1.1 The Asian century?
This book has been motivated largely by the huge changes in the world economy that have occurred since the new millennium. The most important change has been the rise of China and Indiaâthe two biggest emerging economies in the world. Is the twenty-first century going to be the Asian century, as the twentieth century was the American century and the nineteenth century was Europeâs? Many agree that it might be thanks to the contribution of China and India to the worldâs economic growth.
In the last two decades, Asiaâs economic growth has diverged from that of other developing regions. Since the mid-1980s, economic growth in emerging Asia (including China and India) has been much stronger than elsewhere. Such growth has benefited from economic integration with the global economy. From the mid-1990s, China and India started to make their mark in the world economy. In 2009, according to World Bank, the Asia and Pacific region accounted for almost one-third of global GDP, while 54 percent of the regionâs GDP comes from just China and India.1
Thanks to policies of reform and openness, China has experienced rapid economic growth over past decades. In total economic size, China has quickly caught up with other large economies. In 2008, it overtook Germany to be the third largest economy in the world, and in 2010 it surpassed Japan to be the second largest economy (Table 1.1). Various projections have been made to estimate the timing of China becoming the worldâs largest economy. As early as 1997, the World Bank published a report to prognosticate about Chinaâs rise in the twenty-first century as a world economic power and predict that China will overtake the US to become the world largest economy in the 2020s.2
At market exchange rate, Indiaâs GNI (Gross National Income) in 2009, at US$1,367.1 billion, was the eleventh largest in the world, accounting for 9.6 percent of that of the US. Emerging from decades of economic insulation, the countryâs economy has been growing strongly with the result that vast amounts of wealth have been accumulated and the number of poor has been greatly reduced.
Another alternative way to measure the size of an economy is by purchasing power parity (PPP). A PPP GDP is computed by converting its value to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GNI or GDP as a US dollar has in the US.
Since Chinaâs and Indiaâs domestic prices for most goods and services have been much lower than that in the US, their PPP GDP or PPP GNP (gross national product) has generally appeared much higher than their nominal GDP or GNI. As shown in Table 1.2, over the period of 2000â2009, Chinaâs PPP GNI increased from US$2,975.6 billion to US$9,228.2 billion, leading to it becoming the worldâs second largest economy; while Indiaâs increased from US$1,543.9 billion to US$3,832.7 billion, making it the fourth largest economy after the US, China, and Japan.3 By PPP GNI, China surpassed Japan in 2002 when its economy reached the size equivalent to 35 percent of the US economy. Now the size of the Chinaâs economy, measured by PPP GNI, is over 65 percent of the US economy.
1.1.1 The role of China and India in the world economy
Drivers for global trade expansion
Economic growth in China and India affects growth in the rest of the world largely through international transactions. The global impact of growing trade with the two countriesâespecially Chinaâhas already been huge and will increase further in the future. China is one the worldâs most open economies: its exports as shared of GDP increased from 20.4 percent in 1999 to 38.1 percent in 2008; in India, the share also increased from 11.4 percent to 21.9 percent.4 China and, to a smaller degree, India have been major contributors to the massive expansion of global trade.
The expansion of Chinaâs trade with the rest of the world has been one of the most striking global economic phenomena of the last decades. China accounts for 10 percent of worldâs exports and 8 percent of worldâs importsâwell above the countryâs contribution to world GDP (Table 1.3). China is the worldâs largest exporter, having just overtaken Germany, and the second largest import behind the US.5 The importance of trade to Chinaâs economy reflects the high degree of integration of Chinaâs industry into international production chains, particularly within Asia. About one-third of the value of gross exports of China is estimated to come from imported inputsâmainly parts and components for assembly into finished products and capital equipments. Most exports are finished goods.
