Economic growth is fast turning to the East and the biggest bets are on China and India, both of which share an uneasy relationship since the Sino-India war of 1962.China is growing fast but with its dependence on foreign investment could it survive if other economies lose steam? India is more self-sustained but is tackling rampant corruption and soaring inflation.
If the two face-off though, who would you bet on?
China: 11% of China's GDP is spent developing infrastructure and a centralized government makes policy overhauls easier, according to Bloomberg.
India: Only 6.5% of India's GDP is spent on infrastructure, the country's commitment to infrastructure has been disappointing so far as the CommonWealth Games displayed. India expects to spend $1 trillion in infrastructure investments between 2012 and 2017 though, according to Livemint.
China: Nomura predict that housing prices in China are going to drop 20% by December 2011 according to Bloomberg. While increased lending has been pushing property rates to bubble territory, newer reports suggest that prices will be balanced by rising household incomes. Combine that with property taxes and new down payment requirements on second and third homes, and China has a serious problem.
India: Though property prices in Mumbai and Delhi have doubled since mid 2009, Indian banks have taken on a more conventional stance keeping credit growth, lower than 2008 levels and staving off a bubble, at least for now.
Domestic consumption: China's reliance on exports makes it more vulnerable to a global slowdown than India.
China: China derives 35% of its GDP through exports, according to Time. The country has been accused of anchoring the yuan to the dollar to remain competitive. According to IBTimes, Treasury Secretary Tim Geithner said:
'Our second objective is to promote reforms that will reduce China's reliance on export led growth and encourages a shift to domestic consumption and investment. As part of this, China's exchange rate needs to strengthen in response to market forces'
India: In contrast, the Indian economy is more insulated from a global economic crisis, since domestic consumption accounts for 57% of GDP.
China: The country's Central Commission for Discipline Inspection (CCDI) has taken many measures to check how officials spend public funds. Of 1.43 million complaints filed against officials China charged 146,517, according to Bloomberg.
India: Misappropriation of government funds has been on the rise in India. Corruption during the Commonwealth Games cost the government $1.8 billion, and a telecom scam set it back another $39 billion. Activists in the country are pushing for an anti-corruption bill.
China: There are 100 million people in China that live on $2 a day but most of China's population has moved to the $5 - $10 a day category, according to the Wall Street Journal. In fact developing economies are trying to imitate the Chinese model to alleviate poverty at home.
India: 650 million Indian's are estimated to live on $2 a day. The stark, unequal distribution of wealth suggests that the country's population is likely to be more uneducated and malnourished than China's.
China: Though China's 1.3 billion population is larger than India's, it's one-child rule has left the country with a shrinking working age population and caused what's more commonly known as the 4-2-1 problem. Though a two-child trend has surfaced in parts of the country, according to Bloomberg, its working-age population will shrink after 2020.
India: By 2028 India's population is set to outgrow China's. Deprived of adequate health care, sanitation and education though, India's masses could just weigh on the country's resources. Lack of toilets and resulting low productivity, diseases and deaths are estimated to cost the country $50 billion a year.
China: Loose fiscal and monetary policies and growth in money supply have led to a 4.6% inflation rate. Economists believe there are serious flaws in the parameters used by the consumer price index to measure inflation, according to The New York Times.
India: An 8.4% inflation rate is an imminent threat to India's GDP growth rate. The central bank has increased key rates 7 times since March 2010 and the country is still struggling with food inflation. Indian stock markets have taken a hit and analysts fear that rate hikes will scare off foreign investors too.
China: China began reforms to liberalize its economy in 1978. The success of China's SEZ's first drew FDI to the country and since then it has seen a rise in foreign investment. In 2010 it had FDI of $100 billion but this makes the country highly dependent on foreign economies.
India: Foreign investment in India has been lagging because of the country's overprotective FDI policies. The country only allows 51% FDI in single-brand retail and doesn't allow any FDI in multi-brand retail. It's now considering cutting FDI in the pharmaceutical sector to 49%. In 2010 it amended its policy on private equity deals making them less investor friendly. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has told the government to loosen up.
China: Relied on credit growth to boost its economy with a $585 billion stimulus package aimed at infrastructure and tax offering tax credits. Exports dropped 16% but its lending in 2009 doubled the amount lent out in 2008.
India: With a $36 billion stimulus package, amounting to only 3% of its GDP, the country's credit growth is a fraction of China's. India cut interest rates, offered tax breaks and increased fiscal spending but on a much smaller scale than China.
Jim Walker, economist at Asianomics, weighed in to Time:
'The way I see it is that the growth in India is much more sustainable,'
India: Despite a current inflation-induced drop in the Sensex, the Sensex has seen +12% returns since 1993, according to Forbes. After a rapid gain in 2010, rising inflation has seen investors pull $200 billion out of Indian markets this year alone.
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