>>An Asian stampede
The inevitable rise of China and India to rival today's biggest economies will produce global
upheaval, argues Javed Burki
Published: June 10 2001 19:14GMT | Last Updated: June 10 2001 19:21GMT
Economic historians have identified three "catch-up"
periods in the past century and a half during which the
line-up of world economies changed dramatically. The
world is about to experience a fourth, more traumatic
period.
Between 1870 and 1913, the US overtook Britain and
became the leading world economy. Between 1950 and
1973, Japan caught up with Europe and the US to
become the world's second largest economy. The third catch-up period, from
1975 to 1997, saw the narrowing of the gap between several tiger economies of
east Asia and the developed world.
The next phase is likely to shift the centre of the world economy from the Atlantic
ocean to the Asian mainland. It will change the composition of world output and
world trade, the way the world uses resources and the make-up of populations of
Europe and the US. It will almost certainly create severe tensions with today's
leading economies as they are challenged for global economic dominance.
The US and Europe currently account for about two-fifths of the global economic
output of $40,000bn. By 2025, the overall global figure may increase 2½ times, to
$100,000bn. China and India may account for about two-fifths of that. China, with a
gross domestic product of $25,000bn in 2025 - measured in terms of purchasing
power parity - will probably be the world's largest economy followed by the US at
$20,000bn and India, in third place, at about $13,000bn.
These projections are based on what I consider feasible, long-term rates of
growth; it is not beyond China's capacity to grow at 6 per cent a year for the next 25
years. After all, it has grown at a much faster rate over the past 25 years. India,
meanwhile, could sustain a rate of growth comparable with that of China over the
next 25 years. After an anaemic rate of growth of 3.5 per cent a year for more than
three decades after independence, India has a lot of catching up to do. Health
services and knowledge-based industries such as information technology will
contribute at least 1 percentage point to India's growth rate.
Yet with populations of more than 1bn each, these two countries will create
turbulence as their economies pick up speed. The east Asian tiger economies
moved fast but with stealth. The elephant economies of Asia, by contrast, will
create global commotion as they begin to stampede.
It is their size that will put them out in front of other economies. And it is their size
that will have a palpable effect on the global economy. A rate of growth of 6 per
cent a year, sustained over 2½ decades, will help to lift global growth from less
than 3 per cent a year during the past 25 years to more than 3.5 per cent for the
next 25 years.
Most of that increase will come from manufacturing, which has serious
implications. For a long time, the composition of world output has been changing
as the leading economies of North America, Europe and Japan have moved
towards the service sector and away from agriculture and manufacturing as the
main contributor to GDP. As Alan Greenspan, chairman of the US Federal
Reserve, once put it, the world's output is becoming lighter, consuming less and
less material input.
That will change when China and India take the lead. For the first time in history,
two of the three leading economies will also be among the world's poorest
countries in terms of the incidence of absolute poverty. China and India will have a
combined population of nearly 3bn people by 2025, of which 500m may still be
living below the poverty line. They will require vast amounts of food and other
essentials. To meet their needs, both countries will continue to put an emphasis
on industry and agriculture. Instead of becoming lighter, the world's output will
start to get heavier.
The consequences for global warming are potentially devastating. That is why the
international community must ensure China and India use resources responsibly.
In that respect, US back-tracking on the Kyoto protocol is worrying.
There will also be big demographic changes. With rapidly growing economies,
China and India will have the resources to invest in educating and training
millions of their citizens. They will thus have a sufficiently large supply of people
with the type of skills needed by the knowledge-based industries of the US and
Europe. Meanwhile, the United Nations has predicted that by the year 2010 Japan
and all countries in Europe will begin to see declines in their populations. This
will create an overwhelming demand for trained workers from abroad, which India
and China will be able to supply in abundance.
What we are about to witness, therefore, is not simply another period of catch-up.
Once the elephant economies begin to move fast they will redefine the global
economy as we know it. <<
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