1 Comparing the comparables
China and India are the world’s next major (economic) powers. They also offer competing models of development. It has long been an article of faith that China is on the faster track, and the economic data bear this out. The “Hindu rate of growth”—a pejorative phrase referring to India’s inability to match its economic growth with its population growth—may be a thing of the past, but when it comes to gross domestic product (GDP) figures and other headline numbers, India is still no match for China.
Huang and Khanna
Foreign Policy (2003, pp. 83–91)
1. Juxtaposing the two populous giants
The People’s Republic of China (hereinafter China) and the Democratic Republic of India (hereinafter India) are geographically large and neighboring emerging-market economies (EMEs), which are increasingly being perceived as two up-and-coming economic powers. They are two populous economies accounting for more than a third (37.49 percent) of the global population. They have different political systems and pursue distinctly different economic and political routes to growth.
Latterly it has become conventional wisdom to compare and contrast them. Academic researchers, public policy mandarins and decision-makers in the business world have become enormously interested in the growing strengths of the two economies and a comparison between them. Indubitably, deficiencies exist in statistical data in both the economies, making comparison a difficult and imprecise matter. Yet, frequent articles in the financial press and academic journals have continued to dwell on the theme of comparison and evaluation of their economic performance as well as their future prospects and status in the global economy. During the last three years, The Economist and Business Week brought out special issues addressing the diverse facets of the two economies and their short- and medium-term economic potential. The McKinsey Quarterly published two special issues on China and India in 2004 and 2005, respectively. Columbia University, Cornell University, Stanford University, Johns Hopkins University, Royal Institute of International Affairs (RIIA) and the Brookings Institution have organized international conferences on or around the two economies and the theme of comparison between the two. In the recent past, large think-tanks and research institutions, including the East–West Center, Hawai’i, and the Woodrow Wilson International Center for Scholars, launched major research projects addressing this subject, which has both theoretical significance and practical value for the public policy-making community and decision-makers in the business world.
China and India share a 2,175 mile border and have entrepreneurial trading heritage, enormous internal economic diversity and significant agricultural sectors.1 Both are ancient cultures, have almost five thousand years of recorded histories and are regarded as cradles of human civilization. Though the two economies were noted for their prowess and prosperity in the remote past, their more recent history of the last two centuries is replete with distressful colonization of one and feudal incompetence leading to economic turmoil in the other.2 Sometime between the mid-eighteenth century and the latter half of the twentieth century, the two countries became bywords for stagnation. During this period they were among the poorest countries in the world, typically thought of as locations for famine, disease, pestilence and backwardness. In the mid-twentieth century, particularly during the 1960s, both the economies suffered from famines and their economic fortunes reached their nadir. In the facetious, if sterilized, language of international diplomacy they became “basket cases,” deserving to be viewed through the lenses of pity. India became heavily dependent on external assistance, particularly on United States (US) wheat shipments under the PL 480.3 Until the early 1980s, the two countries were widely regarded as “impoverished” and comparable low-income economies.
First, China, after a long period of isolation, and then India, after an inwardlooking and semi-isolationist period, began opening up and trying to integrate with the global economy. China proved to be a far superior success in this endeavor. As alluded to above, the two economies adopted very different political systems as well as diverse growth strategies, which resulted in different trajectories of growth. Their developmental experiences remain distinctive. Together they are home to nearly two-fifths of the total working-age global population. Notwithstanding recent success on the economic developmental front, both countries still have a significant number of poor living within their border, although they have made great strides in reducing poverty in the last decade. China has successfully established itself as the fastest growing economy in the world, and its emergence in the late twentieth century is comparable to the rise of a united Germany in the nineteenth century and the US in the early twentieth century. Although India’s long-term growth rate during its post-independence (1947) period was slothful and disappointingly slow, it picked up momentum after 1991.
China turned in a stellar economic performance during the closing decades of the twentieth century, attracting global attention and inspiring appreciation. At the beginning of the twenty-first century, it was being seen by some analysts as the economic superpower of the future (see Section 7). It emerged as a low-cost manufacturing juggernaut, invading global markets in a sizeable array of products, with a high and rapidly rising level of merchandise exports and imports. In comparison, India’s growth performance has shown improvement but has not matched that of China. Likewise, in spite of improvement in export performance, India’s exports remain far lower than China’s. In addition, India fell behind in every indicator of economic and social well-being. China’s growth strategy is methodical and deliberate, while India’s seems to be impromptu, opportunistic, if not chaotic. However, in the early 2000s the scenario has transformed further, and India seems to be joining China in the category of one of the world’s fastest growing economies.
In terms of real GDP growth rates during the 1980s and 1990s, China and India turned in notable performances. In terms of integrating into the global economy, progress in economic reforms and restructuring of the economy, and improving general macroeconomic efficiency and total factor productivity (TFP), China has gone much further than India and reaped the rewards. “India is often portrayed as an elephant; big, lumbering and slow off the mark. Now investment-bank reports are beginning to talk of it as a new Asian ‘tiger’. If that is what it wants to be, it makes sense for it to study China: the tiger in front is Chinese” (The Economist, 2005a). A confluence of sustained economic growth in the two economies, expanding industrialization and large populations may well become the root of rapid rise in the future geo-economic and geo-political prowess of these two countries.
Nonetheless, the two societies will remain very distinctive because of their dissimilar political orientations. This difference is of enormous consequence. While India is an open democratic society, China is a closed society run in an authoritarian manner by the Communist Party bureaucracy. And while India is known for its rambunctious, pluralistic, multi-party democracy and free press that readily exposes all economic, political and social deficiencies, China is reviled for the 1989 Tiananmen incident all the world over.4 If democracy goes a tad too far in India, the government in China continues to rule by fiat. To be sure, their different political orientation has had an important bearing on the economic decision-making process. This glaring difference is of capital importance, and some scholars are tempted to point to it as the basic rationale for the difference in their economic performances.
2. Comparing pre-modern China and India
History is a great teacher. T.S. Eliot was not the only one who believed that “time present and time past are both present in time future, and time future in time past.”5 J.M. Keynes (1936) concurred with him and counseled his cohorts to “examine the present in the light of the past” so that the future may benefit from it. A creative concern about the future entails an insightful understanding of the past. Therefore, in the following two subsections I shall briefly focus on the economic history of China and India. Their existence as a definable political and economic entity predates virtually all other countries. The two countries have long histories, but they are completely different. Chinese history demonstrates that it has been a stable and centrally run state for the most part. There were few periods when a cohesive central authority was missing. Conversely, India had only two periods when a large geographical part of India was ruled by an emperor or single political authority as an entity. The two countries remained economically energetic and vibrant until the middle of the eighteenth century, and thereafter went into a steep decline.
2.1 China
Chinese history has records of its military and cultural preeminence over large parts of Asia. China’s unification in 221 BC under the Qin Dukedom (221–206 BC) is widely regarded as the starting point of nation state and national economy. The Qin Dukedom was established in modern-day northern China, followed by a long process of territorial expansion. Before the unification China’s multiple feudal political units accommodated an economy which was a mix of farming, commerce, handicrafts and pastoral activities. Domestic economic competition prevailed in all spheres, including science and technology. This remote period of history is known as “a-hundred-flowers-blooming” period (Deng, 1999). Thereafter, for a long period, both the state and the peasantry demonstrated a strong proclivity to expand the territory of the empire and, with that, farm land. This expansion of China’s agriculture and territories is called its internal colonization. It went hand in hand with the expansion of Chinese bureaucracy and army to the newly settled regions. Geographical expansion and internal colonization of the empire stopped only when it reached the physical limits. This tradition of expanding empire with farm size was unique to China.
In the expansion of farms and their sizes, the state saw fiscal reward in terms of more revenues from the peasantry. The peasants in turn saw more land coming under the plough as an enlargement in their resource endowments, expanding their income base. Clear property rights over land were given to the peasants, which provided them with a further incentive to expand farm size and produce more. The practice of equal inheritance among the peasantry— which led to the constant problem of shrinking farm size—also perpetuated the tendency of expanding farms whenever possible. This was the cause behind the expansion of the empire from the Yellow River basin in the north in all four directions. Gradually the near south, along the Yangtze Valley, was colonized, and so was the west along the oases of the Silk Road. This happened during the Han period (206 BC to AD 24). Under the Tang dynasty (AD 618 to AD 907) this expansion accelerated in the far south, reaching and covering a part of modern-day Vietnam. During the Ming (1368–1644) period modern-day Taiwan was annexed by China, while during the Qing period (1645–1911) vigorous expansion of farmland and territory took place in the far north and the far west. The state supported this expansion by providing migrating farmers assistance in the form of finance, free passage, seeds, farming tools and tax holidays.
Chinese agriculture of this period is acknowledged to be high-yielding. The iron-tipped plough has been used in China since around 500 BC (Needham, 1954). China also developed a large system of irrigation canals. A high-yielding agricultural sector constantly produced surpluses, leading to the development of a market economy in pre-modern China. By the end of the Qing period (1645–1911), more than a third of post-tax agricultural output was marketable surplus. This magnitude of marketable surplus was sufficient to support a market economy in agricultural produce. This is one reason why monetization of the Chinese economy is over two millenniums old. The state mints produced large amounts of coins for domestic use. To save coin metal, paper and cloth currencies were used on a large scale during the Song (960–1270) and Yuan (1271–1368) periods, which created inflation at a later stage.
During a large part of Chinese history, China remained embroiled in domestic conflicts between Chinese and non-Chinese regimes. It was also ruled by non-Han Chinese invaders for long periods. The militarily powerful Mongols and the non-Chinese Yuan dynasty conquered large parts of Central Asia and captured far flung areas like Karakoram and cities like Samarkand. They reached up to the Aral Sea, and also waged wars against Burma, Siam (Thailand), Annan (north Vietnam) and Champa (south Vietnam) (Swaine and Tellis, 2000). The Ming dynasty (1368–1644) re-established the rule of Han Chinese but they remained engrossed in containing the Mongol military might. Obsessed with defense, the Ming dynasty built the Great Wall to block the entry of Mongol and other invaders. They even paid the Mongols for not invading the Chinese territory (Fairbank, 1992).
As China was on silver standard, it was a large importer of silver. Silver imports peaked between the fifteenth and the nineteenth centuries, or during the Ming and Qing periods. The principal suppliers of silver were Japan and the so-called New World countries that were mining large amounts of it. A rudimentary short-term domestic credit system existed in China, which used land and home for collateral. However, foreign trade was either a state monopoly or was dominated by it, adversely affecting the development of a local merchant class (Deng, 2004).
The Manchus are credited with establishing the Qing dynasty (1614–1911). While they were engrossed in containing invasions and domestic rebellions, they were also successful in their military expeditions and extended control over large areas of Asia (Frankel, 2004). Through much of its history, China was governed by a strong power at the center. It saw itself as a nation having a cohesive national market. It had two standard written languages, a uniform calendar, and a system of weights and measures. Together they supported a domestic system of commerce. Although China did not become a colony of any of the metropolitan powers as India did during the last two centuries, a multiplicity of foreign powers jostled for economic, political and military influence.
China made its mark in science and technology by inventing gunpowder, printing, paper and paper money. Tea, silk, the wheelbarrow, the bureaucratic structure of government and the degree of PhD are among the valuable gifts of China to mankind. It was a major exporter of fine textiles and muslins. Until AD 1500, Chinese ships dominated the oceans; thereafter they passed on to the European powers.6
The Opium Wars of 1839 were followed by the “century of humiliation” for China. This was the beginning of a low and humiliating historic period. China was forced to conduct trade with the Europeans as equals. However, Britain, France, Germany, Italy, Japan and Russia forced unequal treaties on China. Being treated as an inferior in its own land by foreigners was a national discomfiture. The Qing did not comprehend the revolution in ocean-going armies, which had changed the balance of power in warfare. The past successes of traditional Chinese armies could not be repeated during this period. In 1885, China lost the Sino–French war in Vietnam, which was declared an independent sovereign country. In 1894–5, China lost the Sino–Japanese war and Korea was declared an independent sovereign country. Britain maintained a high level of influence in Tibet, which ensured a high level of autonomy for it. In 1945, both the US and Soviet Union pressured China to recognize Mongolia as an independent sovereign country (Frankel, 2004). Japan invaded Manchuria in 1931 and occupied large parts of Eastern and Central China. Naturally, having had such degrading experiences, China demonstrated a strong distrust and abhorrence for all foreigners for a long time. Removal of foreigners and reversing of concessions became an important national objective.
2.2 India
The decline of the ancient Indus Valley civilization was complete by 1700 BC, but the reasons for its demise are far from clear. Over the next 2,000 years the Indo–Aryans developed a Brahmanic civilization, out of which Hinduism evolved. From modern-day Punjab the Brahmanic civilization spread east over the fertile alluvial Gangetic plains and by 800 BC it was established in Bihar, Jharkhand, and Bengal. The first large and important Indo–Aryan kingdom was Magadha, with its capital near present-day Patna. It was from here that Bimbisara (54–49 BC) ruled India. The founders of Buddhism and Jainism preached during this period. An extraordinary historical feature about India is that it was never unified as a single political entity or nation state even during the periods of great empires on the subcontinent.
Alexander the Great invaded the province of Gandhara, in the north-western part of India, in 327–325 BC. The Macedonian invaders were eventually driven out by Chandragupta of Magadha, founder of the Mauryan empire (313–185 BC). This was the first classical age of what is called the Hindu–Sanskrit culture. The Mauryan emperor Ashoka, Chandragupta’s grandson, is regarded as the greatest ruler of the ancient period. Basham (1954) called him “the greatest and the noblest ruler India has known and indeed one of the great kings of the world.” He established a centralized empire and unified almost all of India, except for its southern part, the first ever attempt of this kind in Indian history. Ashoka embraced Buddhism, which had a universal moral appeal transcending national boundaries. Ashoka widely propagated Buddhism and spread it to Sri Lanka and Southeast Asia. Ashoka’s empire lasted for half a century after him because the governors of the large provinces established their independence. His descendents were reduced to ruling the capital, Patliputra, and areas surrounding it. Disorder and invasions followed during the next 200 years, leading to the collapse of the Mauryan empire (185 BC). During this period, South India enjoyed greater prosperity than the north. Among the Tamil-speaking kingdoms of the south were the Pandya and Chola states, which maintained active overseas trade with the Roman Empire. Due to vigorous trading links of South Indian kingdoms, Indian cultural and religious influence spread throughout the Southeast Asian countries. Remnants of this influence are still to be found in this part of the world.
The Gupta dynasty (AD 350–550) rebuilt power from the Gangetic heartland of Patliputra. Their dynastic empire covered large parts of India, extending from Punjab in the west to Bengal in the east, and Kashmir in the north to the Deccan in the south. It is considered a golden age of Hindu kingdoms, a classical period of Hindu–Sanskrit culture. This was the second classical period of Indian history. This period is well known for royal patronage of artists, sculptors, dramatists and architects. Trade through sea routes with China and Southeast Asian countries prospered. Camel caravans were used for trade, utilizing overland routes, which connected to the fabled silk routes of central Asia. This was the period when Indian culture, art and literature reached its pinnacle. Tales of prosperity and majesty of the Hindu kingdom had reached central and western Asia and Europe. Gupta splendor rose once again under the emperor Harsha of Kanauj (606–47), and north India enjoyed a renaissance of art, letters and theology. The noted Chinese scholar-pilgrim Hsüan-tsang visited India during this period; his written accounts of Indian history of this period are still avidly followed.
During this period, the Pallava kings of Kanchi held sway in south India, and the Chalukyas controlled the Deccan in the west. India became known for its scholars in the areas of mathematics, astrology, logic, medicine and philosophy. Three major religions were born in ancient India, namely Hinduism, Buddhism and Jainism. The concepts of zero and decimal, and the game of chess, are India’s gift to mankind. Like China, India was a major exporter of silk, fine textiles and muslin, largely to the European capitals where these products commanded high price.
Between the eighth and thirteenth centuries several independent kingdoms became strong. The largest among...
