Vajpayee tells Hu what Deng had said to Rajiv fifteen years
earlier

In Beijing in December 1988, the octogenarian Deng Xiaoping told the
44 year-old Rajiv Gandhi that ” is there should be an ‘Asian Age’ in
the next century, then it could be realized only after India and China
became developed economies”. When the soon-to-be octogenarian Atal Bihari
Vajpayee met his 60 year-old Chinese counterpart Hu Jintao in St. Petersburg
eleven days back, he remarked that “if the two countries were to cooperate
this could even result in the 21st century turning into an ‘Asian century’
“. Such hopes are, of course, not new. At least two other distinguished
Indians in the 20th century-Rabindranath Tagore and Jawaharlal Nehru-had
expressed similar sentiments more eloquently.

In some ways, therefore, the 21st century should see the re-emergence
not the emergence of China and India as economic powerhouses. Why and
how these two countries simply lost out over the past three centuries
is a subject of continuing debate and scholarly analysis. Recently,
Kenneth Pomeranz’s magisterial The Great Divergence , for example, has
sparked a lively debate with his thesis that more than non-market and
internal forces, its ecological environment and its colonies helped
Europe surge ahead at the expense of both China and India.

Historical research apart, what of the future? Already, measured in
the terms of international dollars or purchasing power parity (PPP),
China is the second largest economy in the world, next to the USA. It
is followed by Japan and India that crossed Germany three years back.
At present growth rates, India is poised to be the world’s third largest
economy by 2010 but the gap between it and China would still be substantial.
But it is a moot point whether China and India will play the type of
catalytic role in the regional and world economy that Japan, for instance,
played in the 1970s and 1980s and whether they will emerge as engines
of world growth alongside the USA and Europe. On present reckoning,
China is more likely to assume such a role than India over the next
decade or two. Demographically, of course, India will almost certainly
surpass China by the middle of this century and the two countries would
then account for around 40% of world population. China is becoming the
manufacturing fulcrum of the world with India becoming the pivot for
knowledge-based industries, research and development, software and IT-enabled
services. This does not mean that China will not make inroads into the
world’s services market or that India will not build up its own manufacturing
capacity. What will actually materialise is a pattern of growth in the
two countries that is both competitive and complementary at the same
time.

China’s politics and society is fundamentally different than in India.
That is what makes a comparative evaluation of the performance of the
two countries difficult. But this should not preclude a look at the
comparative evolution. Till about the mid-1970s, India and China were
almost on par. But since then, China’s growth record has been spectacular
while India’s has been steady and robust. Rapid urban renewal makes
the impact of growth in China far more dramatically visible than in
India. One of the fascinating questions for students of contemporary
economic history is this: why did China take-off in the mid-1970s after
major agrarian reforms and why did West Bengal (and Kerala as well)
not take-off even though they were then at a similar stage as China.
This is, incidentally, a question first posed to this columnist some
months back by Debu Bandyopadhyaya, one of the architects of West Bengal’s
highly acclaimed land reforms programme.

There is no mystery to why China has taken off in such a stunning manner.
It has followed very pragmatic policies exemplified in Deng’s famous
aphorism-what does it matter if the cat is black or white as long as
it catches mice!. Unlike India, it has not had restrictive labour laws
or policies like that of reservations for the small-scale sector. It
has not strangulated its textile industry or crippled manufacturing
by fiscal policy like we have. It has invested more. And it has exported
(and imported more). The answer to Bandyopadhyaya’s question is that
unlike China, West Bengal has remained a prisoner of shibboleths and
sterile ideologies. Mindsets may be changing slowly but setminds are
wreaking havoc here.

It is now fashionable to decry Chinese statistics, although scholarly
opinion is divided. Sure, GDP growth may well have been overstated by
1-2 percentage points. Foreign investment inflows too may be exaggerated-according
to a IFC study done last year, roundtripping (that is, Chinese local
investment going to Hong Kong and returning as “foreign” investment)
reduces net FDI inflows from the reported annual average of around $
40 billion to about $ 20 billion a year. But foreign trade figures are
not suspect. All said and done, the Chinese economy is a “sweat” economy
that grows more on the back of huge investments and less on the basis
of productivity and efficiency.

Talk about “Asian age” or “Asian century” inevitably brings up the role
of the diasporas. No question that the Chinese diaspora has made more
constructive contributions than its Indian counterpart in both mobilising
investment and boosting international trade. An estimated two-third
to three-fourth of all foreign investment inflows into China emanates
from Hong Kong, Taiwan and Singapore. If you believe the Chinese numbers
anywhere between $ 25-30 billion of money pours into the Chinese economy
from the overseas Chinese community which is about 50-55 million strong.
But while the overseas Chinese have been large-scale investors, overseas
Indians, because of their very nature, have been large-scale depositors
and remitters. The stock of NRI deposits now amounts to about $ 28 billion.
Those Indians who point to FDI roundtripping in China with great glee
should know that such roundtripping could well be happening here as
well in the case of NRI deposits. FDI investment through NRIs has been
very small, amounting to no more than $ 3 billion over the past twelve
years but since the mid-1990s another $ 3 billion of NRI money has come
in for acquisition of shares. Remittances from workers overseas are
more important with such inflows averaging about $ 7-8 billion annually.

Paradoxically, democratic India has been highly centralised while authoritarian
China has been very decentralised. But transformations are taking place
in both countries. India is becoming more polycentric while in response
to the WTO accession China is becoming more of a centripetal system.
Both countries are going through profound political, economic and social
changes and each needs to understand the other better.