China Vs. India? World’s Greatest GDP Race Heats Up (2024)

Recently, Indian leader Narendra Modi’s economy has gotten some great news cycles at China’s expense. That will happen when Indian growth is tipped to outpace China’s in a big way in 2023.

Or will it? Suddenly, India’s roughly 6% pace doesn’t look as decisive as China accelerates to the 4.5% output range.

This annualized growth rate was China’s fastest in a year. Not only does it suggest this year’s 5% growth target is doable—it hints at China outperforming as it ships more goods overseas.

Tantalizing as it is, though, this China versus India narrative is great news for the global economy. It means that together, Asia’s No. 1 and No. 3 economies will help cushion global demand as investor’s worries about a downturn intensify.

That, says the International Monetary Fund, makes China and India the indispensable growth engines of the year, contributing the lion’s share of global demand. From a soft power standpoint, it’s just what Prime Minister Modi and Chinese leader Xi Jinping need.

Though the U.S. is holding up better than feared, the cumulative effects of roughly 500 basis points of Federal Reserve tightening are bearing down on the biggest economy. And with inflation not cooling as fast as Fed Chairman Jerome Powell hoped, the risks of additional interest rate hikes continue to wreak havoc with the collective psyches of corporate chieftains.

Fallout from the collapse of Silicon Valley Bank and Signature Bank also is fanning credit-related strains in the financial system. New York University’s Nouriel Roubini isn’t alone in arguing that the banking mess “is gonna tip the U.S. economy into a recession.”

Granted, you might expect an economist known as “Dr. Doom” to say as much. The same goes for legendary investor Jeremy Grantham, who often leans bearish. He warns that banking turmoil isn’t anyways near over. Along with a recession, Grantham, Mayo, & van Otterloo strategist thinks more SVB-like blowups could emerge.

Grantham recently told CNN the S&P 500 will plummet at least 25% to 27% by next year. How might the Fed react? Expect the political establishment in Washington to be all over the Fed to reverse some recent rate hikes.

Then there are Republicans' threat to default just to own the liberals. Visiting the New York Stock Exchange this week, House Speaker Kevin McCarthy essentially detailed plans to play chicken with America’s AAA rating: demanding draconian spending cuts that would increase recession risks in exchange for raising the debt ceiling.

McCarthy said that “without exaggeration American debt is a ticking time bomb that will detonate unless we take serious responsible action.” And, somehow, with a straight face considering he and his Republican colleagues are the ones holding the detonator.

That stunt isn’t going down well in Beijing or New Delhi, which like other top Asian governments hold more U.S. Treasury securities than they’d like when a pro-default gang controls one half of America’s legislative branch.

Asked by CBS about the financial McCarthyism impelling the reserve currency, European Central Bank President Christine Lagarde expressed “huge confidence” Congress wouldn’t “let such a major, major disaster happen.”

Others aren’t so sure. Take officials here in Tokyo, which holds the most dollars among foreign governments—$1.1 trillion worth. China holds just under $1 trillion. Add in India and other top Asian nations, and this region’s exposure to Washington approaches $3.5 trillion.

As U.S. lawmakers spook world markets, investors can take solace in the gross domestic product stability in China and India. At least for now.

Both China and India have daunting challenges, including demographics. This week brought news that Modi’s population has surpassed Xi’s. The United Nations says India’s population hit 1.4286 billion versus China’s 1.4257 billion people.

In China’s case, the worry is that Xi’s masses will grow old before getting wealthier. Here, it’s hardly optimal for Xi that Chinese youth unemployment is nearing 20%—it was 19.6% in March from 18.1% in February—just as he begins his third term as Communist Party leader.

For India, the challenge is creating enough jobs to turn its “democratic dividend” into socioeconomic reality. It’s grand that Apple Inc. is ramping up production in India as it reduces the production reliance on China. But India needs to keep pace with those investments in terms of better infrastructure, reduced regulatory hurdles and raising the quality of its labor force.

Of course, China faces shorter-term challenges. One is that urban investment and industrial output are growing less than hoped. Property investment continues to contract. When the National Bureau of Statistics says a “complicated international environment” stymying China’s revival, it smacks of understatement.

For now, though, the global economy will take the GDP spurt emanating from China and India, and happily. It’s a reminder that leaders like Xi and Modi traveling, giving speeches, holding military drills or making grand geopolitical gestures are one thing. But it’s no match for the soft-power boost from having the global economy’s back in dark moments like this. Priceless.