Will India’s economy continue to benefit from China’s own goals?
- Wall Street is talking up India’s emergence as a key engine of global economic growth, amid high hopes for Modi’s third term
- On Xi’s watch, China’s self-inflicted wounds from “zero Covid” chaos to the tech crackdown have only added to India’s appeal
The China-versus-India debate of the past decade always seemed rather fanciful as Asia’s biggest economy boomed and hoovered up jobs and investment from every direction.
As 2024 unfolds, though, some of the globe’s top CEOs and investors rushing India’s way are entertaining the five most dangerous words in economics: things are different this time.
This is economic fighting talk, of course. And caveats abound – big ones.
These challenges can make wagers that India’s US$3.4 trillion economy has a shot at catching up with China’s US$17.9 trillion economy seem as fanciful as ever.
Shanghai stocks plunged 30 per cent in three weeks. Unfortunately, Team Xi took a wrong turn with its response to the rout.
Beijing scrambled to pump tidal waves of liquidity into the market, slash reserve requirements for banks, shelve initial public offerings, impose capital controls, loosen rules on leverage and allow people to use apartments as collateral to buy shares.
Yet officials were slow to treat the underlying causes of the mini-panic, as opposed to the symptoms. Beijing slow-walked moves to strengthen capital markets, reduce opacity, scale back the role of state-owned enterprises and increase regulatory certainty.
The self-inflicted wounds from the “zero-Covid” chaos demonstrated that party power still matters more than creating a freer, more dynamic economy. Ditto for Beijing’s ongoing efforts to remake Hong Kong, a place Nobel laureate Milton Friedman once admired, in China’s image.
Does anyone really know what Beijing is doing to repair the distressed property sector and head off deflationary risks? Or to rein in provincial finances? The US$9 trillion mountain of local government financing vehicle debt, most of it the off-balance-sheet kind, is 2.6 times India’s gross domestic product.
It’s hard not to think India’s economy is the biggest winner from China’s own goals. Not only did Xi’s first two terms make things easier for India, but they also helped Modi paper over his own reform blunders.
“People are interested in India for several reasons, one is simply it’s not China,” Vikas Pershad, portfolio manager at M&G Investments, told Bloomberg. “There’s a genuine long-term growth story here.”
In a March report, Nomura warned of India: “All that glitters is not growth. Underlying growth is weaker than what the headline suggests.” Nomura argued that India’s growth “is primarily supported by strong public capex growth, while private consumption and private capex remain subdued”. And the agricultural sector, a vital employer, has “underperformed”, in Nomura’s view.
Still, India’s economy clearly has momentum at a moment when many economists worry a Japan-style funk is in China’s near future, as Beijing seems more concerned about controlling top entrepreneurs than letting them disrupt the economy.
This isn’t a given. Beijing might well begin acting boldly to raise China’s odds of staying at the centre of Asia’s economic universe. But in the meantime, it is certainly making things easy for India to pull ahead.
William Pesek is a Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades”