Economic reform in China, India could create new Asian tigers.
- Published: September 01, 1995, By Wolpert, Vladimir
A 72-page study conducted by Vincent Cable, head of the International Economics program at the Royal Institute of International Affairs in London, reports that if India and China, two of the most heavily populated countries in the world, achieve a rapid level of development, it would have a significant impact on the world economy.
"China, with a population of more than 1.15 billion, and India, with a population of more than 866 million, are by far the most populous countries in the world, together accounting for more than 2 billion of the world's 5.3 billion total," Cable writes. "If both, or even one, of them should manage sustained rapid development comparable to that achieved in smaller East Asian economies, it will be of historic significance, not just for the countries themselves but for the rest of the world."
The study includes a chapter on comparative performance, which asserts that China's growth is currently outpacing that of India.
"It is only in the past 15 years that more solid comparisons can be made. India's economic growth rate accelerated from a trend rate of 3.5%, the so-called Hindu rate of growth, to near 5%, or about 3% per head. Meanwhile, China's accelerated to almost 10%, around 8% per head," the study shows. "India is much less urbanized and more dependent on agriculture in terms of the share of national output and employment. The fact that 60% of the working population are farmers, many in small-scale, near-subsistence agriculture (the average farm size is under 1.5 hectares) acts as a powerful brake on rapid growth."
The study stresses that the role of China and India in the world economy is currently modest, with China accounting for 2.2% of the world trade (excluding Hong Kong) and India .5%. "This share is almost certain to grow under several influences," according to the study. "First, China will absorb Hong Kong in 1997 and, excluding the double counting which would come from simply aggregating the two, this in itself will raise China's share to about 3.5%."
The study also stresses the importance of considering the balance of risks and opportunities. To illustrate this theory, Cable notes that the two countries are attracting great interest from foreign investors and traders due to their sheer scale in terms of population and purchasing power, their "dynamism," their large stock of highly trained and educated manpower and a recent history of reforms designed to liberalize and open up the economies.
"It is entirely plausible," he writes, "to imagine that one, and perhaps both, will be among the world's leading economies in decades to come."
On the other hand, there are risks associated with these opportunities.
"China faces a very uncertain political future in the short term and an even bigger, systemic question over what kind of regime will evolve from communism. India has a supple and responsive, and now deeply rooted, democracy, but there is no shortage of political risks, including sectarian conflict and secessionist movements."
In the case of both, but especially China, inflation is mentioned as a potentially significant risk. However, Cable finds the two countries evenly balanced in terms of their capacity to sustain long-term development.
Cable concludes, "Most current credit ratings and political risk assessments seem rather flattering to China and unflattering to India, but the relative rankings are less important than the common characteristic that these are both countries with enormous potential and high risks."
* Pacific Ventures - In its 1994 Annual Report, Monsanto, St. Louis, MO, states that joint ventures offer growth potential for existing product lines.
In the Pacific Rim, the Chemical Group is creating joint ventures to supply expanding markets. Production is scheduled to start in mid-1995 at Thailon Six Six Ltd., the Chemical Group's nylon joint venture in Thailand. This venture will serve as a gateway to the Burmese, Vietnamese, Cambodian and Indonesian markets for products such as nylon hosiery.
Another joint venture in Thailand, Monsanto Kasei, will provide the Chemical Group and its partners with a plastics plant, scheduled to come on line this year. This facility will be a base of operations in the Pacific Rim outside Japan to supply global customers who make medical, appliance, automotive and consumer electronic products containing Lustran plastics.
Joint ventures will help the Chemical Group grow in the greater China market. A partnership with Jiangsu Chemical Pesticide Group, to be called Monsanto Chemical Suzhou, will manufacture and market Therminol heat transfer fluids. With this agreement, Monsanto will be the first worldwide heat transfer fluid supplier with a manufacturing base in China.
The report also asserts that slow to moderate growth in global economies makes the business climate for chemicals more competitive.
