1 China-India Chartbook China & India October 10, 2005 A visual essay Editors: J. A.-Mund / N. Brandt / S. Hansakul, Frankfurt +49 69 910-31745 Global Risk Analysis The China-India chartbook is a visual essay to depict key similarities and differences between these two emerging economies, which are poised to change the global economic landscape. China’s GDP per capita is now 2.2 times higher than India’s (in USD PPP terms). Until the early 1990s, GDP per capita in China and India was at comparable levels, but China adopted wide-ranging economic reform one decade earlier than India. The Chinese economy is much more integrated with the world economy through international trade and investment, which helps to explain its stronger rate of GDP growth during most of the past 3 decades. For its economic development, China has relied on industry and India on services. China’s ratios of domestic savings and investment to GDP are roughly double those of India’s. Both economies currently enjoy strong external positions, with ample foreign exchange reserves. Higher oil prices are not likely to have a significant adverse impact on external liquidity. China and India have low external debt as a percentage of GDP, and the ratio of short-term external debt to foreign reserves is low. Despite declining fiscal deficits, the level of public sector debt is a cause for concern, especially in India. In particular, interest payments as a percentage of general government revenue are very high in India, making the prospect of fiscal consolidation more remote. Excess domestic liquidity presents a bigger challenge to China than India. M2 in China is heading toward 200% of GDP with domestic credit almost 170% of GDP. This explains the rapid rise in CPI inflation during 2004, on which the Chinese authorities are still keeping a tight rein. Surveys indicate India has better corporate governance standards and its companies are more commercially-driven. This explains why, despite China’s superior economic growth and macro- economic stability, India’s rate of return on assets has been much higher, non-performing loans in the banking sector lower, and stock market performance much better. Social indicators reflect generally improving living conditions for the average Chinese. China also enjoys superior physical infrastructure, although India’s availability of skilled workers, especially engineers, is much better regarded. China’s early steps to liberalise its economy and invest heavily to modernise its physical infrastructure gave it a substantial edge over India in terms of income per capita levels. They also made China a more attractive destination to foreign investors. However, although India started economic reforms only a decade later than China, it is far more advanced in its institutional infrastructure and corporate governance. This is reflected in contrasting outcomes: foreign direct investment is considerably lower than in China, but returns on investment are better on average. The key to unlock India’s potential to rival China as an FDI destination is a decisive effort by the Indian authorities to push ahead with reforms.
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1
Chi
na-I
ndia
Cha
rtbo
ok
China & India October 10, 2005
A visual essay
Edi
tors
: J. A
.-Mun
d/ N
. Bra
ndt /
S. H
ansa
kul,
Fran
kfur
t +4
9 69
910
-317
45G
loba
l Ris
kA
naly
sis
The China-India chartbook is a visual essay to depict key similarities and differences between these two emerging economies, which are poised to change the global economic landscape.
China’s GDP per capita is now 2.2 times higher than India’s (in USD PPP terms). Until the early 1990s, GDP per capita in China and India was at comparable levels, but China adopted wide-ranging economic reform one decade earlier than India.
The Chinese economy is much more integrated with the world economy through international trade and investment, which helps to explain its stronger rate of GDP growth during most of the past 3 decades. For its economic development, China has relied on industry and India on services. China’s ratios of domestic savings and investment to GDP are roughly double those of India’s.
Both economies currently enjoy strong external positions, with ample foreign exchange reserves. Higher oil prices are not likely to have a significant adverse impact on external liquidity. China and India have low external debt as a percentage of GDP, and the ratio of short-term external debt to foreign reserves is low.
Despite declining fiscal deficits, the level of public sector debt is a cause for concern, especially in India. In particular, interest payments as a percentage of general government revenue are very high in India, making the prospect of fiscal consolidation more remote. Excess domestic liquidity presents a bigger challenge to China than India. M2 in China is heading toward 200% of GDP with domestic credit almost 170% of GDP. This explains the rapid rise in CPI inflation during 2004, on which the Chinese authorities are still keeping a tight rein.
Surveys indicate India has better corporate governance standards and its companies are more commercially-driven. This explains why, despite China’s superior economic growth and macro-economic stability, India’s rate of return on assets has been much higher, non-performing loans in the banking sector lower, and stock market performance much better.
Social indicators reflect generally improving living conditions for the average Chinese. China also enjoys superior physical infrastructure, although India’s availability of skilled workers, especially engineers, is much better regarded.
China’s early steps to liberalise its economy and invest heavily to modernise its physical infrastructure gave it a substantial edge over India in terms of income per capita levels. They also made China a more attractive destination to foreign investors. However, although India started economic reforms only a decade later than China, it is far more advanced in its institutional infrastructure and corporate governance. This is reflected in contrasting outcomes: foreign direct investment is considerably lower than in China, but returns on investment are better on average. The key to unlock India’s potential to rival China as an FDI destination is a decisive effort by the Indian authorities to push ahead with reforms.
2
GDP
China & India: Real GDP growth China & India: Nominal GDP
China & India: GDP per capita (nominal) China & India: GDP per capita (PPP)
China: Nominal GDP vs. GDP based on PPP India: Nominal GDP vs. GDP based on PPP
0
1000
2000
3000
4000
5000
6000
7000
1980 1984 1988 1992 1996 2000 2004
India China
USD
Source: IMF
0
1000
2000
3000
4000
1980 1986 1992 1998 2004
GDP based on PPP nom GDP
USD bn
Source: IMF, IIF
-6
-3
0
3
6
9
12
15
18
1978 1982 1986 1990 1994 1998 2002
India
China
% change, yoy
Source: IIF
100
400
700
1000
1300
1600
1900
1978 1982 1986 1990 1994 1998 2002
India China
USD bn
Source: IIF
100
300
500
700
900
1100
1300
1500
1978 1982 1986 1990 1994 1998 2002
India China
USD
Source: IIF
0
1000
2000
3000
4000
5000
6000
7000
8000
1980 1986 1992 1998 2004
GDP based on PPP nom GDP
USD bn
Source: IMF, IIF
3
GDP and structure of economy
China: Composition of GDP
China & India: Gross domestic savings China & India: Gross domestic investment
India: Composition of GDP
China & India: GDP based on PPP as % of world total in 2004
Japan7%
China 13%
Euro area15%
India6%
USA21%Others
38%
Source: IMF
27%
42%
31%
15%
53%
32%
2003
1990Services
Agriculture
Industry
Source: DBR
56%
22%
22%
2003
1990
ServicesAgriculture
Industry
46%
32%
22%
Source: DBR
0510152025303540455055
1990 1992 1994 1996 1998 2000 2002 2004
China India
% of GDP
Source: IIF
0
5
10
15
20
25
30
35
40
45
50
1990 1992 1994 1996 1998 2000 2002 2004
China India
% of GDP
Source: IIF
4
External sector
China & India: Total merchandise trade China & India: Exports of goods
China & India: Merchandise exports China & India: Merchandise imports
China & India: Export of goods & services as % of world total in 2004
China 6%
India1%
Other46%
Euro area31%
Japan6%
USA10%
Source: IMF
0
10
20
30
40
50
60
70
80
1990 2004
India China
as % of GDP
Source: Reserve Bank of India, CEIC
0
5
10
15
20
25
30
35
40
1990 2004
India China
as % of GDP
Source: Reserve Bank of India, CEIC
0
100
200
300
400
500
600
700
1978 1982 1986 1990 1994 1998 2002
China India
Source: IIF
USD bn
0
100
200
300
400
500
600
1978 1982 1986 1990 1994 1998 2002
China India
Source: IIF
USD bn
5
External sector
China: Top 5 export partners in 2004, as % of total exports
China: Top 5 export partners in 1994, as % of total exports
India: Top 5 export partners in 2003, as % of total exports
India: Top 5 export partners in 1994, as % of total exports
BSE National Index, eopMumbai SENSEX 30 Index, eop
Source: Bloomberg
0
1
2
3
4
5
2000 2001 2002 2003 2004
China India
Source: IMF
USD bn
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004
China India
*China: Shenzhen A-Share Index; India: Mumbai SENSEX 30 Index
Source: IMF
14
Population & labour force
Population: CN, IN, DE, US China & India: Urban population
Workforce, ages 15 - 64: CN, IN, DE, US
China & India: Female labour force participation
China & India: Skilled labour & engineers
China & India: Labour force participation*
0
200
400
600
800
1000
1200
1400
1960 1970 1980 1990 2005 E
CN IN DE US
millions of people
Source: UN, DBR
27
39
26
28
0 10 20 30 40 50
1990
2003
as % of total
Source: World Development Indicators, 2005
India
China
0
200
400
600
800
1000
1960 1970 1980 1990 2005 E
CN IN DE US
Source: UN, DBR
millions of people
89
87
72
71
0 20 40 60 80 100
1990
2003
%
Source: DBR, World Development Indicators, as % of total population, ages 15-64
India
China
80
79
42
45
0 20 40 60 80
1990
2003
as % of total
Source: World Development Indicators, 2005
India
China
4.8
4.129
7.8
8.94
0 2 4 6 8 10
Skilled labor
Qualif iedengineering
*) Data are based on response from Institute for Management & Development's annual Executive Opinion Survey. High score equals high availability of skilled labour and qualif ied engineers.
India
China
15
Social indicators
China & India: Average life expectancy China & India: Infant mortality*
China & India: Health expenditure in 2001
China & India: Adult literacy* China & India: Tertiary enrolment rate
China & India: Gini coefficient
69
71
59
63
0 20 40 60 80
1990
2003
years
Source: World Development Indicators, 2005
India
China 30
84
63
38
0 20 40 60 80 100
1990
2003
Source: World Development Indicators, 2005* per 1000 live births
India
China
49.0
24
5
5.5
0 10 20 30 40 50 60
Healthexpenditureper capita in
USD
Healthexpenditure,
% of GDP
Source: World Development Indicators, 2004
India
China
44.7
33
0 10 20 30 40 50
2003
Source: World Development Indicators, 2005
India
China
87
62
68
95
0 20 40 60 80 100
1990
2003
Source: World Development Indicators, 2005
* % ages 15 or older
India
China
3
13
6
11
0 5 10 15
1990
2003
Source: World Development Indicators, 2005
%
India
China
16
Infrastructure
China & India: Fixed-line vs. mobile phones per 1000 people in 2003
China & India: Internet users per 1000 people in 2003
China & India: PCs per 1000 people in 2003
China & India: Roads network in 2001 China & India: Electric power in 2001
China & India: Aircraft departures in 2003
209
215
46
25
0 40 80 120 160 200 240
Telephonemainlines
Mobilephones
Source: World Development Indicators, 2005
India
China
63
17
0 20 40 60 80Source: World Development Indicators, 2005
India
China
28
7
0 5 10 15 20 25 30Source: World Development Indicators, 2005
India
China
264
946
0 200 400 600 800 1000
in thousands
Source: World Development Indicators, 2005
India
China
2
91
3
46
0 20 40 60 80 100
Total roadnetw ork,
millions of km
Paved roads,%
Source: World Development Indicators, 2004
India
China
893
7
365
27
0 200 400 600 800 1000
Consumptionper capita,
kw h
Transmission& distributionlosses, % of
output
Source: World Development Indicators, 2004
India
China
17
Business environment & investment climate
China & India: Governance indicators* China & India: Obstacles in doing business indicators
0 1 2 3 4
Voice andaccountability
Politicalstability
Governmenteffectiveness
Regulatoryeffectiveness
Rule of law
Control ofcorruption
*) The six governance indicators are measured in units ranging from about -2.5 to 2.5, with higher values corresponding to better governance outcomes. Data have been rescaled to 0-5.
Source: World Bank Governance Index 2002
India
China
0 20 40 60 80 100
Number ofstart-up
procedures
Days to starta business
Proceduresto enforce a
contract
Employmentlaw index*
Source: World Development Indicators, 2004*) Higher score = more rigid labour laws