China-India economic detente

[silent roar]

China-India economic detente
IN SPITE of the current slowdown in economic growth, Pakistan, by my count, is among the twenty eighth largest economy in the world.

Among the world’s major emerging economies it is the only one that borders the two that are the fastest growing. It has China and India as its immediate neighbours, the two economies in the new economic world that are reshaping the global system.

The large Asian economies will play important roles on the stage of the new world economy. Because of the size and structure of their populations they will also profoundly influence the global economy system. What is important from Pakistan’s perspective is that China and India are learning to work together. There is a developing economic d’etente between them. It therefore matters for Pakistan how well these two mega-economies proceed on the economic front.

It would be wise for Pakistani planners that in the strategy they develop to revive a sick economy and to set it on the road to recovery, they explicitly factor in the country’s economic relations with China and India. Ultimately the aim of policymakers should be to have the Pakistani economy grow at the rates that are expected of China and India. But for these ambitions to realise, Pakistan must look to these two countries for opportunities.

In the last few months the Indians have decided to shed their pride and have begun to take some steps to draw benefit from China’s rise rather than resent it or to aggressively compete with it. The Indian economic success has relied on developing the levels of skills of a small segment of the population in order to provide services to the developed world that the latter cannot produce on its own because of demographic constraints it now faces. With the exception of the United States and United Kingdom all other developed economies have – or soon will have – declining populations.

The two exceptions to this unprecedented demographic transition are the consequence of more generous policies towards immigration. The pool of the migrants that have already been formed in America and Britain have higher rates of fertility than the indigenous populations. They will continue to have slight increases in their populations until the middle of this century. Ultimately they too will begin to see first aging and then declines in their populations.

What are the options available to these old industrial economies to see the pattern of their consumption and its level survive and their economies to retain some dynamism? The answer lies in relying on the demographic profiles of the developing world where the populations and still young and are likely to increase for several more decades.

The large size of the Indian population was not the only reason for India’s success in using demography to its advantage. It was able to make a great success of first its IT industry and subsequently of health services and entertainment industry because of the ability to use English on the part of large segments of its population.. But in order to retain the extraordinary rates of growth in the output of these sectors, the Indians know that they must diversify their markets.

They have decided to shift their focus to countries other than the industrial world. The rethinking includes the recognition that it must extend its development model to include outsourcing not only to the developed world but also to the large emerging economies that don’t have the skills the Indians were able to develop.

In this context, New Delhi has decided to focus on China, a country that also has more than a billion people. China does not have a population that is comfortable with English, the lingua franca of the service sector. Also, its pursuit of one-child policy to curb the rate of growth of population is also expected to introduce demographic constraints long before India faces that situation.

About 60 per cent of India’s 1.2 billion are under the age of 25 and its population is still increasing at a rate of 1.4 per cent, more than twice that of China’s 0.6 per cent rate. But for India bringing China into the circle of its economic influence means equipping its population with working knowledge of Mandarin, China’s official language.

Without knowledge of Mandarin it is difficult to penetrate the Chinese economy. This has been recognised by most countries that want to trade with China and benefit from its extraordinary economic rise and size. To teach Mandarin to their citizens, they have looked to China for help and the Chinese have responded with some enthusiasm.

There are now 260,000 people worldwide who are enrolled in Confucius centres the Chinese have established in many countries across the globe. However, according to a report in a recent issue of the Financial Times, “India has viewed Confucius centres with suspicion and kept them out of its main centers of learning”. That is now changing under the influence of Kapul Sibal, the country’s dynamic education minister.

The minister is now encouraging institutions of higher learning to set up departments of Chinese studies which, along with teaching Chinese history, economy and business practices, will also have the interested students learn Mandarin. To quote once again from the English newspaper, Mr Sibal has “gained reputation for dynamism in a department that has been slow to respond to the enormous challenge of providing India’s millions with suitable skills to ensure India’s much touted demographic dividend does not turn it to be a curse”.

Much the same can be said about Pakistan. Is it doing anything imaginative to take advantage of its even greater demographic dividend and even greater opportunities that lie just across the border in China? The answer, unfortunately, is “not a great deal”.

In late 2008 soon after he took over as Pakistan’s president, Mr Asif Ali Zardari, I told him that focus on China should be based on a well thought-out strategy. One of the steps I then proposed was to establish an institute of China studies in Islamabad. Such an institute should provide instruction in Chinese history, its economy, and its evolving relations with the outside world. The institution should also teach Mandarin.

The president reacted enthusiastically but I don’t believe anything has been done. Without proper planning and execution, the ambition to benefit from China’s remarkable rise will remain a dream.