The India/China comparison

MIT’s Yasheng Huang has an intriguing contrarian essay in today’s Financial Times on the development lessons China could learn from India. No, I didn’t type that the wrong way around. Which is what is interesting about Yasheng’s piece (available to subscribers only).

From April to June 2005, India’s GDP grew at 8.1 per cent, compared with 7.6 per cent in the same period the year before. More impressively, India is achieving this result with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. While China’s GDP growth in the last two years remained high, in 2003 and 2004 it was investing close to 50 per cent of its GDP in domestic plant and equipment – roughly equivalent to India’s entire GDP. That is higher than any other country, exceeding even China’s own exalted levels in the era of central planning. The evidence is as clear as ever: China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency.

The microeconomic evidence also casts India in a better light. While India’s stock market has soared in recent years, the opposite has happened in China. In 2001, the Shanghai Stock Market index reached 2,200 points; by 2005, half the wealth wiped out. In April 2005, the Shanghai index stood at 1,135 points. This sharp deterioration occurred against a backdrop of GDP growth exceeding 9 per cent a year. It is difficult to find another country that has this strange combination of superb macroeconomic performance and dismal microeconomic performance. It is a matter of time before the two patterns converge.

Yasheng makes some important points and, like most believers in democracy, I would love it if the world’s largest democracy, India, continued to thrive. But in the interest of polemic, he glosses over some crucial issues.

Here are four, for starters.

1. India’s woeful treatment of women. China is no paragon in this regard, but India is far worse. How long can growth and change be sustained while half the population is underutilized?

2. The caste system. There have been many improvements in India, but caste remains a key issue.

3. Population growth. I don’t particularly approve of China’s coercive policy of one child per family, but it has successfully constrained population growth. India’s growth is comparatively unconstrained. It is not cause for celebration that India’s population will exceed China’s in a few years time.

4. Illiteracy. Last figures I saw, India had twice the illiteracy rate of China (40% v 20%). That’s not a formula for continued economic success.

I truly want India’s current success to continue. But I think there is a far greater danger of complacency about the need for continued reform in India than in China. Yasheng’s article is a useful corrective to unthinking celebration of China’s extraordinary gains over the last 20 years. But he neglected too many important issues to make his polemical point.

19 thoughts on “The India/China comparison

  1. Thejender Prasad

    I take your basic point vis India has miles to go; however, the simple reduction of facts in your list of India’s woes belies one simple, overlooked fact. India’s democracy is also a federal republic. And federal unions will always have regional disparities. Manhattan is not the same as Appalachia. Similarly, Malabar Hill is not the same as Patna. [do your own research as to the proper names here]

    And, while India has an abysmal literacy rate of 45 percent, the state of Kerala has a literacy rate of 99 percent. And while much of agrarian and urban India is overtly, and subtly, hostile to women’s issues, Kerala’s society is uniquely matrilineal, where family lines follow the female.
    Indeed, India has numerous examples of horrible treatment of women. But it also has numerous examples of women leading in politics, civil service, non-governmental organizations, media, science [there are more women physics PhDs in India than anywhere else], and business. And, these women come from all parts of India, conservative and liberal.

    I believe the crux of Yasheng’s argument, which he first advanced in a Foreign Policy article with HBS’s Tarun Khanna, is that India’s democracy helped foster entrepreneurs and innovators who struggled with less to produce more. It is a productivity argument, which you disregard so as to facilitate a trite apercu of India’s genuine social ills.

    China’s extraordinary gains have been in macro economics. While your rejoinder to Yasheng’s economic argument is with a social and political argument. Bad logic.

  2. C. Nandkishore

    Your comments on caste are a lack of understanding of the current political senario. Every caste and subcaste has its own political patry. And every person has a politician to attend to his problem. Just two deaths due to starvation in Kalahandi are discussed in the Indian Lower house. Does this happen in China?

  3. C. Nandkishore

    Your comments on caste are a lack of understanding of the current political senario. Every caste and subcaste has its own political patry. And every person has a politician to attend to his problem. Just two deaths due to starvation in Kalahandi are discussed in the Indian Lower house. Does this happen in China?

  4. George Koo

    My slightly contrarian expansion of Yasheng’s contrarian proposition is the following: The chaotic democratic system of India forces the entrepreneurs to make do with less and therefore learn to be very efficient in utilization of capital. Because of China’s legacy from a planned economy, the mindset and habit continues to be wasteful. What China has done right is to welcome all comers and investments. It will be interesting to see when and if India can find the national will to open itself to foreign investment with minimal red tape, protectionism and corruption. The popular notion in the West is to bet on India’s future because it is a democracy. I say India’s democratic and bureaucractic ways is what is holding India back.

  5. George

    It’s interesting to see Professor Huang keep reiterating his main point of political corectness—democracy surpass surpass authoritarism. India is a democratic country whereas China is a authoritarism ,so the final winner will evitably fall into India’s side, in long term.

    As a chinese who is raised under Red Flag, i was told again and again before 1978 capitial evil, and socialism surpass capitailsm in any standards. so ,for political correctness, just as Professor Huang stated now(of course in the opposite way), socialism will overtak capitalism in “long run”. pay attention to the term,long run, cos they knew in short term,now, Capitalism is superior over socialism , so they must use some superstitution term, i.e., long term, to cover the fact the China is indeed 100 yrs lag behind western, at least in 1978 China’s position.

    The key point here is ,if one stick to the political correctness, he or she will easy to get the long term result, countries who embrace good political system will evitably evole into a developed country, again, in long run(50yrs, 100yrs, even 10000yrs? no one knows, no one cares!).

    Inida has embraced democratic system for almost 60yrs since it gained independence from Britain, yet the country still the poorest one in the earth(no intent to offense). so what does it mean? logically, it proved the failure of democracy implemented in India. but for the sake of political correctness, no one dares speak it out, even doubt it, thanks Political correctness professors like Huang!

    as a developping country, if India cannot repeat what Japan., south korean, Taiwan, Singapore have done (ie. commiting some kinda of authorism before the country catch-up western in terem of GDP per capital), Inida will never have the chance to become a developed for ever.

  6. Arjun

    The economic argument is interesting, however I am not sure I agree completely. While India may have some advantages in ‘soft’ infrastructure like a developed enterprenurial system and superior allocation of resources, the fact remains that China simply has more resources overall as of now. China CAN have a problem of inneficient capital allocation and still come out on top, as essentially it has more chances to miss.

    I think this will change somewhat in the next few years as India finally starts recieving its fair share of FDI. One additional interesting factor is demographics. China has a workforce(last year) of 790 million. India’s was only 490 million(62% of China). This will drastically change in the upcoming few years as India’s vast youth population(over 340 million under 17, compared to China of 240 million) enters industry. Also China’s aging population will begin to retire. I think this may be the biggest single factor that will allow India to begin to catch up.

    More importantly, however, your statements on the social factors are blatantly wrong and are ‘overhyped’ impressions of India.

    1. Treatment of Women
    India is a cacophany of different cultures and traditions. Certain populations, for example Muslims or the rural population, have records on treatment of women that have much to be desired. And the practice of gender-specific abortions needs to stop. However I would argue that India has perhaps the largest population of progressively minded women on the planet. Women are active at every level of politics, with one even serving as prime minister. Women are active in all forms of academia and in business. While some problems remain, one could say that in the upwardly mobile middle classes the status of women is at least equal to that of most western countries.

    2. The caste system. While the caste system is still a huge problem in rural India it is virtually obselete in urban areas. Certainly the problem is an economic rather than social one at least. The current president is a member of the ‘lowest’ caste. The previous president was also a Dalit, or ‘untouchable.’

    3. Population growth. I think this is actually India’s greatest strength. More mouths to feed, yes, but also more brain and more muscle to power the oncoming boom.

    4. Illiteracy. The majority of illiteracy is concentrated in a few highly populated states, such as Bihar. Many states, such as Kerala, Tamil Nadu, Karnatika, Maharashtra enjoy relatively high rates of literacy. Having worked with some NGOs in the poorer state I can say that the illiteracy problem is a much smaller problem in youth than in adults. As the demographic shift begins you will vast changes in the gross literacy rate.

  7. GIJO

    Hi All

    A free society will flourish and thrive in freedom and democracy, as long as china remain autocratic, the real developments wont happen, India is slow, but fortunate,free and steady. Just rememberafter 25years where we will stand. China will overtake India, only when it becomes a free nation. Else It cant, but it can pretend by making huge buildings.



  8. Sumeet Gupta

    I agree to the underlying ideas here that India has miles to go before it acheives an optimal democratic and economic convergence. But India has given a good test example to the world that democracy would always not follow economy but vice versa is also possible within a stable framework. I dont think the social problems that you have mentioned here viz caste system, woeful women status, illiteracy, are really a great threat to Indias economic development. I think Indians are much more pliable to social barriers when it comes to economy. I have not seen any competitive person being denied a job because of his caste, sex or creed. Infact I feel that Indians have much more appreciation (reservation quotas) for lower classes or women when it comes to economy. I agree illiteracy is still a big issue for India but one should not forget that literacy is indeed a direct consequence of economic growth. Over-population definitely seems to be a huge hurdle in the economic growth of India. It is true that Indian population comprises of huge working class (almost 45 %) which would be an asset to any developing/developed society but still it does not sheds away the fact that India does not have sufficient resources and infrastructure to support such a huge mass.

    Regarding “China learning from India”, I view it from an entirely different perspective. Everyone says that China should learn from India. But I question here “What should China learn from India when it comes to economy”. None of these socities have capitalist roots. One being socialist and other being communist. But wait a minute where does economic growth fits in here. Capitalism brings economic growth and not communism or socialism. Infact the current business and growth models for both of these countries are based on so called primitive capitalism. So again, what do we exactly mean when we say “China should learn from India or vice versa”. It would be meaningless to associate this question with economic growth. Both the countries share similar models based on capitalism.

    As regards social growth (which includes democracy) is concerned i agree that China should learn from India but this is a totally different topic of discussion. And it is known that democracy follows economy. Eventually China would end up with democracy, sooner or later it will.

    But hats off to Manmohan Singh for putting India into global economic map. The 1991 free trade policy allowed foreign markets to invest in India and Indians to explore global avenues. I think the way India is progressing is remarkable. Rome was not built in a day afterall.

  9. wangli

    if one looks back all catch-up developing countries after WWII, it’s interesting to see only a few Asia countries actually were invited into the developed world, such as korea, Japan. Taiwan, Singapore and HongKong. all other countries, still stayed where it were. there is no Exception in this lists!

    it’s shocking to find, all these catch-up developing countries are Culturally originated from Chinese-confuism. It actually refers for countries to catch-up developed world, there is nothing to do with whether or not it adopted socialism or capitalism. these sucessful countries are only culture relevant.

    from this point of view, it’s not a big ideal at all to find China is catching-up developed wrold rapidly in the last decade , just as what the Asian confusim countries have done. China is actually repeating what korea, Tainwan, Hongkong, Sinagpre have done in the last few decades, in even faster speed.

    on the other hand, there is no such sucessful example in southern-asian. from this point of view, the possible that India can be as sucessful as its Eastern catch-uper counterparts is dim.

    Democratical system never gurantee the economical sucess of a country. in this planet, 98% of countries are democratical, but only a few countries are truly rich. If Inida has commited democratical system for almost 50 yrs since it gained independence form UK and proved this system has totally failed in Inida, why people should believe India would be different in the next decade?

  10. Ankit

    Nice article but i somewhat feel that we all talk about development in the books, in other words we are not being practical.

    In today’s scenario unemployment is not an issue as practically unemployment percentage is very less in India. Thanks to the booming IT industry and the manufacturing sector, there is now excess demand for labour. Demand for both skilled and unskilled labour has gone up and so have the wages. On paper we might show that unemployment is 10% or higher but actually the rate is far less as many firms hire labour without actually showing them, this is done to avoid paying any pension fund and other allowances.

    Again the percapita income is very high because much of the trading is done in the parallel economy in order to avoid taxes. It is estimated that the size of the parallel economy would be atleast 7 times the actual economy. Unlike India, Chinese parallel economy is not over 30% of its actual economy because of heavy punishment imposed by the government on the tax evaders.

    The reason why India is miles behind China is because of democracy ie giving power to the people. Any reforms imposed by the government, even if they are good for the country are subjected to protests and as a result are either taken back or postponed.

    Another reason is favouritism of minorities. We would find the most ignorant and illitrate person who by no means can contribute to the development of the country sitting in the parliament or being a chief minister just because he belongs to a lower caste or a minority class.

    Too many political parties, a hell lot of corruption and choosing the worst to be the leader would definately hamper development and if this goes on we might take another 200 to 300 years to become developed.

    China is definately going to take the lead in the long run since it has got good infrastructure, increasing investment and promise of the future.

  11. Joan

    The difference in the pace of development between China and India comes down to that one moves at dictatorship speed while the other at democratic pace. Both countries lag behind the Western world in technology and basic infrastructure and obviously China is better at catching up. China wants “development now democracy, (if any) later.” and India works the opposite. Previous poster,wangli ‘s observation is right that economic miracle that happened in places like Hong Kong and Taiwan have nothing to do with
    their political leaning. In fact , the most prosperous periods of development of Hong Kong between 60’s to late 90’s were under the dictatorial rule of British.
    As of today, democracy still hasnt happened in Hong Kong but they still drink red wine and drive Porsche. The people you saw on TV on the street demanding democracy were those who lost the most when the British pulled out causing the stock market the crash.

    It is not advantageous for Chinese leader to adopt democracy at the expense of speed of growth. Besides, many Africian ,Muslim and Latin American leaders like to see the superiority of the western ideals and establishment challenged and they like to watch the show China has put out so far. For the same reason, China will not let Hong Kong have democracy otherwise people in China will want to be like Hong Kong. Independence of Taiwan is also out of the question or else it will embolden expansionism of the Japanese-US imperial army. China should eventually allow some form of civilian participation in politics without compromise of the efficient one-party system.
    It will be a taboo for Chinese leader to learn to be like India and end up creating just the largest inefficiency. The voter turnout rate is only 50% in
    America, so people should not impose their view on China for something that only half of their people engage in.

    Centralization is good for China and actually India because the nature of capitalism gives rise to a lot of redundancy and wastfulness. This can be detrimental to the environment. Furthermore, most jobs in the rest of the world will be wiped out if everything is too efficient and too good in these 2 countries. The whole world is at stake and we must think beyond capitalism to become sustainable species.

    From the way I see things are heading, the best you will end up seeing in China is for it to evolve politically into a form of “Lobbyable Dictatorship”. Citizens are allowed to form lobbying groups but not parties. Chinese dictatorship is always the driver taking the wheel and controlling the car. You the passengers can lobby the driver to take you to where you want to go but you must say it nicely. After all, how often do you change driver just because you want to change direction.

    Someone argue that creativity doesnt thrive under dictatorship, I beg to differ after all China invented paper, gunpowder, compass. These were inventions motivated by the need to win war and maintain survival.
    The same is true for things like Internet, GPS navigation and teflon (used in parts of atomic bomb)
    China is big on space technology and nano for similar mentality. You dont need a lot of PHD to make scientific breakthrough. It only took one Einstein to figure out E=MC2 and one Newton to figure out F=MA.
    PHD is merely there for process engineering and reverse engineering just like the Japanese did to transistor radio and cars in the 70’s and 90’s. One genius such as Newton makes something Possible. Then PHD turns this possibility into something Practical. Entrepreneur takes what is Practical then add Performance and Perfection to it. This is the 4P’s of product development. China only needs PHD and entrepreneur to keep the economic engine running. I do however admit some products from China suffers from “planned obsolescence on steroid”

    As for freedom, some people need to define freedom more specifically. China will probably have more freedom in the future when it comes to material condition. How many countries can you count that have just about every conceivable form of machineries? China can make things from pins to plane, bolts to biotech, nuts to nanotech, chopsticks to chopper. These are material things directly involved in improving material condition and standard of living. Many countries including USA have to import them but China owns the machines that make them. Marxists only think in term of “materiality” not spiritually. Material things make things happen. When you have material things that make things happen, it is defined as freedom in material term.

  12. Rajesh Sambhar

    The comparison between India and China is inevitable given their geo-socio-political backgrounds.
    But I feel that these two giants can not be compared for they are distinct, different and are following their own path towards their destiny of becoming greater nations. China is a perfect example of what political leadership can do to the fortunes of their people and nation by following a strict regimen of socio-economic discipline. India on the other hand, unlike China, is a free, open and democratic set up. In a democracy with such Diversity and Plurality as India things move on based on evolving consensus. India’s embrace to Economic reforms under the leadership of P V Narsimha Rao and Manmohan Singh in 1991 was purely a situational compulsion rather than a choice for better future. But since then, the reforms definitely worked for the Private Sector within the country and gradual opening up of the Indian shores to the Foreign Investment is really improving the Indian economy. Unlike China where the growth is government driven, the Indian growth is driven by the ever growing free spirit of Private Sector and hence you would want to imagine the growth potential India has. With high regards for China, I want to state here that the free liberal democratic spirit of India will definitely overwhelm the skeptical minds of India bashers one day. I don’t want to compare the statistics of under-reported restrained India and inflated overstated China. I feel India and China can complement each other rather than seeing each other as competitors.

  13. Vijayakumar

    The oppressive caste system that is entrenched in Indian society will continue to be a drag on India, even though eventually India may catch up with China economically.

    The social inequities will then likely to be a source of great instability.
    That is, though India will eventually become a developed country in the economic sense, in social terms, it will continue to be medieval what with untouchability, caste system and so on.

  14. Pingback: Davos Newbies » Blog Archive » China fact of the day – and more on the India/China comparison

  15. Shantanu Chatterjee

    Let us first understand a few things:People determine what sort of a political system they find themselves in.

    Chinese for all practical purposes are Han Chinese one people one language one race who have effectively swamped the few areas this is not so such as Tibet,Xingiang etc(I am not judging anyone nor am i a human rights campaigner)

    India on the other had is a hugely diversed country of literally thousands of different cultures,communities,languages etc with not a single group dominant over the other.

    Therefore the only practical solution is a democracy for all its imperfections.

    And let us not forget the enormous suffering the chinese have had to undergo under one party rule remember the ‘cultural revolution’,’great leap forward’,’thousand flowers movement’ etc calamities in which tens of millions chinese needlessly perished.India for all its bumbling has never encontered such problems.

    It is only in the past 20 or so years out of 60 years of independence that China has outshone India economically,in the long run which system proves more enduring and successful only time will tell.

  16. A Chinese Friend of India

    The blog comment submitted by Safal (May 23, 2007) on the following blog site “” put the whole debate onto a much more friendly and productive platform.

    If the debate remains on a friendly academic level, it is beneficial to everyone. But if it is based on the “I am better than you” mentality, it would only benefit those who are trying to foster ill will between the masses of the 2 great future powers.

    India and China had never had any problems with each other in the past 5000 years other than a relatively small conflict almost 50 years ago. So why start fostering enormosity between our peoples today.

    Our priorities should be on how to learn from each other’s experiences and benefit ourselves in the process, with a focus firmly on bringing more people out of poverty.

    As Deng XiaoPing once said: “it doesn’t matter if it’s a black cat or a white cat, if it catches mice, it is a good cat”

    May the friendship between India and China last forever!

  17. Rohit

    i am an indian… and i truely know what are the different rights i enjoy being one… not even a single leaf turns here… if a group of more than a thousand people… belonging to the same caste.. culture or creed or religion arrive at a consensus… government increases the fuel prices here… even if by rs.1 … there are huge protests on the road… the government alliance becomes endangered in a matter of hours after putting down a new policy..and at the end of the day you are comfortably lying on your bed with their being no need to change your monthly budget… coz d people won… govenment will bear the prices!!!!!!.. so… will we go far ahead like this????

  18. Indian_Pride

    I have been reading the posts and my 2 cents

    1) Some Chinese say its the confucian ethos and cultural facets behind the rise of Asian countries to become developed countries.

    My 2 cents — With all these thousands of years of confucian wisdom , all these very countries follow a religion of Buddhism that originated in India

    2) The East asian confucian countries have become developed

    My 2 cents — Developed in the sense of innovations, number of nobel prizes etc. Becoming rich by becoming totally dependant on WESTERN countries (Export led growth of East Asia) — India does not think this as becoming developed


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