[William Pesek] China in time of millionaires snubs neighbor

Asia’s biggest rivalry is looking more and more one-sided. There’s no competing with China’s 9.5 percent growth as the U.S. sheds jobs, Europe unravels and Japan’s deflation deepens.

Even though Asia’s other rising superpower, India, is zooming along at 7.7 percent, try getting anyone to pay much attention.

Spend a few days in Mumbai and the conversation is all China, China, China. How can we compete? In what way is India’s economy superior? Why does our impressive post-Lehman-Brothers performance get no attention? Then head to China’s business center, Shanghai, and see if India even comes up. In fact, many Chinese businesspeople resent the suggestion that their economy has anything in common with India’s.

China may regret this oversight for two reasons. One, China’s winning streak probably will run into structural hurdles in the next five years. Two, for all their many differences, China and India have more challenges in common than Beijing may want to admit.

No matter how much the media, corporate glitterati and financial intelligentsia scrutinize China, we don’t know if it can beat the system, so to speak. No industrializing nation has ever avoided a financial crisis. Not one.

For all its smarts, $3 trillion of currency reserves and firm control over the economy, Beijing must contain inflation, reduce pollution, shift away from exports and avoid social unrest as millions of people flock to the cites from the countryside. Can China grow almost 10 percent year after year without a hitch? The odds don’t favor it given the worsening state of the global economy.

Here, it’s worth noting the challenges India and China share, and there are many. They include huge and growing gaps between rich and poor, corruption, asset bubbles, the risk that piles of loans will go bad if world markets crash anew, regional disparities, environmental degradation, huge appetites for resources, sex inequalities that mean boys outnumber girls and angst over their place in the world.

Caveats abound, of course. Few would say China’s corruption is as endemic as India’s, though China’s vulnerability to a Japan-style bad-debt crisis far exceeds India’s. The angst factor, too, requires nuance. Indians are perturbed that their rapid growth and democratic institutions don’t get more kudos globally. Chinese want a bigger say in global affairs but resent the developed world demanding too much from a developing nation.

Whither ‘Chindia’?

The commonalities have revived the buzz about “Chindia,” or the idea that as much as China and India might compete, they may well complement each other. China and India are the most populous nations, nuclear powers and the two fastest-growing major economies. China’s is already bigger than Japan’s and India’s may be only a few years away from topping Japan on a purchasing-power-parity basis.

China has a huge head start when it comes to the roads, bridges, ports and power systems needed to raise living standards, and it receives the bulk of Asia’s direct investment. India has done better in creating a genuine economy with globally competitive companies, innovative products and world- class entrepreneurs. Imagine if they worked together?

Yet the geopolitical rivalry is growing. Look no further than tensions related to global resource access, griping among Indians that China’s trade practices are undermining their manufacturing industries or Beijing’s suspicions about New Delhi’s close ties to Washington.

If ever there were a time for corporate executives and investors to follow the money, it’s now. At the moment, China clearly is the stronger capital magnet. By 2015, China’s millionaires may account for about half of the rich people across 10 major economies in Asia, excluding Japan, and hold more than half of the wealth, according to a study by Julius Baer Group and CLSA Asia Pacific Markets.

It’s not that simple, though. A new RAND Corp. report looks ahead to 2025 and finds that as China and India grow in prominence, each has certain advantages, but neither is primed to have a clear, across-the-board competitive edge over the other. And India’s advantages ― a growing working-age population, and open and flexible political and economic systems ― will be good things to have during the next 15 or so years.

China’s plusses over India are nothing to sneeze at. China graduates 70 percent more engineers annually than does India ― 600,000 compared with 350,000, RAND’s researchers say. Its vast investments in science and technology could dwarf India’s much- celebrated software industry.

Yet India may be moving into a period of major reforms as the anti-corruption movement led by Anna Hazare reverberates through the nation. Morgan Stanley Asia Ltd. economist Chetan Ahya isn’t exaggerating when he calls India the most promising structural growth story anywhere today. What if recent events in India compel the government to get its act together?

The thing is, no one knows. That goes, too, for whether China has struck upon some new formula for economic growth and can avoid a crash. All we can say for sure is that what we think we know about Asia today might be turned on its head in coming years. China versus India could be a case in point. 

By William Pesek

William Pesek is a Bloomberg View columnist. The opinions expressed are his own. ― Ed.

(Bloomberg)