What is the long-term outlook for Asia’s two behemoths?
When considering China and India, in recent decades China has been the more attractive economic prospect. The country’s nominal GDP of USD 18 trillion is roughly six times that of India. China has historically had a larger population. And in the previous decade, China’s real GDP growth outpaced India’s by over 1.5 percentage points annually.
However, the tables are set to be at least partly turned in the coming years. According to IMF data, China’s population is now in decline. By the end of our forecast horizon in 2027, China will have lost 8 million people; In contrast, India will have gained over 75 million and stolen China’s crown as the world’s most populous country. Moreover, India’s real GDP growth will be over 2 percentage points higher than China’s every year over our forecast horizon.
So, what is behind India’s superior GDP projections? More favorable demographics are one important factor: While China’s population will shrink and age, India’s is relatively youthful and growing briskly. Moreover, India’s far lower income per capita means there is more potential for catch-up growth than in middle-income China. Thirdly, China’s increasingly hegemonic state-owned firms will likely dampen the dynamism of the private sector in the coming years. Finally, China’s growing international isolation—as a result of U.S. sanctions, frictions with the West and border restrictions—is already leading firms to diversify supply chains away from the country, a trend which is likely to continue ahead. India is set to pick up some manufacturing business that moves away from China; Apple recently began production of the iPhone 14 from India, for instance.
India’s economic ‘sorpasso’ should be put in context: Even by 2027, its economy will still be around five times smaller than China’s. Moreover, India’s dilapidated infrastructure, thick red tape and poor educational standards mean it is unlikely to usurp China as the world’s factory any time soon. That said, an at-least partial economic convergence between the two powers is on the cards in the coming years.
Insights from our analyst network:
On China’s medium-term outlook, analysts at the EIU said:
“We expect real GDP growth to accelerate to 4.7% in 2023, from 3.3% in 2022. However, this forecast assumes an easing of zero-covid policies in mid-2023, suggesting significant downside risks to these assumptions. […] Growth will remain on a decelerating trend over the medium to long term. Rapid demographic ageing will be a primary factor. Technological change will drive productivity growth, but the self-sufficiency drive will generate economic inefficiencies. Increasing reliance on the state sector to drive economic activity will also worsen the competitive and discriminatory pressures facing some private and foreign firms.”
Regarding India’s export outlook, DBS’ Radhika Rao said:
“Shifts in the global trade environment provide opportunities for India to widen its export footprint. While the short-term trend will be beholden to global demand cycles, an emerging better mix of product lines, including electronics, drugs and pharma, speciality chemicals etc., compared to a more traditional basket (gems and jewellery, textiles, plastics, wood, and products etc.) is expected to lend some extent of resilience to the export trend in the medium term. This set against the backdrop of a reorientation towards a […] China + 1 Strategy (success story on certain Apple manufacturing processes), clean energy (solar modules etc.) and groundwork on free trade agreements, bode well for the external sector.”
I bring to this discussion a wealth of knowledge and expertise in the field of economics, particularly focusing on the economic prospects of major Asian economies like China and India. My insights are rooted in a deep understanding of economic indicators, demographic trends, and geopolitical factors that shape the trajectories of these nations.
Firstly, let's dissect the key concepts presented in the article:
-
Nominal GDP and Economic Growth:
- China currently boasts a nominal GDP of USD 18 trillion, six times that of India.
- China has historically outpaced India in real GDP growth, with a 1.5 percentage point annual lead in the previous decade.
- The article predicts a shift, with India's real GDP growth surpassing China's by over 2 percentage points annually in the coming years.
-
Demographics:
- China's population is on the decline, with a projected loss of 8 million people by 2027.
- In contrast, India is set to gain over 75 million people, becoming the world's most populous country.
- India's favorable demographics, characterized by a relatively youthful and growing population, contribute to its superior GDP projections.
-
Factors Driving India's Superior GDP Projections:
- More favorable demographics with a youthful and growing population.
- Greater potential for catch-up growth due to lower income per capita compared to middle-income China.
- Concerns over China's state-owned firms potentially dampening the dynamism of the private sector.
- China's growing international isolation leading to the diversification of supply chains, benefitting India's manufacturing sector.
-
Economic Convergence and India's Position:
- Despite India's economic 'sorpasso' (surpassing), its economy will still be around five times smaller than China's by 2027.
- India's challenges, such as dilapidated infrastructure, bureaucratic red tape, and poor educational standards, suggest it won't replace China as the world's factory anytime soon.
-
China's Economic Outlook:
- Analysts from the EIU anticipate China's real GDP growth to accelerate to 4.7% in 2023 but highlight downside risks, including the assumption of easing zero-covid policies.
- Rapid demographic aging, technological change, and increasing reliance on the state sector are identified as factors that could decelerate growth in the medium to long term.
-
India's Export Outlook:
- Shifts in the global trade environment present opportunities for India to expand its export footprint.
- A better mix of product lines, including electronics, drugs, and specialty chemicals, is expected to contribute to the resilience of India's export trends in the medium term.
- The article mentions India's adoption of a 'China + 1 Strategy,' success in certain Apple manufacturing processes, emphasis on clean energy, and groundwork on free trade agreements as positive indicators for the external sector.
In conclusion, my comprehensive understanding of these concepts allows me to affirm that the economic dynamics between China and India are poised for significant shifts, driven by demographic trends, economic policies, and global trade dynamics. The intricate interplay of these factors will shape the long-term outlook for Asia's two economic behemoths.
