Can India surpass China?

China and India are the next global superpowers, but they have taken very different development paths. It is conventional wisdom that China - fuelled by huge flows of foreign direct investment - is on the faster track. But not all agree.

Writing in yesterday's Washington Post, Jim Hoagland's piece Whose Asian Century argues that India might overtake China in global power status. This is not yet a widely held view, but it deserves a hearing:

The "smart money" literally favors China. Foreign companies pour billions upon billions into direct investment there. But what if they are pouring 21st-century dollars or yen into a great 20th-century power? Politically, China is ruled by Leninists who must maintain the status quo. Militarily it relies on a large, underequipped land army. Economically it has adapted and mastered Henry Ford's assembly line on a continental scale. Financially it hordes its cash, regulates its markets with zeal and defensively uses fiscal policy to prevent mass upheaval.

India, on the other hand, has set out to become "a global knowledge hub, with a central place in the transnational movement of knowledge and services," Nath said in a conversation here last week. He argued that India's comparative advantage lies in its large and relatively young educated population. Seventy percent of India's 1.1 billion people are literate -- many of them are fluent in English -- and about half are under 30.

Yasheng Huang  and Tarun Khanna, writing in July-August 2003 issue of Foreign Policy in a piece entitled Can India Overtake China? (PDF), also consider India's path is more sustainable:

At the micro level ...India displays every bit as much dynamism as China. Indeed, by relying primarily on organic growth, India is making fuller use of its resources and has chosen a path that may well deliver more sustainable progress than China's FDI-driven approach.

"Can India surpass China?" is no longer a silly question, and, if it turns out that India has indeed made the wiser bet, the implications - for China's future growth and for how policy experts think about economic development generally - could be enormous.

Also worth reading is Steve Sjuggerud's recent interview with Rahul Saraogi of Atyant Capital. Saragi gives four reasons why he believes India's economy will outperform China's as a place to invest in coming years:

• Respect for capital
• Respect for intellectual property
• Sound banking and monetary system
• Entrepreneurship and profit motivation

India certainly has greater respect for capital and a sounder banking and monetary system:

One out of two loans in China is probably bad. India, on the other hand, has net NPLs [non-performing loans] in its banking system of 3.5%. China's bad loan problem is a legacy of its state-directed lending practices. Interest rates are completely controlled by the PboC, and the big four banks that control over 95% of banking assets have no credit scoring or credit risk based pricing mechanisms in place. It's unbelievable.

India on the other hand has a vibrant domestic credit market with an active corporate and government bond market and interest rate and credit derivative markets. Indian interest rates are market determined, and the banking system definitely knows how to price credit.

It also has a stronger service and knowledge economy:

India is miles ahead of China in the development of its knowledge industry. While the Chinese score over the Indians in basic primary education, India is miles ahead in higher education. India has vibrant IT, Pharmaceutical and Engineering-based knowledge industries. Indians understand branding and consumer choice. It has a vibrant music and entertainment industry. Its media and advertising industries are world class. 50% of India's GDP comprises services. China on the other hand commoditizes everything. It does not nurture innovation and is driven by imitation of foreign R&D. China is goods, India is services.

Of course, not all agree. A more even-handed assessment of India vs China comes from Deepak Lal at the University of California, Los Angeles.

Lal notes "there are greater similarities rather than differences in the policies followed and their outcomes ..in India and China." China's investment rate is roughly twice that of India’s, though "given the continuing deadweight of the State Owned Enterprises", their growth rates have been similar over the past decade.

But the growth in China has been more labor intensive than India's. This was the unintended consequence of the end of collectivization in agriculture which led to an explosion of labor intensive small-scale rural industry for export. This export led industrialization was facilitated by the much better and more extensive infrastructure created in China, and by the freedom to hire and fire as well as the absence of any 'social' burdens carried by firms in this fast growing non-state sector.

Can the Indian tortoise beat the Chinese hare? Perhaps. This is a debate where no early resolution is likely, but it's a  fascinating one to follow.

UPDATE: Mark Steyn writes in the Sunday Telegraph, 12 June, Who can stop the rise and rise of China? The communists, of course (free registration required):

The internal contradictions of Commie-capitalism will, in the end, scupper the present arrangements in Beijing. China manufactures the products for some of the biggest brands in the world, but it's also the biggest thief of copyrights and patents of those same brands. It makes almost all Disney's official merchandising, yet it's also the country that defrauds Disney and pirates its movies. The new China's contempt for the concept of intellectual property arises from the old China's contempt for the concept of all private property: because most big Chinese businesses are (in one form or another) government-controlled, they've failed to understand the link between property rights and economic development.

...India, by contrast, with much less ballyhoo, is advancing faster than China toward a fully-developed economy - one that creates its own ideas. Small example: there are low-fare airlines that sell £40 one-way cross-country air tickets from computer screens at Indian petrol stations. No one would develop such a system for China, where internal travel is still tightly controlled by the state. But, because they respect their own people as a market, Indian businesses are already proving nimbler at serving other markets. The return on investment capital is already much better in India than in China.

Comments

[Edward Hugh]

Very interesting post. You are asking the right questions. I personally would plump for India, simply because they are moving directly into much higher value work. The big problem is the number of young people who are going to come streaming out of the villages over the next decade. India needs manufacturing, and not just agriculture and services, the question is: could the global market handle India and China industrialised. This is a big problem.

[Edward Hugh]

"fuelled by huge flows of foreign direct investment"

This isn't quite it. The picture is rather more complex. Most of the money actually comes from internal saving. You obviously don't know Dooley et al :).

http://www.nber.org/~confer/2005/cas05/dooley.pdf

[Mr. Econotarian]

India has a tremendous structure of regulations that are slowly being removed through the democratic process, where many voters are still highly socialist.

China either never had these regulations, or they have been rapidly changed by autocratic rule.

I do think that in about 20 years, China will have to engage in a democratic change to continue to grow, but India may also take 20 years to remove their regulations.

[ian]

This debate might be mostly mute when one takes into account peak oil. Also, both economies have the same weakness as the US, expansionism...But this is not to say that either country, when one takes culture into account, might not solve these problems and teach us all valuable lessons; that or Cuba will be one of the very few to land on their feet...

[EU Serf]

India is hampered by the large number of illiterates, whose economic value and ability to adapt socially are very limited.

On the other hand, China faces much greater problems, due to the fact that the country has undergone very little political change.

The chaotic economic change going on in India may be very inefficient but it is less likely to meet with massive counter reaction. If things ever go wrong in China, there could be a massive backlash, which could destroy many of the gains that have been made.

[Roland Schmidt]

Can India surpass China?

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[Dale]

This article is full of stupid bashing on the great Chinese superpower. Behind it there must be a pathetic indian who is hopeless whining and envy on Chinese success. But he cannot even backup what he said. This kind of stuff can only be distributed amongst people who haven't seen China and India in his own eyes. There's no comparison, period. Think about it.

[Arthur Eckart]

Dale, there is no Chinese superpower. China is as dirt poor as India. Some understanding of economics is needed to know how far China and India are behind rich countries. I'd prefer to hear an economic theory rather than thoughtless and rambling misinformation.

[Harry]

I agree that about one third of the rural population in China are still living in poverty, mostly those in the interior. But here is the situation of most rural hourseholds in coastal and much of East China: almost every rural family has a color TV, a gas stove, a motor cycle, a telephone (and most adults in the rural area each have a cell phone). About two thirds of rural households each have a refrigerator. More than two thirds of the adults in the rural area are now working in the factories as wage earners; only females and the elderly stay home to take care of their farms. Farming is largely machinized in most of East China. This is THE REALITY in today's China - I mean rural China, not Shanghai or Beijing. To promote education, beginning this year, the government announced absolutely free education to all children - no tuition and no payment for books for all children in the countryside. Think about these before comparing India to China.

[Harry]

one more remark. many Indian friends boast about their democracy at home. democracy is no doubt what everyone desires. however, for a developing country, i'm convinced that democracy MEANS inefficiency, chaos, and corruption. remember, there is no example in the non-western world where a country can modernize under democracy; S. Korea, Taiwan, and other tigers all modernized while they were under authoritarianism or a strong government. democracy came to them only when they were already industrialized. in my opinion, the key to China's faster growth today is precisely its strong government. the government is in the hands of the CCP, but it is wrong to say that China is a communist state; China is absolutely more capitalistic today than India. people there today indeed have no freedom of speach in mass media; but they are free to criticise anybody in all kinds of informal occasions. i believe in 10 or 20 years, the CCP will eventually introduce some form of democracy to its country, just like what happened to korea and taiwan 10 years ago. i hope India and China, the two great civilizations, would work togather to make the asian age happen.

[Arthur Eckart]

China has 1 billion peasants making less than $3 a day (most of them make less than $2 a day). Yes, China is moving from the Agricultural Revolution into the Industrial Revolution. However, it still faces huge economic barriers. It's not easy for a large dirt poor country to rise to the levels of developed countries anytime soon. I'm sure Chinese, and also Indian, living standards have risen sharply over the past 10 or 20 years, only because they started from such low levels. China's population needs at least a free basic education (hopefully, it'll be better than a communist education). Nonetheless, there are generally more and greater economic similarities than differences between China and India, and the economic situations in both countries are basically the same.

[T Yang]

China and India are two giants in Aisa,they are studying each other but in different way.

Indian study china focusing on china's weakness and try to prove china's gloomy future and boasting india's greatness. Chinese are humble and concentrating on India's strongpoint and try to learn somthing from them.

Almost all reports on China vs India published by Indian and other western contries's media are negative on China, almost all reports on india by china's media are extoling india or more objective.

Perhaps it is democratic habit to bash others, communist habit to extol others.

It is pleasure to see that communist China's GDP is now three times more than democratic india or 12-15 years ahead of India, even we were at same GDP per captial in 1991.

Let's see communist china to overtake evil USA in coming 30 years, that will be most wonderful things to see.

[Arthur Eckart]

T Yang, you should support your statements with more than wishful thinking or communist propaganda. Also, it would help not being a hypocrite. China could learn a lot, as you put it, from the "evil USA" about raising living standards, morality, human rights, creating new products, efficiencies, etc. At least present an economic theory.

[T Yang]

Arthur Eckart, it is no dout that China is far lag behind USA in economic development, China should study a lot from the USA and other countries about devoloping economic,improving financial system, creating new products, efficiencies etc.

However, American could learn a lot from china about raising morality, human rights and freedom speech and democracy etc. most American are brainwashed by their government to think nothing but what their government wants,simply look throug your medias 1 million american have only one view on china, but 1 million Chinese have 1 million views on USA. why? because american are educated by their regime that their system are the greatest all over the world, they are brainwashed to simply bash china on everything, do not learn to respect other civilization and think all others are inferior (Indian are also brainwashed to some extent judged from their media).

Poor guys, the world is colourful not only USA, please learn to escape your hegemonic education and learn about respecting about other civiliation and dont blindly swallow your government's brainwash and avoid all have only one brain. diverse your speech and thinking is the only way you can obtain respecting and make freinds around world, otherwise, more anti-USA movement around world you will find, you are losing islam world (1.4 billion people), you are gradually losing all Chinese (1.5 billiion), you are gradully losing all..... why? simply because your brainwashed mind forced by your government and your hegemony hehavior.

China is lag behind USA for its history reason, but do not think we will always lag behind forever especially in macro-economic aspect, after all, the chinese population are four times more than USA

Let simply considering Japan's economy (Usd$5.1 tri) is 8 times more than china's(Usd$0.65 tri) in Year 1998, a ratio is just like today's USA vs China, however, the ratio has change to 2 times in year 2005, the gap is quickly narrowed only within 8 years, few people now will doubt that china's GDP will final catch up Japan in the near future any more.

It is interesting to make a comparable between USA and China, USA's real GDP is 8 times more than china in year 2003, 7 times more in 2004, 6 times more in 2005, sure 5 times in the coming year 2006...posible 3 times in 2010. (Note: China's GDP Data, USD$1.24 trillion (2003); USD$1.65 trillion (2004); USD$2.3 trillion(2005), USD$2.7 trillion (est.2006);..USD$5.2 trillion (Est.2010)

As a Chinese, I am more optimistic that China will catch up USD around Year 2025. if surprise please remember the economic development of Taiwan, Hongkong and Singapore (most of them are ethnic chinese )whose GDP per capital jumped to USD$20k from nothing within 20 years (1970-1990).

[T Yang]

China's development can contribute its combination strongpoints of socialism (Governance)and captialism (Market economy).

China has developed many economic theories to accomodate those strength, such as" Cat theory','Tier deveopment theory'," 8 staffs theory','stone theory', "SEZ theory","three representation" etc., of course, all these have been derided by your western economists, you may think it is rubbish, prizing nothing and laughing at it, but it is really working and pushing china ahead.

If you have visited china personally, perhaps you may surprise at china's appearance better than its economic data suggested, Why? China is not lag behind USA at quantities but far behind at service and quality.

[Arthur Eckart]

T. Yang, you stated: "American could learn a lot from china about raising morality, human rights and freedom speech and democracy etc." You're kidding right? Also, you stated: "Most American are brainwashed by their government..." etc. etc. etc. Well, the U.S. has a representitive form of government and Americans are a lot smarter than you think. As far as your other comments, they're so ridiculous, I'm not going to reply. However, your belief that China will catch up to the U.S in 2025 is very optimistic. Can you explain why China will catch-up, so soon, while rich countries (which are America's competitors) haven't caught-up yet?

[Arthur Eckart]

T. Yang, China was a great "country" thousands of years ago. However, if immorality is defined as consequences exceeding benefits, then China made too many wrong social choices for a long time. I believe most Americans want to see China and India improve their living standards. Americans generally welcome competition. However, China and India aren't direct competitors of the U.S. and other rich countries. The U.S. is moving into the Biotech Revolution after a quick and massive Creative-Destruction process in the Information Revolution, which made Information-Age firms more efficient and freed-up resources for emerging industries. Moreover, the U.S. continues to produce more with less in the Agricultural and Industrial Revolutions. However, China is basically moving from the Agricultural Revolution into the Industrial Revolution. So, most of China's economy will not compete with the U.S. A small economy can expand faster, because of increasing returns to scale (I've never heard of your economic theories, however, I hope they're re-labeled Western theories). There are real economic forces that will prevent China from catching-up with the U.S., although perhaps in a few hundred years, there may not be substantial differences between China's economy and the U.S. economy. Also, I may add, the large population of China, which is generally poor, is a negative macroeconomic force, because it will hinder improvements in living standards, through greater costs.

[T Yang]

Arthur Eckart,you state" why rich countries have not caught-up USA but china can? " demography,the rich country like Japan can narrow the gap with USA economically but hopeless to surpass it, Japan's population is only one third of USA (Japenese : American = 1.2 : 3.0 Billion),Japan have to generate USD$150,000 GDP per capital (no country can hope such high based on today's technical) to catch up today's USA. However,the poor country like China is closing USA economically and eventually surpass it, if China were Japan's today GDP per capital, China's economic total were now FOUR Times of USA and left USA miles behind.

How can china will catch up to the U.S in 2025? China perhaps will not reach USA GDP per captial in a long term, but 1/4 of that we can reach possible within 20 years.
1. China is now not lag far behind USA in industrial sector (USA : China = 1.1 : 3.0 tri),four of five basic raw material consumed by china have surpass USA (only Oil consumption lagged), 275 main products output made by china placed No.1 in the world in Year 2005. china is not lag behind USA in quantities but price, for example, I buy a shoe in China cost me USD$10 (China GDP$10), you buy a shoe (Same qulity as mine} in USA cost you USD$50 (USA GDP$50). more important is that china's average industrial output is increasing at 16% per year vs USA 4% per year.
2. China is uderstating its service sector: china's service sector only account 31% (USA 75%)of its GDP total in Year 2004, do you belive such a lower ratio, I dont, last december, the ratio was suddenly increase to 40% or USD$280 billion increased in service sector. but it is still a lower ratio, i think another USD$300 bil more should be imputed. also simply think that I cut my hair in china cost me USD$2 at confortable condition and you will cost you USD$20 with same condition.
3. China's currency undervalued: Do you still remember Japan's currency gain 3 times more than previous rate (Yen/USD=$360/1 upto 120/1) during 1986-1989, it simply enlarge Japan's GDP in USD term three times within 3 years, please imaging what's is China's GDP number by three times to verse USA.
4. Living standard are improving quickly. China is not so dirty poor as you thinking, I have been to Singapore and find that is so so comparing Chna's city, some of my friends have gone to USA and said that the different is not so appalling at least at its surface appearance, simply to think that mobile subscrible have over 400 million in China, the express way in in china over 40k kilometer.... You may assume that china have 800 million registered in rural, but you forget there are migrants 300 million strong labor who registered in rural but working and living relative confortable in city, it is easy to calcualte what picture 800 million total minus 300 million strong labor, most child and aged people left in rural area, for example, I am still a famer registered in the countryside of Guizhou province but i live in City and with 5 years never back to my registered hometown, however, i still one of the 800 m in your calculation dirty poor, this is china's HUKOU system.
5. All reforms are shaped quickly and its economic development is just starting; China's reform is derided as "crossing rive by touching stone", but it seems never falling into river in the past 25 years. The communist government have gained its reputation because they never ate up its economical goals (perhaps the hyped India government can learn somthing from it). it's land reform, SOE reform, banking system reform, socialist market economic reform, rule of law... all procedured smoothly. the goverment efficiency and governance is much better than ever before.
6. Education improvement and birth rate control. statistic showing 98% child go to school, 4 million college students graduate every year,sharply increase than before.
7. Pro-Democracy movement diminished and current china's military power is capable to protect us from western power intervention: fewer and fewer chinese are pro-democracy movement comparing year 1989, history have teached us to be more practice, most Chinese have realised that peace and development is the most important target in today's China. due to market for democracy perishing in china,overseas pro-democracy movement is murking even strong supported by western country, there is no rooms for western countries to use democracy as a tool to meddle china's affairs, destory China's stability, dirail china's mordenize process like they did before. China therefore will enjoy a long term peaceful time.
8. Chinese are intelligent and only tumoring history pull us down : China were lossing 150 years till year 1980, please look at china's history, was there one day that china are not in tumor during 1840-1980, foreinger invasion,farmer uprising,landlord civil war in feudulism Qing Dynasty (1850-1911), Civil war and World War II during KMT government(1911-1949), Great Leap forward and Great Culture revolution in Year 1950-1980. however, given Chinese some peaceful time, Chinese can quickly stand up to put things right, look at yesterday's Taiwan, Hongkong and Singapore and tomorrow China.

Number is just a game. as a dirt poor countryside Chinese, I still think china's low GDP data prove nothing but your misperception,

I would like to state again.USA's real GDP is 9 times more than china in Year 2002, 8 times more than china in year 2003, 7 times more in 2004, 6 times more in 2005, sure 5 times in the coming year 2006, 4 times in year 2007... let's expect what it is in Year 2025

(Note: China's GDP Data, USD$1 trillion (2002),USD$1.24 trillion (2003); USD$1.65 trillion (2004); USD$2.3 trillion(2005), USD$2.7 trillion (est.2006);USD$3.3 trillion (Est.2007)

[Arthur Eckart]

T. Yang, many of your comments are not supported by facts. In the 1980s, many believed Japan would catch up to the U.S. However, Japan's economy became flat for over 10 years and the Nikkei average fell from 40,000 in 1990 to below 8,000 in 2003, although it's to 16,000 now. Japan has poor living standards compared to the U.S. Americans own big expensive houses (the U.S. had a huge housing boom over the past 10 years), own large SUVs, and pay little for many products. The U.S. produced $12.5 trillion of output in 2005 and consumed over $13 trillion (through trade deficits, while foreign capital inflows, for U.S. investment, offset the current account deficits to keep the balance of payments balanced). Most of Japan's economy doesn't compete with the U.S. either, because Japan is roughly one economic revolution behind the U.S. For example, the auto and electronic industries are obsolete in the U.S. China will compete with India, Indonesia, Mexico, South America, and some Eastern European countries. Also, I may add, China produces heavy products (while the U.S. economy has become lighter). So, high oil prices are more negative for China's economy. International institutions have stated there are roughly 1 billion Chinese earning less than $3 a day. China's currency is undervalued, because China is relatively weaker than its major trading partners, i.e. the weaker currency is needed for export-led growth to maintain some levels of output and employment. When China's economy becomes large enough, it'll slow. Otherwise, boom/bust cycles will be created (which are inefficient) resulting in even slower overall growth (i.e. suboptimal growth). There are also many economic barriers that will prevent China from overtaking the U.S., Western Europe, or Japan anytime soon. However, I'm glad China is improving its economy, and has joined the global economic community.

[T Yang]

Arthur Eckart, Japan is a tiny island crowded with 120 million people, how could you expect them to catch up to the U.S, it is rediculous to those people's ignorance in the 1980s who belived Japan would catch up to the U.S. however, China is a every different story to catch up and surpass USA, China have advantages which Japan can never dream to have.

[E.Begoc]

Arthur Eckart,
please stop feeding this troll.

[Arthur Eckart]

Ok, however, a basic understanding of some economic principles are needed, to avoid wild statements, e.g. decreasing returns to scale, diminishing marginal productivity, terms of trade, etc.

[Harsha]

Arthur/Yang,
Both of you seem to have lost control and reasoning. There is no denial that USA still tops the list. Don't you think in another 2 decades, China will come to second place atleast? Maybe it can surpass in PPP terms. I can clearly tell that USA economy is much stronger fundamentally and resilient for shocks. China's economy strength to sustain a bad economic cycle is subjected to time.

[Arthur Eckart]

Harsha, you sound as bad as T. Yang. You can believe whatever you want. Why use economics? (India has been a capitalist democracy for 50 years and it's still a third world country).

[Harsha]

Arthur, No. You misunderstood. By any means if China has to surpass USA in real GDP assuming current growth rates, it takes 3-4 decades. All I mean to say that for any economy to surpass USA, decades are needed and any linear prediction over such long periods may go wrong. But there is no wrong to prevail optimism that may drive the momentum in China.

Yes, India has been a pretty closed economy for over 30 years and even to date if I were to import a foreign made car, I end up paying 120% import tariff. This kind of protection to local firms resulted in inefficiency aiding non-productivity.

And now come back to USA and EU, who speak of globalization and free trade put restrictions on shoes and bras from China. You want free economy and open markets but prevent Arcelor takeover, cry foul at offshoring. Certainly you guys have two tounges.

[T Yang]

Arthur Eckart, you should respect reality rather than suspecting everything. India, as a captialist democracy, has been using western economics but not working for 50 years, why not try economics applied for communist China at least worked in the past 25 years? (China's economy is different, think twice before defying china's economics and the western economics can not work for all)

The current western economics is working for developed countries, not for countries like india and china, I am stuning at indian to swallow your economics without twice thinking.

A country will not move ahead unless have its own thinking.

[Arthur Eckart]

Harsha, I only understood what you wrote (not what you didn't write). China's growth rate is unsustainable. The U.S. economy obviously leads the world in globalization (e.g. open markets, free trade, and unrestricted capital flows). The U.S. has over $700 billion a year trade deficits (even after enforcing a few anti-dumping laws). When the U.S. economy slows, China's economy will likely fall into recession, because the U.S. is the engine pulling the rest of the world's economies (i.e. the U.S. economy is relatively stronger than the rest of the world, because it can expand with huge negative net exports).

[Point]

Arthur, there is no denying that americans have the highest standard of living. It will be quite difficult for china and india to have the same gdp/capita. But there two countries have a population around 4 times more then that of usa. So even if their income per person is 4 times less then that of a avg. american, the size of the ecomonies would be the same. You have been tellin tang and harsha to come up with facts.

Where have u been living for the last 2-3 years. Just search google for bric emerging economies. Goldman sachs and other people have also predicted that this will happen. Dont live in the state of denial.

Remember one thing. India had the biggest economy for 1500 years from 1 AD to around 1500 Ad, after that china had the biggest economy for 200 yrs. Then for 150 yr britain became the biggest economy. Thing always change. China will definately be the biggest economy by 2030. India will become the bigger economy then usa by around 2060 and will eventually be the biggest economy by 2080.

[Point]

@ Yang,

Right now china is doing better then india. No doubt. They have better gdp/capita, literacy rate, lower infant mortality rate. But things have started to change for india. We had 8% growth this year. And this is only going to improve. Last year india got fdi of around 5 billion dollars compared to china which got around 60 billion. Still the difference in growth is not that much, 8% compared to 10.5 in china. Resources are use more efficiently in india. There is a proper banking, financial sector in india. The stock market is also doing well compared to the one in china.you have been living in communist country so u think that is the best system. Right now i am living overseas and my flatmate is chinese. He now has a totally different perspective as there is freedom of speech, free press in a democratic country which china lacks.

I would like better relationship between india and china. It is better for the future of both countries to have friendly ties and work as partners rather then competitors.

[Arthur Eckart]

Point, don't worry, I don't deny the truth. You presented no economic reasons why China and India will catch up and surpass the U.S. Perhaps, you can explain why China and India are still Third World countries, and far behind the U.S., after decades of industrialization. Yes, China and India are in a period of above trend growth, along with the U.S., but how will it continue?

[point]

arthur, look at taiwan, south korea. When they first started reforms in 60's their std. of living was quite low. Now they have decent std. of living, almost as good as the european countries. Everything takes time. China started industrialization only in 80's. India opened up in 90's. So things take time. Is there poverty in india china now?? Yes there is. But compare to what they were 15 yrs, millions of people are more better off today.

check this link --> http://en.wikipedia.org/wiki/BRIC

China will have a bigger economy then usa in 25 years time. This is just not me, most economist are saying that it will happen. Check any economic journal and u get more info. The days of Uncle sam being the only superpower are numbered. Still the usa will have a highers gdp/capita but their overall economy will be smaller compared to china.

[Arthur Eckart]

Point, you'll find in journals, e.g. American Economic Review, Journal of Political Economy, Econometrica, etc., that the vast majority of economists disagree with you. Taiwan didn't have a billion peasants to lift out of poverty, which will be a huge cost to China. Consequently, China will most likely still be a Third World country in 25 years. However, China should be much further along in the Industrial Revolution, and making headways in the Information and Biotech Revolutions. China faces huge economic barriers. You should review basic concepts, e.g. decreasing returns to scale, diminishing marginal productivity, terms of trade, etc. A massive number of poor people is a huge disadvantage to growth and living standards. However, if China's workforce becomes more educated, experienced, trained, and older (labor economists refer to the 35-54 age group as "prime-age" workers), productivity will increase and raise trend growth. Sustainable growth is optimal growth. However, China is an inefficient producer. For example, Chinese energy input costs, relative to other input costs and output prices, are high. To make matters worse, China's economy is overheating and it produces heavier products than rich countries. So, China is getting killed on high oil prices. It will be much tougher for China or India to be like Taiwan.

[Arthur Eckart]

Also, I may add, China is not only an inefficient producer that generates a huge amount of costly waste, it also exports about half of its economy to foreigners to maintain "acceptable" levels of output and employment.

[point]

Give me one article, just one article from a reputable source published this year that says, USA will still be the biggest economy in 50 yrs time.

[Arthur Eckart]

Most economists wouldn't consider what you're saying. You brought it up. Show me that the majority of economists support your statments.

[point_18]

main i already told u abt the goldman and sachs report. Just check out the article on bric- which stands for brazil, russia, india and china. I am here aruguing abt the size of the economy and not the gdp/capita.

to be honest in the last 1-2 yrs i have not read any article anywhere which says china wont be able to have a bigger economy then usa in 30 yrs time.

Now if u still dont think i am right then it is upto u. Now atleast show me one article which say usa will remain the biggest economy. i would very much like to read them.

[New Economist]

Arthur, Point 18, T Yang, et al

Many thanks for your debate on this post over recent months. However it is at risk of becoming tiresome, so I have closed comments