The Emergence of China and India as Great Powers

Abstract

It has been widely predicted that China will soon overtake the USA to become the world's largest economy, and that India will overtake the USA within fifty years or so. Such optimistic projections have been thrown into doubt by recent macro-economic events in these countries, although most observers believe that China will overcome its present difficulties. There is less confidence about India. This paper discusses briefly the economic and political obstacles to rapid economic growth in China and India. On the assumption that China and India will surmount these obstacles and return to their projected growth paths, they will both become great economic powers by mid-century. The paper explores some of the implications of such a development for the rest of the world. Attention is focussed on the following issues. ・International Trade. This section provides a brief survey of the widely discussed impacts of Chinese and Indian economic growth on world trade. As China moves up the value-chain, it will phase out its labour intensive exports and focus on more "knowledge-intensive" products. This will create new competition for established makers of knowledge-intensive products in today's advanced economies, but it will also create new demand for labour intensive-products from the poorer countries of South Asia, Sub-Saharan Africa and elsewhere. Primary commodity prices are another important issue. Commodity prices are still at a high level due to the additional demand resulting in part from the impact of Chinese and Indian economic growth. However, it is uncertain how fast such prices will continue to increase in the future. Because of new supply and demand side developments, it is possible that the real price of commodities such as oil and gas will stabilise or even fall over the medium term. ・International Investment. This section documents the scale and location of outward direct investment by Chinese and Indian firms. Despite the attention it has received, Chinese investment in the rest of the world is a still relatively small, even in Africa where it has been a cause for alarm in the Western media. The scale of Indian investment is even smaller. Outward investment by Chinese and Indian firms is growing rapidly, but it will be a long time before their overseas operations compare in scale to those of their established rivals from more advanced economies. ・Is there a New Imperialism in the Making? This section considers two issues that have classically been associated with the concept of imperialism: global rivalry between large firms; and colonial-style exchange in which industrial powers exports manufactured goods to impoverished countries in return for oil, minerals and other primary commodities. As Chinese and Indian firms expand overseas they will be drawn into global rivalry with other large firms, and lik e other firms they will draw upon their "home" governments for support. It is also the case that China, and to some extent India, has a colonial-style division of labour with many poor resource-based economies, especially in Africa, which import cheap labour-intensive manufactures from China in exchange for oil and minerals. However, this is only part of the story, since the money used to purchase cheap Chinese manufactures is often derived from oil and mineral exports to non-Chinese destinations in Europe and elsewhere. ・The Military Balance. The emergence of China as a great economic power is provoking a shift in the military balance in the Asia-Pacific region. Concern about China's increasing strength and assertiveness is leading many countries in the region to upgrade their own military capabilities. The United States has also announced a rebalancing of its strategic priorities with greater emphasis on the Asia-Pacific region. China has one great advantage in this context. The United States is a global power which, despite its new

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