Asian writers, thinkers and leaders have been jubilant over a single development that had taken the world by surprise in the recent few years. That single development has been the unprecedented high economic growth recorded by both China and India, when the developed world had gone into an equally unprecedented recession year after year.
The “Chindia Factor”
This “Chindia Factor”, if one borrows a term from the Indian politician Jairam Ramesh, it appears, has been responsible for re – igniting a nostalgic feeling about Asia’s return to world supremacy after a forced hibernation of about three centuries.
The most recent event that fuelled this expectation was China’s ascendancy to the number two position as the world’s largest economy, according to the 2010 second quarter GDP data, overtaking another Asian giant, Japan. Though China’s lead over Japan was just a few billion dollars, (China producing an output worth of US$ 1337 billion as against Japan’s US $ 1288 billion), it did not stop Asians outside China to rejoice themselves over the event. While Chinese leaders very quickly downplayed it, people in Japan were not particularly worried about the inevitable slipping of their country, by one notch, down the world’s economic giants’ list.
The Asians’ Jubilation over Chindia’s Success
Now, let us look at how the Asian writers, thinkers and leaders reacted to the news on Chindia’s faster economic growth.
Sri Lanka’s opposition leader, Ranil Wickremesinghe chose “The Return of the Asians” as the apt title for the lecture he delivered before the Rotary International South Asia Conference in Bangkok in November 2010. Before him, the Dean of Singapore’s Lee Kuan Yew School of Public Policy, Kishore Mahbubani, wrote triumphantly on the re-emergence of Asia in three successively published books, the latest being aptly titled “The New Asian Hemisphere”. Jairam Ramesh, IIT – Bombay and MIT – USA trained Indian politician, thought it appropriate to talk about, as far back as 2005, both China and India as a single economic and political power and coined the term “Chindia” to represent
this power in a book titled “Making Sense of Chindia: Reflections on China and India”. Two editors, Frank-Jürgen Richter and Pamela C M Mar of the World Economic Forum assembled a number of writers from all around the globe, but mostly from Asia, and published in 2002 a collection of contributions titled “Recreating Asia: Visions for New Century” with sponsorship from Malaysia’s Mahathir Mohamad and Singapore’s Lee Kuan Yew. As the title denoted, the contributors had written on the policies and strategies to be followed for recreating Asia, implying that Asia had already been created and lost earlier and now it need be recreated. Even the American investor Jim Rogers could not suppress his awe for Asia when he remarked that if one were smart, he moved to London in 1800, to New York in 1900 and to Asia in 2000.
So, the collective wish of everyone appears to be the return of Asia to world power, displacing the West which occupies that position today. Asia had in fact been the world power for more than three millennia and West’s ascendancy to that position had been only during the last three centuries.
Asia’s Glorious History
The list of Asia’s supremacy in history is too long. It was the seat of philosophy, science and technology and spiritual developments. It is noteworthy that all the major religions in the world today had originated in Asia. As the archaeological surveys have revealed, it had marvellous architectural designs, artefacts and man made lakes. Its ancient universities, like Taxila and Nalanda in India, were unparalleled seats of learning. Even Alexander, the Great, who invaded India in the fourth century BCE, was impressed by the intellectual supremacy of sages like Dandamis of Taxila, according to the historian Plutarch. For more than 2000 years, Europe was supplied with wine, grains, silk, porcelain and other fancy products by Asians through the overland Silk Road that connected China at the far East end and Rome at the far West end. A Silk Road on the sea connected China and the Middle East via Lanka making all nations along the route active and vibrant trading nations. According to estimates by the British economist Angus Maddison, even as recently as 1820, China was the world’s largest economy accounting for roughly a third of the world’s output. When India is also added, the output of Chindia amounted to nearly a half. In comparison, the West produced only a little more than a third of the output at that time.
Hence, there are enough reasons for Asians to be rejoiced about Asia’s regaining of its old glory.
Past Disappointments
However, Asians have been disappointed on this count thrice in the past. The first occasion was in 1960s when Japan became an economic powerhouse and a leading exporter nation. Asians expected Japan to overtake the West and become the world’s leader, but it did not happen. The second was in late 1970s when the four Asian tigers, South Korea, Hong Kong, Taiwan and Singapore, recorded high economic growth rates year after year and elevated themselves to the club of developed nations within the life time of a single generation. Many chose to categorise the future world as the world of “yellow people” as against a world of “white people”. The third was when the new tigers like Malaysia, Indonesia, Thailand and the Philippines too recorded faster economic growth rates and were on their march to become modern developed nations. This new Asian success attracted so much of attention from world nations that the World Bank issued a special volume in 1993 highlighting its success story under the title “The East
Asian Miracle”. But with the Asian Crisis of 1997, “the conventional view that the 21st century would be an Asian century” was “written off”, according to Lee Kuan Yew who wrote a preface to Recreating Asia: Visions for a New Century.
Now the rise of brown people in India and yellow people in China has ignited a new hope in Asians for the fourth time. Will they be able to realise their dream or will that be another disappointment for them?
China’s Rise will Beat USA Down
They would realise their dream, according to some analysts who have projected the future course of world development. For instance, as reported by Bloomberg News, Goldman Sach’s Chief Economist Jim O’Neill has predicted that China will overtake USA by 2027. An optimistic projection by PriceWaterhouseCoopers has advanced the time line to 2020. Many other conservative projections have put a time line of China’s overtaking USA between 2030 and 2040. Whatever the differences in timing, according to the popular version, China is set to overtake USA within the lifetime of another generation.
China’s favourable growth rate
All these projections are based on the vast difference in the growth rates which one finds between USA and China today. USA grows at around 2 to 3 percent per annum, while China grows at around 10 to 11 percent per annum. Mathematically, the compound growth will double China’s GDP in every seven year period raising its GDP to US$ 10 trillion by 2018 and further to US$ 20 trillion by 2025. In comparison, at the current average growth rate of 2.5 percent, USA’s current GDP of US$ 14 trillion will rise a little over to US$ 20 trillion. Hence, according to these analysts, there is no doubt about China’s overtaking USA in the foreseeable future. When India is also added, “Chindia” will definitely be the future leader of the world. So, Asians have reasons to rejoice themselves.
In my view, this logic suffers from a number of weaknesses.
The World is Non - Linear
In the first place, it assumes that the world will change over time in a linear fashion. For instance, if it rains today, it will rain tomorrow, day after tomorrow, two days after tomorrow, three days after tomorrow and so on into an indefinite future. Thus, someone who observes today’s raining will predict that after four days, the whole world will be filled with water because of the continuous raining at a given rate. It ignores many other happenings that might be activated as an effect of the initial rain and carve many different paths for the world to move along. Just one example is that the rain may keep the sun covered and thereby prevent evaporation and condensation of water and eventual formation of clouds. In the absence of a continuous supply of rain making clouds, the rain may automatically come to an end after some time. Hence the prediction of the world getting filled with water would simply be a false alarm. This means that the changes in the world take place in a non – linear fashion. Chindia may have a high growth rate today. But it is inadvisable to assume that the same growth rate will prevail over an indefinite period. The non – linear fashion of the world will cause the initial high growth to fizzle out and after sometime, like the rain which automatically ceased, the growth momentum will also lose its steam.
Designed in USA and produced in China
Second, an economy is like a human body, subject to growth, saturation and decay. A dying body has to be given a new lease of life if it has to operate at the same level or higher. Economists call this “quantum leaps” in natural phenomena, because it causes a natural phenomenon to move from the current saturated point to a new beginning at a higher level. In the case of an economy, after the decay has set in, a quantum leap will take place if there is new technology, new efficient production methods or simply an improvement in the human skills and competency base. Hence, a continuous growth at the same high rate will be assured only if there is continuous investment in science and technology, human capital development and improvement in human skills and competency base. As it is, Chindia lags significantly behind USA and other Western nations on this count. When one uses any Chinese or Indian product, what one misses is the tag “designed and created in such and such country and manufactured in China or India”. One recent example is that Apple’s iPad was designed and created in USA, but is going to be manufactured in a Chinese high tech firm called Foxconn. So, the benefits of iPad will be drawn by both USA and China. Similarly, many Business Process Outsourcing or BPO outfits in India are simply a part of the long production processes in numerous Western firms. Hence, if there is a successful BPO story in India, it unmistakably means that there are several successful stories of firms all over the West.
Cheap Labour? Not for long
Third, both China and India have become successful growth examples, not because of any inherent growth promoting fundamentals like investments, research and development, but because of the abundantly available cheap labour in both countries. Remember their combined population is some 2.5 billion people with a total work force of a little over 1 billion people. Hence, the current wage levels in both countries are very much lower than those in Western countries. A recent documentary telecast over China’s Central China Television or CCTV reported that the current manufacturing wage rate in China is about US $ 2 per hour. The Indian manufacturing wage rate too stands at about the same level. This compares very favourably with a manufacturing wage rate of US $ 10 to 12 per hour in the West. As it is, it is cheaper for the West to design in their own countries and produce in China or India. But, with closer to double digit economic growth that raises people’s income levels, internal inflation running at around 5 – 8 percent per annum, gradual appreciation of respective currencies and successful reduction in poverty levels and unemployment, both countries are to lose this labour advantage pretty soon.
Automation to Relocate industry in the West
Fourth, China is the global mass producer, but it does so in routine assembly line type of production systems. A manufacturing worker interviewed in the above mentioned CCTV programme revealed that her job was just soldering a tiny part 5200 times a day to a mobile phone being manufactured in her assembly line! This job does not challenge anyone to use his or her intellectual capacity and will become monotonous and boring soon. The corollary is the fast decline in productivity as the workers grow older. Having realised this inevitable fate, the worker under reference reveals her desire to return to her village soon with some savings and start a family there. A similar fate has befallen BPOs in India too. The labour turnover has been very high at about 25 percent and recruiting skilled workers continuously has become a formidable challenge there. In my view, when Asia loses this labour advantage, the West will automate mass production processes and,
then, it will not matter whether the industries are located in Asia or the West. When industries are relocated in the West, the current high growth rates recorded by both China and India will suffer.
Global Prosperity is a Mutual Affair
Fifth, for both China and India to continue to produce, there should be consumers in the Western countries who have the capacity to buy their products. The success of any economic enterprise is based on both the supply side and the demand side. This universal law is valid for countries as well. Accordingly, the world will prosper together and not in isolation in Asia or in the West. Hence, Asia’s return to supremacy should necessarily mean the supremacy of the West as well.
The Pragmatic Chinese Leaders
The Chinese leaders, therefore, chose to downplay the country’s ascendancy to the number two position in world’s output. The spokesperson from the Ministry of Commerce who announced the good news categorically repeated that the occasion did not warrant jubilation, because in terms of per capita income, China was behind 100 other nations! So, China was producing more because it had more people. But, the productivity level of the Chinese was far lower than those of other nations. As reported by Bloomberg News, Ma Jiantang, Head of China’s Statistical Bureau, has summarised this position aptly as follows: “While we take note of our expanding size of economy and enhancing strength, we should also have a sober understanding that China remains a developing nation” This comment is valid for India and the majority of other nations in Asia too.
Who are Asians?
Asians are diverse (made up of different religious beliefs and ethnicity), chauvinistic (thinking each one is the best and destined to produce wonders), inward looking (not open to new ideas), despotic (no respect for human rights and rule of law), uncommunicative (lacks a common language), past – living (nostalgic about past glory) and uncooperative (difficult to agree on common trade relations). Except Japan, South Korea and Taiwan, all others in Asia are developing countries. It is difficult for such a group to put up a common front against another well established group of countries. Kishore Mahbubani of Singapore’s Lee Kuan Yew School of Public Policy has identified seven pillars of western wisdom that would help Asia to acquire world supremacy: free markets; science and technology; meritocracy; pragmatism; culture of peace; rule of law and education. In my view, Asia is yet to build these seven pillars to become a formidable force against the West.
So, the hope of the return of the Asians is a hope of a group of diverse developing countries for acquiring the world’s economic power which would not be a cake walk at all.
(W.A. Wijewardena practiced economics, taught economics and wrote on economics
for more than three decades. He is presently a free lance writer and a consultant on economic matters. He can be reached on waw1949@gmail.com)
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