Thoughts on economics and liberty

China is definitely not fooling around the edges – like India seems to be doing

HSBC predicts that "half of China's emerging market trade will be settled in yuan within four years. When that happens, it will be one of the top three trading currencies in the world." [Source]. More importantly, "If there's to be a rival to the US dollar as the world's reserve currency in the 21st century it would have to be Chinese yuan". No one is saying that of the Indian rupee.

China is now ready to produce nearly 800 million tonnes of steel in a year (India will produce 120 tonnes in 2012). [Addendum: India produced only 68.3 million tonnes of steel in 2010, so this figure of 120 MT looks doubtful]

In 1980 China's share of real world GDP (PPP basis, source: IMF) was 90% of India's. Today is it nearly three times that of India.

(Note: The last section of the chart is not to scale. The slope of the Chinese and Indian "growth" curve between 2010 and 2016 is steeper than what is depicted. Note also that this is not a "growth rate" curve, but a dynamic share of world GDP. It gets harder and harder to achieve larger "market share" in an expanding pie. China will displace USA by 2016 as the world's largest economy, which would have gotten relatively smaller by then – not absolutely smaller.

Let's just say this, that China is not fooling around the edges. It means business.

The Indians, on the other hand, are definitely fooling around the edges.

A lot of effort is being wasted today on the so-called anti-corruption movement driven by the whims of a half-baked Gandhian and a yogi who wants to take India to the medieval ages. Their actions have ZERO relationship  to the fundamental reforms in policy and governance that India desperately needs, reforms that will eliminate corruption far more effectively than any of the 'reforms' being touted by this so-called anti-corruption "movement". The challenge before India is simply NOT within the capacity of populist Vedic socialists and Gandhians to deliver. 

In the meanwhile, the socialist Congress is establishing its hold effectively through the hustings. India's future is therefore looking more and more questionable. 

India simply can't continue to cruise based on the economic reforms that IMF forced down India's throat in 1991. That medicine is over. Its life was limited, its potential constrained by mis-governance and other policy problems. Yet few are interested in the deeper set of reforms that India needs. 

With reforms it will be relatively easy for India to catch up with China, given its advantage of stability, democracy, and the English language. I've been trying to suggest these reforms since 1998. FTI has been offering these to India since 2007 (subject to assembling a competent leadership team). 

Should you be interested in India's catching up with China then please join FTI or otherwise support it. Else India could well end up as a colony of China.

Addendum

"Only 53.4% children in the fifth standard in rural India can read a second standard level text; the proportion of first standard children who could recognise numbers from 1-9 declined from 69.3 % in 2009 to 65.8 % in 2010; children in the fifth standard who could do simple division problems also dropped from 38 % in 2009 to 35.9 % in 2010." [source]

A discussion on India and China today by Pradeep Taneja

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7 thoughts on “China is definitely not fooling around the edges – like India seems to be doing
  1. Surya

    Dear Sanjeev,

    That China has left India far behind is a known fact to any serious observer. If we ever wondered what the nineteenth century west must have looked like with it's tremendous individual initiatives, laissez faire economies coupled with rampant corruption and disregard for environment, we have all that on display in China today at a much bigger scale. 

    To attribute the rise of China merely to the authoritarian government and the lack of the hindrances that a democracy usually brings as many commentators do , is wrong.  China's reforms were embraced vigorously at the local level once Deng gave the go ahead. This pushed the powerful middle level party leaders to grudgingly dismantle socialism Today some estimates put the private sector at about 2/3rds of China's economy (Officially the Party maintains that it is only 1/3rds. But most of the state enterprises are today private fiefdoms ) which is a larger share than in most western economies. 

    And while being cautious, the west has given it's quiet support to the Chinese regime based on the assumption that the party will continue to extend the personal and economic freedoms. My guess is that China's move to a liberal democracy will resemble England's – a gradual transition through a series of mini-revolutions, rather than a violent overthrow. And that is good news for the rest of the world too.

    Rather than worrying constantly about China's rise, India can do well to take lessons from China's experience. Indian policy makers refused to take lessons from South Korea, Japan and Singapore saying that they had smaller populations. Now a bigger population is being lifted out of poverty in a similar manner. Socialism has no excuse any more. Even if we don't do that, China can still be considered a land of huge opportunities. Building trade relations is probably the best way to avoid military conflicts.  And despite what some nationalists in India might want, it would be downright foolish to provoke China.

    For all these and many more reasons, I think it is an absolute must for all would be entrepreneurs and policy makers to keep themselves informed of what is happening in China. To take the good lessons and avoid the mistakes it has made. Because let's face it, China is a decade ahead of us and we have to follow the same road. Here is an excellent book that provides an unbiased picture of China's transformation – http://www.amazon.com/Dragon-Rising-Inside-China-ebook/dp/B000W9688C

    India's biggest failing seems to be the inward looking nature of our culture. It's time we acknowledged the superiority of other civilizations and take lessons from them.

    Regards,
    Surya

     
  2. Sanjeev Sabhlok

    Thanks, Surya

    There is something clearly wrong in India. CONCLUSIVE data, conclusive evidence about what works, and why it works, is IGNORED. Instead, like mindless zombies, people keep repeating the mantras that Nehru had taught them. 

    I'm referring here to the "educated" classes of India. The others are simply doing the best they can (since as you will see from the Addendum I posted above, they can't even read or write: theirs is an animal existence).

    Whether it is a culture of indifference to the truth, to the facts, or an inability to analyse information critically, or an "inward looking" culture, I don't know. The result is that the SIMPLE model of transformation that FTI has been offering has very few takers, and many of the "leaders" who have joined have no burning desire to change anything. They are hangers-on, waiting for something to be GIVEN to them, instead of being initiators of change.

    Indians find it easier to be spectators than to participate in change. Is that the cultural issue you are referring to? This is the "bills on the sidewalk" problem. TRILLIONS of dollars lie scattered about, and no one picks them up.

    S

     
  3. ASHOKSINGHANIA

    in 1978 china decided to change. they collected their hundredintelligent peopleand send them all over the world to understand how the system runson practal basis they were warn not to do book research.one simple system they brought from american constitution was that credit card intrest rate should not be more than ten percent. hence china has 2%deposist rate and six % lending rate. morever there no property right before wto entry. hence theireconomy has noreal state conponent as well as financial component. rest what ever we write is side effect of this two things. just imagine if iwas to pay mere5%on housing loan and houses were available at 1200 to 1500sft india would have added much more steel capicityas iro and coal are abudent in india. moever one much understand in current banking system loan is created first and depoist afterwards. it just like murgi phale aye ye anda debate.chinese local govt havecollected more 5trillion dollas from an invested uin infrastucture from selling land but in india poltician purchase land through goondasaat lower prices and pocket the apperciation aka all politician. real state greed is like aids diease to our ruling and elite class.

     
  4. Atul

    China is a country where the ruling party does not follow many of the principles of classical liberalism. Bureaucracy there is as thick there as in India and as corrupt if not more. It is certainly lagging in terms of free speech. Situation of property rights there till 2007 was as bad as Russia. After 2007 it has improved but still remains far behind private property rights in India forget about comparing it with USA or UK. Inspite of all this Chinese people are considered among the most hard working people on planet. China has managed spectacular growth rate of over ten percent on an average for past 30 years. Its economy is second now after USA. The number of people lifted out of poverty is mind boggling. I find this a contradiction to what I am reading in BFN about socialism. Certainly inequality is ripe in china and increasing, a trade-mark of capitalism. But they are actually providing a lot of people with social minimum. It is not making most of Chinese people lazy or parasitic in nature actually quite opposite is true. The question that comes to my mind is this, how does liberty comes into picture for unleashing India and remove poverty from here? The engines of capitalism (in-spite of its pitfalls and side effects) are more than enough to take India forward. Even if the parties here do not understand liberalism , stick with their socialist welfare programs like Chinese, keep its bureaucracy thick as in China but just open markets at a broader level, will it not make this country unleash its potential ?

     
  5. Sanjeev Sabhlok

    If India’s 1992 experiment can be called weak liberalisation, China presents the case of strong liberalisation. And VERY STRONG public administration foundations.

    They are essentially following Singapore’s model, but with a very strong and vicious politcal party on top. Singapore followed an authoritarian model which was outstanding in two things: (a) economic reform and (b) new public management.

    China’s public sector companies are often as efficient as any private company in the world. Their internal incentives (the details of which I’m not very clear about, unfortuantely) seem to mimic Singapore.

    Remember, there are many aspects of classical liberalism: economic freedom, good public management, freedom of speech, freedom of money, freedom of association. China has PARTIALLY adopted the first two, even as it tightly curtails the last few. 

    The problem is that this model is both incomplete and undesirable in the long run. China is at risk due to the central planning of money/ debt. Its lack of direct public involvement in decisions means a lot of money is being squandered. 

    As a result China has one of the world’s largest outflows of top talent and capital. It is a leaking ship that is filling up with water. 

    It is trying to be a cross between socialism and capitalism, and yet, that’s ALWAYS going to be better than pure socialism. As we have seen in India, as well.

    Is that to be the end-goal of India’s ambition? Maybe yours, but not mine. When we can do 100 times better than China, why settle for what is overall a rotten “system”.

    s

     
  6. Martin

    I really doubt we can do a “100” times better than China given our infrastructure is not even as good as Vietnam which is our equal when it comes to GDP per capita, the main problem is that Indians are too lazy and fine with everything as is.

     

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