Tuesday, June 11, 2002

China, India and the Asian Century?

We have shown in the previous article that India and China are likely to be among the three fastest growing economies in the World in the first decade of the 21st century with a mean growth rate of 7.3% and 7.5% per annum respectively. This has certain implications for the Global Economy.
Over the last two decades or so the important role played by economic factors in international relations has been recognised and appreciated. Prof. Kissinger has written about the emergence of six ‘Great Powers’ in the 21st century (USA, EU, China, Japan, Russia and India). This is particularly so since the disintegration of the USSR, as poor economic performance and growth was a major factor in undermining its stability and power. Prof. Paul Kennedy, in his book, ‘The Rise and Fall of Great Powers’ also gave economics considerable weight in the evolution of the Global balance of power. In the last decade or two fast growing economies have received a lot of attention and importance not only in World Capital Markets but also in World Capitals. Fast growth of East and South East Asian economies between the mid-seventies to the mid-nineties (coupled with the large Japanese economy) led to talk about the 21st century being the ‘Asian Century.’ Others more cognisant about the growth of Latin American countries like Brazil, Mexico, Chile and Argentina (coupled with the largest economy-USA) talked about the ‘Asia-Pacific Century’. The ‘Tequila crises’ along with the more recent ‘Asian crises’ seems to have put paid to such talk. This along with the strong US growth over the last decade has revived talk of a “Second American Century”.
In addition to economic growth, size is another feature of any economy, which determines its international importance. China and India are among the five largest economies in the world, in term of Gross Domestic Product at Purchasing Power Parity (PPP for short), with a growth rate much higher than each of the other three economies in this group. Though their per capita income (PPP) is between 5.5% and 17% of that of the other three economies, or perhaps paradoxically because of it, their future growth is of special interest to the World. This interest arises from the possibility of catch-up and large contributions to world GDP growth in the first two decades of the 21st century. The general consensus is that China’s performance in the late 20th century has been outstanding while that of India has been quite poor (with some exception during a few years in the nineties) and far inferior, to the point of non-comparability, to the (former) “miracle growth economies.” This article uses the growth projections in the last article to draw implications for power relations.
In terms of relative size, measured by GDP in purchasing power parity, the five largest economies in the world in 1998 were the USA, China, Japan, Germany and India. This is a much better way to compare the relative size of different economies than nominal exchange rate based estimates.. By the end of 1999 India will overtake Germany to become the fourth largest economy. Taking the tentative growth projections in Table 2 and estimating a per capita GDP growth rate for the USA, Germany and Japan as 2%, 1.5 to 1.9% and 0.9 to 1.5% per annum over the next decade we make some illustrative projections for the large countries. The Indian economy is projected to be 7-15% larger than that of Japan (in terms of GDP at PPP) in 2010. Thus by 2010 India’s economy will be among the three largest in the world after the USA and China. Its per capita GDP (at PPP) would still however be about one-fifteenth to one-twelfth of Japan’s and about one-tenth that of Germany.
A market exchange based estimate is useful for trade related comparisons, as tradable goods are the ones least affected by the application of PPP measures. The countries with the largest contribution to World GDP growth in 2010, in terms of absolute US $ value of additional GDP (at market exchange rate) will also be China, USA, Japan and India. In that year, China’s contribution is projected to be about 45% and India’s about 18% that of the USA. Japan’s contribution will be 17-24% and Germany’s 13-18% of that of the USA. These increments to GDP would also be an approximate measure of their incremental contribution to World trade in goods and traditional services (e.g. international transport & communication). With a host of newly tradable services likely to enter world trade in the next decade, the PPP based indicators may provide better indicators for the increase in trade in previously non-traded services.
While attention has been focused on the Asian Tigers, Asian NICs and the Chinese dragon during the past two decades, the performance of the Asian Elephant, India went largely unnoticed till 1998. In terms of per capita income the accepted measure of economic performance, India was the eighth fastest growing economy in the world during 1980-98. It was estimated to be the sixth fastest during the last two decades of the 20th century (though this estimate may now have to be revised). Only S. Korea and Singapore among the ‘Asian Tigers,’ Thailand & Indonesia among the NICs (Newly Industrialised Countries) and China (the newest Asian HPE), will have a higher trend growth rate during these two decades.
In the first decade of the 21st century India’s growth ranking is projected to improve further to the top three. In the next decade therefore India is forecast to grow faster than the ‘Asian Tigers’ and the ‘Asian NICs’. Its only Asian (or Emerging market) competitor in the growth sweepstakes will be China the newest Asian entrant to the group of star performers. The cycle of history will after half a century have turned full circle, with these two large emerging economies again engaged in friendly competition for the number two slot in the economic growth and development sweepstakes.
By 2010 India will be the third largest economy (PPP). In that year its contribution to the growth of the World economy in current US $ s will also be the third or fourth largest. Despite its relatively low per capita income, India will therefore be (along with the USA, EU, China and Japan) one of the five most important economies in the world in 2010. Further 11 of the 16 fastest growing economies in the next decade may be Asian countries constituting half the World’s population (in 1998). Though the next quarter century will still be part of the previous American century, the contours of the ‘Asian century’ will be clear even to sceptics by 2025.
A stable ‘Balance of Power’ within Asia will be critical to World peace in the last three-quarters of the 21st century. It is therefore in the interest of the USA to use its position as the sole super power, to help build (during the next decade or so) an internally consistent and stable balance of power within Asia that is sustainable without American military intervention.

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