The Decade of a Financially Strong China and India’s Wait For The Turn

Coming out of pools of data, how China made its own mark in the world economy and how India is getting ready to beat it

---

Its been a decade now since Lehman brothers, Investment banking company went bankrupt triggering the world economic crisis of 2008.

2008 crisis was as bad as the 1930s global economic slowdown, however, in 2008 economies had the time and understanding to avert the financial meltdown.

The last decade has been one of low growth, low investment, low productivity, heavy in debt and deficit and no improvement in incomes for nearly 90% of people.

The standout story has been of the continuing growth of China.

Initially, the Chinese economy did take a toll of the collapsing world economy but it was able to quickly recover and emerge as a center point of the world economy.

China saw growth in the low-cost manufacturing and export market, since then the government has pushed the country middle class to produce more and sell more.

Once the world economy gained some momentum it relied on Chinese companies to provide cheap export material.

All this has helped China to project big numbers in the world economy which have facilitated a shift from the traditional financial system to a more modern one, well equipped to bare the trade war with the United States.

The Numbers

Since 2009, the Chinese economy has grown exponentially from $4,600 Billion in 2009 to $12,000 billion in 2017, overtaking Japan in 2011 to be the world’s second-biggest economy.

Growth at 9-10% was a norm up till 2011, settling down over the last seven years to a more sustainable ‘new normal ‘of around 7 percent a year, still well above the world rate at 3.9 percent.

Per Capita income has also grown from $3,500 in 2009 to $8,800 in 2017, a rate of growth between 10-15% a year, making it very easy for China to become a high-income country in next 8 years or so.

China annually is creating 8-10 Million jobs every year, In 2017, there were 11 million new jobs compared to India’s 1 million.

Thanks to its economic structure, China has been able to pull out some 800 million people out of poverty, since 1978.

What Comes Next?

China is now home to six of the world’s 25 largest banks by assets. This includes the four largest ever — Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd., and Bank of China Ltd. — according to S&P Global Market Intelligence data.

China is pushing for faster transactions through blockchain and algorithms, these algorithms as you know are virtually impenetrable.

And, would work extensively on the basic economic model of demand and supply.

China which did not revaluate its Ren-Min-Bi (RMB) immediately after the 2008 crisis despite U.S dollar pressure, it today revaluates and devaluates its currency to meet its own needs.

From an export country, it is today becoming consumption economy which means that Chinese government is not looking outside to continue the country’s growth, it knows that Chinese middle class is the driver of the world economy.

Despite the terrible human rights record, China today is investing heavily in its corporates that help middle-class work experience, consumption and savings.

If you were to pick up an Indian company and Chinese company you’d see the difference.

In Beijing per hour, a middle-class income person earns $5.4 and in Shanghai $ 4.5, compared to $2.3 and $2.1 for Mumbai and Delhi respectively.

In Delhi, a middle-class income earner works for 2,265 hours per year which is closely followed by Mumbai at 2,251 hours per year.

In Beijing, the same middle-class employee is working for 1,979 hours per year and 1,967 hours per year in Shanghai.

But to caution you, this figure keeps on changing from city to city and country to country, do not use this as a means to compare the two economies. Also, these figures do not represent how an economy works because the work hours can be justified with the labour laws of the country and companies.

 

And as of my opinion- China and India are two different economy structures, Indian economy is based on both good and bad of a socialist and capitalist economy.

India has a very different set of problems and solutions for those problems.

While I might have compared per hour income to drive a point home but India today has the potential to tap into its labour market.

India is also tapping into it’s Micro, Small and Medium-size Enterprises (MSME) to make drivers of the world economy.

India has a lot of potential with its ever young population to tap into the growing market.

India shouldn’t be compared to the Chinese model and vice-versa, India also has seen an 8-9% growth in years after the 2008 crisis.

The World Bank has retained its forecast of India’s growth rate at 7.5% for the current financial year.

In its Global Economic Prospects report, the World Bank also said growth rate is expected to remain the same for the next two fiscals.

Per capita income is $1,270, placing India just inside the Middle Income Country category.

And, as many economists and the latest economic survey presented by the government say, by 2024 India would be a $5 trillion economy.

To conclude I would say, the Indian economy will grow it is just developing all the roads it can to overtake the Chinese might.

 

Sources- HongKong and Shanghai Banking Corporation (HSBC), UBS Group, S&P Market Intelligence

---