India vs. China

Growing Pains Ahead For China and India

Demographic change will challenge the world’s two most populous countries.

China and India have been flourishing economically over the last decade, but they will have to tackle significant challenges of demography, infrastructure, and standards of living if they want to ensure steady prosperity in decades to follow, according to a RAND Corporation study, “China and India, 2025: A Comparative Assessment.” The report compared the two countries on population growth, economics, science and technology development, and defense, and it assessed where they might trend in each area between now and 2025.

“Each country’s role on the world stage will be affected by the progress that it makes and by the competition and cooperation that develop between them,” the study states.

India’s workforce is enviably young and growing, thanks to steady population increase: With a population growing at twice the rate of China’s, India may eclipse China’s population by 2028, the study predicts. And India’s population will continue to grow after 2050, while China’s population slowly shrinks.

To capitalize on this population growth, however, India must improve its education system and expand career opportunities for women. It must also raise overall living standards and the quality of health care, so that skilled young professionals do not emigrate out.

“Whether India’s demographic advantages will be a dividend or drag on future economic growth will depend on the extent to which productive employment opportunities emerge from an open, competitive, innovative, and entrepreneurial Indian economy,” the report states.

China has the edge technologically, and its workforce is considered to be better educated, according to the report, which forecasts that China’s GDP will continue to exceed India’s through 2025. But China’s elderly population is growing at an ominously faster rate; unlike most industrialized countries, China does not have an extensive social security or retirement pension system in place to help retirees support themselves in their later years. The country could eventually have too many dependent retirees for its working population to support.

This aging trend could also push China’s health-care costs to unsustainably high levels. The country’s per capita health expenditures already doubled between 2000 and 2006. India’s grew by a smaller but still significant 50%. Both nations’ health expenditures are expected to keep growing, but China’s will grow much more.

“China’s projected demographics are creating a challenge for its economic development—a potential economic drag—that may be more complex to manage compared with the situation of India,” the report states.

Julie DaVanzo, a RAND senior economist and co-author of the study, says that China should strive now to make it easier for working people to build up retirement savings.

“It needs to enable them to support themselves in old age so that this burden doesn’t fall to the state or fall to families in such a way that it impedes their economic opportunities—such as women dropping out of the labor force to care for older relatives,” DaVanzo told THE FUTURIST.

She also recommends that Chinese leaders encourage families to have more children. However, that will only help in the long term, not the near term, since babies born now won’t reach working age for another two decades.

Most industrialized countries have rapidly aging populations and anticipate some consequent fiscal strain. Fortunately for them, steady influxes of working-age immigrants partially offset the aging shifts. China cannot bank on immigrants, however, because of the comparatively low fertility rates of most of its neighbors, according to DaVanzo.

“China is so large that immigrants might be a drop in the bucket,” she says.

India has to worry about its young population, too, however. Study lead author Charles Wolf Jr., a RAND distinguished chair in international economics, says that both China’s and India’s working-age populations skew 65%–70% male. With such a gender imbalance, it will be all the harder for either country to keep skilled male professionals from leaving.

“There is a big question of whether that excess of the male cohort will lead to the best and the brightest emigrating,” he says.

According to Wolf, India has to create more high-paying job opportunities for its rising pool of young job seekers to pursue. China can weather its own demographic decline, Wolf adds, if it concentrates on advancing technology, productivity, and management so as to achieve the most possible, at the lowest costs, with a reduced workforce that has more retirees to support.

“The workers will have more equipment and technology to work with, and that compensates for the downward trend in the working-age population,” he says of China’s labor force.

Wolf also says that it is not clear that either country will have a complete advantage over the other. With each having its own share of difficulties, however, they could turn toward sharper economic and political rivalry, short of all-out war.

“There is more room for cooperation and there is more room for rivalry, and if they are prudent in managing the rivalrous aspects, then the cooperative ones will dominate,” he says.

RAND senior policy researcher Eric V. Larson, author of the study’s chapter on defense spending, finds hope for peaceful competition. Neither India nor China is likely to substantially increase its defense spending. The rate of growth of China’s defense expenditures fell from 15% to 7.5% between 2009 and 2010, and while it rose again in 2011, Larson says that internal difficulties will render large future increases unsustainable.

“China faces many more problems domestically, [such as] environmental problems, social stability, and other sorts of potential claimants. I think that China is less able to carry higher levels of defense spending,” he says.

India has raised its defense spending modestly and will likely continue to do so. Furthermore, the Indian government does not usually spend all the money that it allocates toward defense.

“They’ve got some undeveloped capacity,” Larson concludes.—Rick Docksai

Source: “China and India, 2025: A Comparative Assessment” by Charles Wolf et al., RAND, www.rand.org, and interviews with Wolf, Julie DaVanzo, and Eric V. Larson.

Can Uludağ

canuludag@gmail.com