The Integration of China and India into the World Economy: A Comparison

Introduction The rapid economic rise of China, followed by that of India, has led to a new balance of power in the world economy. Their rise has driven attention to other developing and transition economies which also have a high actual or potential growth, based on cheap labour, opening up to foreign technology and capital, economic liberalisation and market regulation. The emergence of these new players is challenging the supremacy of the old economic powers (US, Europe and Japan) which used to dominate the international trade of goods and services and control financial resources. Since the end of 2008, all emerging economies have been hit by the global meltdown. The hypothesis of "decoupling", which considered that a centre of autonomous growth had emerged in Asia, has been short-lived. However, India and China, thanks to their large domestic market, have retained growth rates which are still high compared to those of advanced economies. Thus, paradoxically, during the crisis, catch-up is still happening. The paper aims at understanding how China and India have succeeded in enhancing their role in international trade and how they react to the global crisis. It highlights the similarities and the differences in their strategies. The first section presents a classification of emerging economies and sketches out China's and India's rise against this backdrop. The second section is devoted to a detailed analysis of their international trade in goods and services, providing a qualified assessment of the technological and quality levels of their exports and imports. Finally, the third section considers the impact of the global economic crisis on their performance and tries to assess whether it challenges the sustainability of their growth strategies. 1. The come-back of giants 1.1 Who are the "emerging economies"? Developing countries used to be considered as the "periphery" of the world economy, but in the last 15 years many of them have been leading world economic growth and international trade (Lemoine and Unal-Kesenci, 2007). "Emerging economies" have become a hot topic in economic literature, media, and business circles. Reports, essays and articles emphasise the importance of this turning point in the world economy, but they do not provide a clear-cut and common definition of this category of new players. The term "emerging economies" was first coined at the beginning of the 1980s by Antoine Van Agtmael (working at the International Finance Corporation of the World Bank) to characterise fast growing economies with rising financial markets and which offered new opportunities to international investors. Since then, the term has referred to various and often blurred groupings (see Box 1, and for a discussion of this question, Gabas and Losch, 2008). Sometimes it is used to point out the four "BRICs" (Brazil, Russia, India and China) or a group of "fast growing economies", and sometimes it refers to all developing countries. To make things more confusing, the category of "developing economies" itself corresponds to various groupings. The World Bank (World bank 2007b) sets a threshold of income per capita (11 100 current US dollars in 2006) to distinguish rich countries from others, but according to the UNCTAD classification, for instance, the group of "developing countries" includes economies which are above this threshold: Asian new industrialised economies (Taiwan, Hong Kong, Singapore and South-Korea) which have already emerged and the oil exporting countries which also have now an income per capita above the threshold. Box 1 - From Developing countries to Emerging economies Institution/ publication Wording Coverage World Bank, Developing Countries with GDP pc below 2007b (WDI) countries $11 000 in 2006 World Bank 2007a Emerging "China, India and Other" (Global Economic economies Prospects) UNCTAD Developing & All countries excluding EU27 (World Investment transition and other Western Europe, Report, 2007) economies North America and other developed IMF Other emerging Countries outside the group (World Economic markets and of advanced economies (G7 and Outlook, 2007) developing Euro area, Asian NIEs, ANZ) countries Ernst & Young, Emerging Argentina, Brazil, China, 2008 countries India, Mexico, Russia, Saudi Arabia, South Korea BCG (Boston Fast growing Argentina, Brazil, Chile, Consulting economies China, Egypt, Hungary, India, Group), 2007 Indonesia, Malaysia, Mexico, Poland, Russia, Thailand, Turkey Goldman Sachs, BRICs + the Bangladesh, Brazil, China, 2005 next eleven Egypt, India, Indonesia, "large Iran, Mexico, Nigeria, developing Pakistan, Philippines, economies" Russia, Turkey, Vietnam Price Waterhouse BRICs+16 other Argentina, Bangladesh, Brazil, Coopers, 2008 emerging China, Egypt, India, markets Indonesia, Iran, Malaysia, Mexico, Nigeria, Pakistan, Philippines, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey, Vietnam The dividing line between emerging and non-emerging economies is quite imprecise and emerging countries present characteristics which widely differ from one country to another. …