The growth race is on
The growth race is on
Betty Ng*

In Aesop’s Fables, the story about the race between the hare and the tortoise tells people that the rabbit’s complacency and the turtle’s perseverance resulted in an unexpected ending to a seemingly predictable contest. In the 21st century, will the economic race between China and India also offer similar twists and turns, notably because of the age distribution in these two countries?

Both nations are highly regarded BRICS members of the fast-developing world, but in the past decade China’s economic growth and per capita gross domestic product (GDP) have far exceeded India's. Since 2001 China has risen from being the world’s sixth economy to the second, whereas India has advanced from 12th to 10th. However some people hold the view that due to China’s demographic distribution the advantage may turn in India’s favor in the next few decades. How reliable is this theory?

Currently, the populations in China and India are respectively 1.34 billion and 1.2 billion. But the two countries do have a different “starting point.” The biggest age bracket in China is 40-59 years old, in India it's 0-14. Within a few decades, China’s demographic pyramid will turn upside down, and leave young people in the minority. Meanwhile, India will continue to enjoy a young and vibrant population providing a massive labor pool to sustain its economic growth. These are the central factors that convince some experts that the economic growth gap between the two countries will begin to narrow and may soon even make it possible for India to overtake China.

Though there is a certain logic in these figures, the factors that determine economic growth are nevertheless complex; and the importance of the age distribution of a population should not be exaggerated. If a country’s economic pace relies mainly on age distribution then Africa and the Middle East possess even more advantages.

Japan is most often taken as an example in explaining the effect of an aging population on a dwindling economy. The truth is that the aging population has only exacerbated the economic slowdown, not caused it. Obviously, not all the countries with young populations are on the same economic level. Not all countries with young populations belong to the emerging market.

Although India has a much younger population in comparison with China, its education level is lower. India’s literacy rate is 61% for those older than 15, whereas it’s 92% in China. Undoubtedly, this stems partly from the gender gap in education. In China the comparative literacy rate between men and women is 96% to 88.5%, while it is 73.4% to 47.8% in India.

Of course, education is a necessary but not sufficient condition in promoting productivity. According to data from Global Demographics, China’s per capita GDP is lower than that of many other countries with the same literacy rate. This implies that both China and India obviously have plenty of room for improvement.

China's narrow gender gap

Though education itself does not guarantee growth in productivity, it remains nevertheless very important because it affects “employability.” The better one is educated, the most likely one is to find a job. Therefore the educational discrepancy between men and women in India will affect the participation of Indian women in the labor force.

Chinese working age women have a 71% employment rate while the figure is a mere 39% in India (83% to 75% when it comes to men). This means that a younger population in India does not necessarily imply a bigger labor force for the country. This in turn will also affect India’s growth in consumption. According to a forecast from BCG, an international consulting firm, Chinese women’s economic contribution will grow from $1.3 trillion in 2010 to $4 trillion in 2020, whereas in India it will grow to $0.9 trillion in the same period. In contrast, China has a much higher demand for luxury goods.

India will progress in its universal education. Global Demographics estimates that the average literacy rate will grow from the current 65% to 81% in 2032 in India, though that is still lower than China’s current average of 92%. The literacy rate will give respectively to China and India a 79% and 75% male labor participation rate, and a 68% and 40% rate for women. This shows clearly that even if India progresses in its universal education, its gender gap will still lag behind that of China.

As to the possibility of employment, currently China has Asia’s smallest gender gap in the labor force participation rate (12%). Meanwhile the 36% gender gap in India's workforce is nevertheless smaller than the average rate across South Asia (57%). Even though India has had both a female prime minister and president, women’s upward mobility remains limited to the rich and elite classes -- whereas in China there are many more career women with middle and upper management positions.

All these arguments in effect do not negate the importance of age distribution of a population. It just shows that the economic competition between China and India is a complicated process. Both countries have their own unique advantages and both rely on complex elements for economic growth. Economic growth alone cannot determine the rate of return on investment, so any prediction of productivity or GDP shouldn’t be based solely on the age distribution of the population either.

The economic competition between China and India is not a simple race between the hare and the tortoise. The likely return on investments in these two countries requires ever more complex analysis.

*Betty Ng, columnist at Caixin media, is also a contributing writer for the Economist Intelligence Unit.

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