the end of the 1940s, though it reached 11.3 per cent for one three-month period in 2003-04 and two quarters of 10.2 to 10.3 per cent in 2006-07.

India’s ‘demographic dividend’ is still more hypothetical than real, since the vast bulk of the youthful workforce is neither well educated nor engaged in particularly productive employment.

Unlike China, India cannot exploit its comparative advantage as a labor-abundant economy due to highly restrictive laws that shackle the capacity of large-scale manufacturing companies to absorb surplus rural labor. As a result, the country’s manufacturing sector remains largely skill- and capital-intensive — a disconcerting anomaly given India’s raw demographic bounty...which makes India’s underuse of its growing labour force the country’s Achilles’ heel.

In the abstract, India’s future might appear brighter. Despite its spectacular current growth, China is on the verge of a significant demographic decline, apparently destined to become a rather curious type of great power — gargantuan but filled with a rapidly ageing and relatively poor populace. Moreover, it’s an open question whether its authoritarian political structures can adapt to the demands of economic globalisation. India, on the other hand, has obvious potential for gains simply from making better use of its existing labour and knowledge resources. The pivotal question is whether India can get its institutional act together.

Finally...The 'Chindia Effect'

Regardless of who actually wins 'the superpower race' the influence of these 2 countries over the next 2 decades will be dramatic.

We can already see now changes in the world order, with The Group of 20 (G20) developed and emerging economies taking over last year from the traditional Group of Seven (G7) UK, Canada, France, Germany, Italy, Japan and USA-- as the main forum for economic talks.

Authoritarian regimes often yield impressive short-term economic results, as seen in Germany in the 1930s, the Soviet Union in the 1950s, Brazil in the 1960s, and China in the 1990s. Unencumbered by such things as property rights, legal recourse, and public debate, the authoritarian regime can harness significant economic and political resources to create impressive industrial and economic feats.

Conversely, democratic regimes tend to be sloppy affairs with loud public discourse, a vocal press, stubborn land owners, and a myriad of civil liberties. Far from being able to harness economic resources, the government often must act more as a regulator. The result is that there are very few grandiose government-sponsored projects. Instead, there are countless private-sector initiatives driven by the invisible hand of the market. While the authoritarian regime is envied by some, the fact is that longer term, this type of socioeconomic model has typically led to economic and social distortions.

My personal view?? I say the 2010 to 2020 decade will belong to China and 2020 t0 2030 will be India's decade...from then on revising who's the real superpower will certainly be interesting!

One plausible scenario 'cold war 2' develops with India (more open, democratic, pluralistic) taking the role of the USA in 'cold war 1' and China (centric, undemocratic) the role of the USSR.