Resurgence of China and India: A “profound transformation”

Notes internacionals CIDOB, núm. 58

- While China and India have recorded very high rates of growth in the last 10-20 years, on a per capita basis their income levels remains very low compared to the high-income economies and even to the southern European economies mired in recession

- The shift of manufacturing and back office operations to China and India has widened income differentials across the world

- In the context of increasing automation of production, this suggests that industrial production is declining in the hierarchy of economic activities as greater profits are being reaped through financial speculation

- Unlike previous eras when surplus capital was transferred from declining centres to rising ones, today the Chinese are recycling their current account surpluses to the US

- This may indicate that we are on the threshold of a truly profound economic transformation—one as significant as the industrial revolution of the 19th century which enabled economies in Europe and the US to vault over the Indian and Chinese economies.

The economic resurgence of China and India has become a staple feature of the news in recent years and it has sprouted a cottage industry of books and feature articles predicting when these economies will overtake the United States to become the largest economy in the world. Earlier, this year, Martin Wolf noted in the Financial Times that “Between 2007 and 2012, the Chinese economy will expand by close to 60 per cent. Emerging Asia as a whole will grow by almost 50 per cent. Over the same period, economies of high income countries will grow by a mere 3 per cent. Who can doubt that the world is undergoing a profound transformation?”

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