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China’s Growth Imperative Omkar Goswami
After years of languishing, India reappeared on the international radar in 2004. Ever since, there have been two common themes in the China-India seminars that have spanned the globe. Can China sustain a growth rate of 8 per cent or more up to 2010? And can India push its GDP growth rate up to the region of 7.5-8 per cent over the next decade? A thesis that often emerges in these deliberations is that India, with its democratic institutions, may present a more sustainable growth story then China.
I am an unabashed Sinophile. If you look at virtually any economic or social indicator, you will immediately see how far ahead China is vis-à-vis India, and the sheer quantitative difficulties that we will confront in significantly narrowing the gaps. Here is one indicator. China’s GDP in 2004 was approximately $1.45 trillion at 1995 prices and exchange rates. India’s was around $600 billion. If India were to grow each year at 7 per cent, it would take 13 years for us to catch up with China’s GDP of 2004. And China isn’t going to remain stagnant, waiting for India to catch up.
Besides, eyes don’t lie. A few visits to Shanghai or Beijing suffice to understand the economic differences. I have often been told that Shanghai is not China. So how about comparing Shanghai with Mumbai? Or Dalian with Indore? Or Chongqing with Ahmedabad? In mostc cases, it doesn’t matter what variable you examine: China is invariably way ahead.
Let me touch upon the first question: Can China sustain a growth rate of over 8 per cent up to 2010? The answer is yes. I would bet that the average growth rate over the next five years will be around 8.5 per cent, and maintaining this pace will have much to do with the politics of China’s growth imperative.
Hu Jintao, Wen Jiabao and other of the Chinese Communist Party know full well that the future of the party depends on the country’s ability to create a vast number of jobs to absorb millions of young people who are leaving villages and agriculture to seek a better world in China’s cities. It is a stupendous task which has to be successfully executed, because the biggest danger to an authoritarian system is to have millions of disaffected urban unemployed youth.
Chinese authorities realise that sustained economic growth is the only way to secure greater employment. China’s growth imperative, therefore, is even more political than is economic. And it is being driven by phenomenal public and FDI investments in infrastructure. Here are two other examples: India’s most ambitious infrastructure programme will result in four- and occasionally six-laning of around 7,200 km of national highways by December 2005. By 2004, China had over 25,000 km of six-laned, restricted access highways. Like India, China has power shortages. So, it embarked on Three Gorges, the world’s largest hydroelectric project on the Yangtze, which will be completed in 2009 at a cost of $25 billion, and will produce 10 per cent of China’s electricity.
There is also the Beijing Olympics in 2008 and the Shanghai World Expo in 2010, which the Chinese consider as the debutante’s coming of age ball. China will stop at nothing to leverage these two events to demonstrate the country’s capabilities to the world. And as we approach these two landmark dates, I will bet that the FDI flows into China will begin to exceed $70 billion per year.
So, don’t ever harbour the notion that China’s growth will fall below 8.5 per cent over the next five years. Sure, it will be less than the 9.5-10 per cent that it achieved right up to 2004. But if a “slow down” means reducing to 8.5 per cent, then we are clearly talking of a very different animal altogether. The best we have done is 8.5 per cent; the worst they can do is 8.5 per cent. That’s some comparison, isn’t it?
Can we ratchet our growth to 7.5-8 per cent? Sure, if we think of growth as a political imperative, and if we can really kick-start infrastructure. It is up to you to assess whether we are sufficiently doing either. Published: Business World, April 2005
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