5 Surprising Reasons why China is ahead of India

There are many reasons why China is ahead of India – They liberalised earlier, lack of democracy and a very capable Government. These are true. But today, we will explore 5 other reasons which we believe played a critical role in determining China’s success after 1979

  1. Adjacency Factor*

China Adjacent Countries – Japan, Korea, HongKong, Taiwan

So if we add up the GDP of all these countries, it was 6.6 times higher than China alone. Don’t forget, all of them were manufacturing power houses

Look at the richest countries around India in 1991 – Oman, UAE, Saudi Arabia

So if we add up the GDP of all these countries, it was 0.73 time higher than India alone. Don’t forget, all of them were Oil producing countries with almost no manufacturing capabilities beyond Oil.

Essentially when China started its reform process in 1979, it was surrounded by countries that were strong in manufacturing and significantly more richer making them willing markets for Chinese goods over the next 10-15 years. It took China 12 years between 1979 and 1991 to overtake India and never look back. These 4 countries even today make up for 25% of Chinese Exports (ahead of United States at 19%). India’s 3 affluent neighbours make up for about 11% of India’s exports given the small population in these countries.

*We have deliberately excluded countries that are close to both India and China

2. Crude Oil dependency

In 1984, Crude Oil Imports made up for 0.5% of China’s Imports. In 1991, Crude Oil Imports made up for 30% of India’s imports. India suffers immensely because of Oil dependency. China on the other hand even today has relatively much lesser Oil dependency than India. China’s oil production per capita is 5 times that of India

3. Women at work

The gap between in workforce between India and China is 263 m (2016). Of these 218 million are women. India’s labour force participation is about 54%, China’s 69%.

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In 1990, China’s female labour force participation was 73%, India’s 30%. This has served a huge advantage for China as every household has more than one person working. This creates a larger consumption market as well as skills available for factories.

4. Literacy

In 1982, China’s population had a literacy rate of 65%. India reached that level sometime around 2008. Yes, 26 years later. An illiterate population in the modern industrial age is a huge disadvantage particularly when it comes to learning new skills where some basic education would have helped.

5. Cultural/Other Factors

Numerous other factors gave China advantage

  • Homogeneity of the Population
  • Fertility Rates – China’s fertility rate in 1978 (before the one child policy) was 2.9. India reached that level in 2005, 27 years later
  • Modernisation: China’s Father of Nation is not Mao or Deng. It is Sun Yat Sen. Sun Yat Sen and other Chinese toppled the emperor. China carried out its first democratic elections in 1912. Even though the democracy did not last even a year and only 40 million voted, it was still a move forward. We organised our first free elections in 1951
  • Collapse of USSR: In 1990, China’s per capita was $ 318, India’s was $368. With the Collapse of the USSR and Yeltsin taking over of Russia, China quickly started to replace Russia all over the world and soon its per capita increased to $ 610 in just 5 years. India went upto $ 374 in those 5 years. Russia’s per capita collapsed from $ 3485 to $ 2666.

Between 1985 and 1990, China’s exports doubled from $ 25 B to $ 49 B. Between 1990 and 1995, it increased by 2.7 times to $ 132 B. India’s exports went up 1.7 times during this period

  • Joining WTO: China joined WTO in 2001. Between 1996 and 2001, China’s Exports increased from $ 155 B to $ 272 B (India from $41 B to $ 61 B). Between 2001 and 2006, it went up from $ 272 B to $ 992 B -3.6 Times (India went from $ 61 B to $ 200 B, 3.3 times )

Overall, while it is true that Deng ushered in China’s revolutionary growth, it is also true that a whole host of other factors played an equally critical role in driving China’s growth. Without rich markets round it, large female labour force, high levels of crude oil etc, Deng’s reforms could have achieved just a little more than India’s and not the world beating growth that China saw until 2014.

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