China and India

Oct 02

China and India are the two most populous countries in the world. Despite relatively small growth rates when compared to the world, 1.312% for India and 0.481% for China, they still add every 22,271,565 new people to the world every year. In some cases, the size of the population has prompted government intervention, such as China’s one-child policy for urban residents. Infrastructure throughout India has struggled to keep pace with the burgeoning population. In both cases, the sheer mass of available workers has produced an economic engine built on top of cheap labor. Despite impressive growth, both of these countries have relatively fragile economies with high dependence on foreign allies.

Emerging economies

China and India are identified as emerging economies. Political and regional conflict and instability  over the last century has caused some setbacks economically. China has only operated as a market-oriented economy for the last few decades, during which time it has seen extensive growth. India has focused on the IT industry and has made great headway in winning business, although the appeal to Indian IT services is often the low cost relative to other sources. As a result, they have not enjoyed the high economic benefit from their IT outsourcing that might be expected.

Fragile economy

While both economies are growing, they are fragile. Risks for these two economies include unrest and discontent among citizens. In the case of China, the current communist government only goes back about 70 years, which is a relatively short period of time. Currency issues affect both countries. China has been under pressure from western trading partners in recent years to voluntarily increase the value of their currency against the Dollar and other currencies. Trade deficits and high exports are the reasons most often cited for this pressure. An increase in the value of the Yuan would benefit only the west, and not Chinese interests, which understandably causes reluctance on the part of the Chinese government to comply. Inflation poses a substantial threat to social programs and devaluation of the dollar conflicts with western interests.

India has experienced growth economically, but their infrastructure has not kept pace. There is a stark contrast between urban and rural areas, with a great deal of poverty still pervasive throughout society. The state of education and skill level for IT professionals is inconsistent and lacks governance. Roads and airports into the main cities are modern, but provide little benefit to the general population. Volatility in the region, such as their neighbor Pakistan, threatens to undermine Indian interests.

Different cultural tracks

Culturally, China and India have significant differences. China’s commitment to communism and unique language may place them at a disadvantage with their western partners who greatly value democracy and free market capitalism. The autocratic government influences work processes and approach.

India has much more open markets. Most of the professional population speaks English, which is appealing to western businesses looking to source IT from India. Lack of governance in matters of education and business affect India’s standing in the world economy.

The Long Road

When viewing these countries current trajectory, they both stand to gain significantly from an economic perspective in the coming years. Risks to that growth exist both domestically and internationally. Currency valuation and political issues will significantly impact the direction of the country.

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