india and china economic domination

China and India lay foundations for economic domination
29th January 2007, 11:30 WST

The Asian economic miracle is accelerating, with China poised to overtake Germany next year to become the world’s third-biggest economy after the US and Japan.

The rise of India is also gathering speed, according to Goldman Sachs, which has raised its forecast of sustainable growth for the subcontinent from 5.7 to 8 per cent a year.

China’s blistering economic growth hit 10.7 per cent last year, the country’s National Bureau of Statistics said last week. It is the fastest rate of growth since 1995 and the fourth double-digit increase in as many years.

China’s GDP reached $US2.69 trillion ($3.44 trillion) last year, well ahead of the latest IMF forecast of $US2.55 trillion. It is now a near certainty that it will overtake Germany’s $US3 trillion economic output next year, economists predict. It overtook Britain’s in 2005.

Although Beijing has expressed concern about the breakneck growth, raising interest rates twice since April to cool investment, it would be pleased to leapfrog Europe’s biggest economy in the year in which it showcases its achievements at the 2008 Olympic Games.

China’s national output has almost doubled in the five years since it joined the World Trade Organisation in 2001.

Questions remain about how long China can maintain its rate of growth. Xie Fuzhan, head of the national statistics bureau, admitted that “problems still exist with the irrational relationship between investment and consumption, and the imbalance of payments and excess liquidity in the banking system”.

The country is awash with cash as a result of its booming exports, up 27 per cent last year. Its trade surplus of $US177.5 billion has flooded the banking system with money, making it difficult for the government to control lending and investment.

China continues to grab the headlines but according to Goldman Sachs, India is close behind.

“India’s growth acceleration since 2003 represents a structural increase rather than simply a cyclical upturn. Productivity is driving the increase,” Goldman analysts Tushar Poddar and Eva Yi said.

Goldman estimates the movement from agriculture to higher-productivity industry and services could add about one per cent a year to GDP growth. Around 60 per cent of India’s workforce is still on the land.

Goldman Sachs predicts India’s economy will overtake that of the US some time before 2050 to rank second behind China.

TOM STEVENSON
THE TELEGRAPH GROUP, LONDON