CHINDIA Rising : A global threat or boon

The 20th century belonged to the advanced economies, but the 21st, economists believe, will be driven by the emerging ones. Among the large emerging economies such as Brazil, Russia, Nigeria and Indonesia, it is the rise of China and India (Chindia) which will have (and already has) enormous business implications during the first half of this Century mostly beneficial to the world.
Rise of Chindia : Global Relief and Benefits
First, both nations will require enormous natural resources because not only are they manufacturing and service centers of the world, but because of their own rapidly expanding domestic consumer markets. And this demand for natural and industrial resources such as oil, gas, coal, copper, bauxite, aluminum, iron and steel will be for many years. Since a vast majority of these untapped resources are in other dormant or emerging economies in Africa, Caribbean, Latin America, Central Asia and Russia, the rise of Chindia will create economic boom for them which otherwise did not happen for nearly 200 years of colonial rule.
Second, the global integration of China and India will be radically different. India's economy and enterprises will be globally integrated especially with other advanced countries (Europe, US, Canada, UK, Australia, Singapore, Japan, South Korea) through large scale acquisitions of well established and well respected foreign companies with technology, branding and manufacturing assets. The journey has already begun with Mittal Steel's acquisition of Arcelor, Tata Steel's acquisition of Corus Steel, and Hindalco's acquisition of Novelis (largest North American sheet aluminum company). And it will not be limited to industrial raw materials and to private enterprises of India. For example, several large public sector units (PSUs) of India such as ONGC (Oil and Natural Gas Corporation), Indian oil and SBI (State Bank of India), who have the domestic scale and capital reserve, are starting to fl ex their acquisition muscles. In other words, India will contribute to global growth as much, if not more, through revitalizing and investing in Western assets as it would through growth of its domestic consumer markets.
On the other hand, China's growth will be proportionately more domestic and only on a selective basis through global acquisitions. This is due to several reasons. First, China has begun to focus on domestic demand especially in consumer markets such as consumer electronics, appliances, automobiles and financial services. It has the physical infrastructure as well as large scale domestic state-owned enterprises such as Haier, Lenovo, China Mobil, Petro China and China Development Bank to capitalize on domestic demand.
Second, the advanced world seems less willing to sell their assets to China (especially technology assets) due to myopic misperceptions about the peaceful rise of China (in contrast to rise of India).
For example, Chinese oil company, CNOOC's attempt to buy Unocal as well as Haier's (the largest Chinese appliance company) attempt to buy Maytag Company in the US, met with political resistance. The obvious exception is IBM's sale of its personal computer (PC) business to Lenovo.
China v/s India : The Comparison
China has a 20-year lead time. Reforms in China started in 1976-78, whereas in India, they started in 1991 — what we call India’s Second Independence. Now, in China, the government runs like a corporation — a corporate state. India is a democracy — its policies are based on democratic viewpoints. The speed at which India makes its decisions is slower — it comes only after several rounds of debates. China doesn’t allow that, and thus things happen at a faster pace. For instance, infrastructure development in China has been much faster than in India.
But according to analysis Chinese economy will start plateauing by 2035, probably sooner. The main reason is that by then China will become very affluent, and its population will be ageing. Its growth will start slowing down, just as it happened in the case of Japan, Western Europe or even the US. Checking the population growth rate — the one-child policy that it put in place — is going to come in the way.
If we extrapolate, presuming things will work out, between now and 2035, India will be able to build infrastructure — which can help add 1.5 to 2 per cent additional GDP, with no inflation. Infrastructure investment has always been non-inflationary. By 2035, India will have good infrastructure, though it may not be world-class. Infrastructure means, financial and human capital infrastructure, which includes education and health of its people.
China will plateau, but by then it will become the number one economy in the world. The US will be number two and India will be number three or four, depending upon how the EU will function as an economy. India would be number three, but it does have the potential to become number one or two in the long term.If you take the economies of India and China as 100 per cent, China is 90 per cent and India is 10. But by 2035, India’s share will increase to about 40 per cent or even more. It’s not because India would do better, but primarily because China will lose its edge in terms of population growth. Another reason is that China will not remain self-sufficient in agriculture — it just does not have enough land mass that is irrigable. So China will always be a net importer of food and fuel. India is likely to remain self-sufficient in food because of its fertile land.
Threats from China
There are signs that Chindia especially China is allocating more priority to resources for its military than it has done in recent years. Currently it spends about half the amount the UK does on defence. Military pay may be considerably below that enjoyed by British troops, but the funds still have to be found for nearly 2.5 million soldiers, sailors and airmen: over ten times as many as the UK fields. The Chinese announced that their defence budget is to enjoy an 18% rise. At the same time the new US Administration is signalling that it will be reshaping its defence policy to focus on the emerging threat that China poses to the Asian region. All of this sounds like the opening rounds of a new Cold War with China taking the place of the Soviet Union. There seem to be wrong assessments both in Beijing and in Washington.
Conclusion
Let alone all the political concerns looming with China and US, the rise of Chindia is definitely an advantageous situation for the global scenario. Soon the largest trading bloc will be Asia especially with free trade with India. This will require formation of a new currency comparable to the Euro; and it will become the dominant currency of the world similar to the rise of the dollar as a global currency after World War I. While the global integration paths taken by China and India will be different, their impact on businesses worldwide either as suppliers, customers, partners or competitors will be beneficial and enormous. In fact, it is no exaggeration to state that the future survival of most admired enterprises from all advanced economies including the United States, Canada, Europe, Australia, Japan, and South Korea will depend on how quickly they participate in ensuring rise of China and India even if they have to distance from their own government's politics and public opinion.