Dancing With Giants: China, India, And the Global Economy

China has one advantage over us. An early start. China has built a strong manufacturing base with an eye on the global market (40% of its GDP is from exports vs 15% for us). However, in the end, China has one disadvantage. In China the State is determining who will pursue economic activity and who will not by its "hukou" system (license to live in special zones) and "TVE system" (town and village enterprise owned by local governments with limited authority to retain and reinvest super profits). This was useful in creating "private firms" in a socialist economy.

However, this past success is going to be a millstone for China in the future. A very large population got left out in the growth process (though inequality is not as sharp as in India because the inequality in landholding prevented growth in agriculture from reducing inequality in India). Building political consensus to the reform process is going to be even toughter in China when the ability of the government to maintain control over the population reduces. This may hamper growth.

India has a higher chance of sustaining and growing political consensus for reforms because it has developed mechanisms to let differing voices debate vigorously before building consensus. The pace is slow but the traction is firm.

It is nice to think that Left leaders Prakash Karat and Sitaram Yechury, with their wisdom and ability to disagree, may help India build the consensus on a firmer track and perform better than China!