India vs. China

This summer I have had the amazing opportunity to work back-to-back in the world's two fastest growing economies. Here are some comparisons and observations.

Facts and Figures:

• China is the world's biggest country with ~1.32 billion people. India is the world's second biggest country with ~1.10 billion people.
• China is almost exactly the same size as the US in land area. India is about 1/3 of the size of the US in land area.
• China's 2006 GDP was $2,720B, which is $2,069 per capita. India's 2006 GDP was $923B, which is $842 per capita.
• On a purchasing power basis, China's GDP is $7,539 per capita. On a purchasing power basis, India's GDP is $3,920 per capita.
• China's five year GDP growth rate has been 10.1%. India's five year GDP growth rate has been 7.8%.
• China's economy is the 4th largest in the world on a nominal US dollar basis but 2nd on a purchasing power basis. India's economy is the 12th largest in the world on a nominal US dollar basis but 3rd on a purchasing power basis.
• 21% of Chinese exports go to the US. 17% of Indian exports go to the US.
• ~350 million Indians speak English (more English speakers than any other country). Estimates of Chinese English speakers range from 50-275 million. (Though in practice, I have had no trouble getting by in English in India but in China it was often impossible)
  

Impressions:
It's hard not to think that China is going to take over the world when walking around Shanghai. The economic growth and energy is palpable. In India, however, walking around any city you definitely do NOT get that impression. Poverty is everywhere, and the palpable feeling is that of walking around an "emerging" economy.

It seems quite true that China has grown because of its government and India has grown in spite of its.

The Indian government cannot handle the simplest issue. Being a democracy with so many diverse viewpoints effectively paralyzes the government. It is true that India makes fewer mistakes as a result, but it is a clear economic disadvantage. The Chinese government on the other hand, is not at all afraid of crushing a few (or few million) individuals or individual liberties in the name of progress. I am nobody to judge which approach is better, but they could not be more different.

What will happen next?
Currently, both countries face a number of similar and significant challenges.

Both countries are trying to move beyond their core strengths (and into the other's territory). India is expanding its manufacturing capabilities - for example, Dell and Nokia have recently opened large plants here. China is also trying to capture more of the IT market. It's IT revenues are currently about 40% of the size of India's. But China's IT market grew at 22% a year and with greater English adoption may grow even faster. Currently, 80% of India's technology exports go to the US or UK. 60% of China's go to Japan or Korea. Both are trying to become more balanced.

Both countries have major political risks that are discounted in the west. India has both Kashmir and the Northeast Provinces with large separatist movements. In addition to Taiwan, China faces problems in Tibet and Southern China, which is increasingly overrun with crime. Both countries face uprisings and riots from farmers on a daily basis. Both have major issues with water and energy shortages and pollution problems (all probably worse in China).

Both countries also face major economic risks. Japan and the other "Asian Tigers" all had significant depressions after growing for approximately as long as China and India in the most recent expansion. China's stockmarket has also gotten to extremely high valuations which are bound to come down in the near-term.

Both also will face major challenges as currency appreciation hurts their cost competitiveness. The rupee has risen nearly 15% this year vs. the dollar. Economists estimate that the yuan is between 10 and 50% undervalued because it is not allowed to freely float.

And both face competition from other emerging Asian economies. The NYT has recently written about the Japan/India partnership that is emerging to combat China. And many global companies and venture capital firms are looking to Vietnam, the Philippines, and elsewhere to provide the next source for cheap labor.

Still though, I think both countries are largely poised for a strong future and while it may not be a smooth ride, I think they will overcome these hurdles. China, particularly, has already become so large and economically powerful that it's rising consumer class should help it continue to grow even if its exports begin to suffer.

Perhaps unsurprisingly, I think over the next 10-15 years the US will grow at 3-5%, India will probably grow at 5-7%, and China will probably grow at 7-9%. But I think India' growth should be pretty stable, barring a major war. I think China's growth faces some significant risks and volatility in the near-term. As a result, I don't think China will catch up to the US as quickly as some people have projected (this recent NYT article seems to agree).

Which would I choose?
If I had to choose to be a farmer in either country, I would probably choose China (though it would be very close, I'd probably be slightly richer and more educated in China but would have less freedom).

If I were to be Me but born in one of the countries, I would definitely choose China because of the huge potential for great wealth (even though I would probably have to live with a permanent face mask to survive the pollution).

Still though, if I could choose to be born anywhere, while it may change in 50 years, today I would almost certainly still pick the US. Hmmm...or maybe Sydney.