1

Chi

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China & India October 10, 2005

A visual essay

Edi

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: J. A

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. Bra

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S. H

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Fran

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The China-India chartbook is a visual essay to depict key similarities and differences between these two emerging economies, which are poised to change the global economic landscape.

China’s GDP per capita is now 2.2 times higher than India’s (in USD PPP terms). Until the early 1990s, GDP per capita in China and India was at comparable levels, but China adopted wide-ranging economic reform one decade earlier than India.

The Chinese economy is much more integrated with the world economy through international trade and investment, which helps to explain its stronger rate of GDP growth during most of the past 3 decades. For its economic development, China has relied on industry and India on services. China’s ratios of domestic savings and investment to GDP are roughly double those of India’s.

Both economies currently enjoy strong external positions, with ample foreign exchange reserves. Higher oil prices are not likely to have a significant adverse impact on external liquidity. China and India have low external debt as a percentage of GDP, and the ratio of short-term external debt to foreign reserves is low.

Despite declining fiscal deficits, the level of public sector debt is a cause for concern, especially in India. In particular, interest payments as a percentage of general government revenue are very high in India, making the prospect of fiscal consolidation more remote. Excess domestic liquidity presents a bigger challenge to China than India. M2 in China is heading toward 200% of GDP with domestic credit almost 170% of GDP. This explains the rapid rise in CPI inflation during 2004, on which the Chinese authorities are still keeping a tight rein.

Surveys indicate India has better corporate governance standards and its companies are more commercially-driven. This explains why, despite China’s superior economic growth and macro-economic stability, India’s rate of return on assets has been much higher, non-performing loans in the banking sector lower, and stock market performance much better.

Social indicators reflect generally improving living conditions for the average Chinese. China also enjoys superior physical infrastructure, although India’s availability of skilled workers, especially engineers, is much better regarded.

China’s early steps to liberalise its economy and invest heavily to modernise its physical infrastructure gave it a substantial edge over India in terms of income per capita levels. They also made China a more attractive destination to foreign investors. However, although India started economic reforms only a decade later than China, it is far more advanced in its institutional infrastructure and corporate governance. This is reflected in contrasting outcomes: foreign direct investment is considerably lower than in China, but returns on investment are better on average. The key to unlock India’s potential to rival China as an FDI destination is a decisive effort by the Indian authorities to push ahead with reforms.

2

GDP

China & India: Real GDP growth China & India: Nominal GDP

China & India: GDP per capita (nominal) China & India: GDP per capita (PPP)

China: Nominal GDP vs. GDP based on PPP India: Nominal GDP vs. GDP based on PPP

0

1000

2000

3000

4000

5000

6000

7000

1980 1984 1988 1992 1996 2000 2004

India China

USD

Source: IMF

0

1000

2000

3000

4000

1980 1986 1992 1998 2004

GDP based on PPP nom GDP

USD bn

Source: IMF, IIF

-6

-3

0

3

6

9

12

15

18

1978 1982 1986 1990 1994 1998 2002

India

China

% change, yoy

Source: IIF

100

400

700

1000

1300

1600

1900

1978 1982 1986 1990 1994 1998 2002

India China

USD bn

Source: IIF

100

300

500

700

900

1100

1300

1500

1978 1982 1986 1990 1994 1998 2002

India China

USD

Source: IIF

0

1000

2000

3000

4000

5000

6000

7000

8000

1980 1986 1992 1998 2004

GDP based on PPP nom GDP

USD bn

Source: IMF, IIF

3

GDP and structure of economy

China: Composition of GDP

China & India: Gross domestic savings China & India: Gross domestic investment

India: Composition of GDP

China & India: GDP based on PPP as % of world total in 2004

Japan7%

China 13%

Euro area15%

India6%

USA21%Others

38%

Source: IMF

27%

42%

31%

15%

53%

32%

2003

1990Services

Agriculture

Industry

Source: DBR

56%

22%

22%

2003

1990

ServicesAgriculture

Industry

46%

32%

22%

Source: DBR

0510152025303540455055

1990 1992 1994 1996 1998 2000 2002 2004

China India

% of GDP

Source: IIF

0

5

10

15

20

25

30

35

40

45

50

1990 1992 1994 1996 1998 2000 2002 2004

China India

% of GDP

Source: IIF

4

External sector

China & India: Total merchandise trade China & India: Exports of goods

China & India: Merchandise exports China & India: Merchandise imports

China & India: Export of goods & services as % of world total in 2004

China 6%

India1%

Other46%

Euro area31%

Japan6%

USA10%

Source: IMF

0

10

20

30

40

50

60

70

80

1990 2004

India China

as % of GDP

Source: Reserve Bank of India, CEIC

0

5

10

15

20

25

30

35

40

1990 2004

India China

as % of GDP

Source: Reserve Bank of India, CEIC

0

100

200

300

400

500

600

700

1978 1982 1986 1990 1994 1998 2002

China India

Source: IIF

USD bn

0

100

200

300

400

500

600

1978 1982 1986 1990 1994 1998 2002

China India

Source: IIF

USD bn

5

External sector

China: Top 5 export partners in 2004, as % of total exports

China: Top 5 export partners in 1994, as % of total exports

India: Top 5 export partners in 2003, as % of total exports

India: Top 5 export partners in 1994, as % of total exports

China: Key export products India: Key export products

Hong Kong 31.1%

Japan 20.6%

USA 20.5%

South Korea 4.2%

1994

Germany 4.6%

Source: CEIC

USA 25.8%

South Korea 5.7%

Japan 15.2%

Hong Kong 20.9%

2004

Source: CEIC

Germany4.9%

USA 19.1%

Japan 7.7%

Hong Kong 5.8%

1994

United Kingdom 6.4%

Germany 6.6%

Source: Reserve Bank of India

USA 18.1%

China 4.7%

Hong Kong 5.1%

2003

Source: Reserve Bank of India

United Kingdom 4.8%

United Arab Emirates8.0%

0

5

10

15

Clothing &garments

Electricalmachinery &equipment

Yarn & textiles

20002004

Source: EIU

% of total exports

0

5

10

15

20

25

Non-metallicmineral manuf.

Clothing Textile, yarn,fabric

20002004

Source: EIU

% of total exports

6

External sector

India: Top 5 import partners in 2003, as % of total imports

India: Top 5 import partners in 1994, as % of total imports

China: Key import products India: Key import products

China: Top 5 import partners in 2004, as % of total imports

China: Top 5 import partners in 1994, as % of total imports

USA 12.1%

Japan 22.8%

Taiwan 12.2%

Hong Kong8.2%

EU14.7%

Source: CEIC

1994

EU12.3%

USA 8.0%

Taiwan 11.5%

South Korea 11.1%

Japan 16.8%

2004

Source: CEIC

Belgium 5.1%

China 5.3%

USA 6.3%

United Kingdom

4.1%

2003

Source: Reserve Bank of India

Switzerland 4.3%

Saudi Arabia 5.5%

Japan 7.1%

USA 10.1%

Germany 7.6%

United Kingdom 5.4%

Source: Reserve Bank of India

1994

0

5

10

15

20

25

Electricalmachinery

Crude oil &products

Yarn & textiles

2000 2004

Source: EIU

% of total imports

0

10

20

30

40

50

Basicmanufactures

Mineral fuels Machines &transportequipment

2000 2004

Source: EIU

% of total imports

7

External sector

China: Current account balance India: Current account balance

China: Trade balance India: Trade balance

China & India: FX reserves

-20

-10

0

10

20

30

40

50

60

-5

0

5

10

15

1980 1984 1988 1992 1996 2000 2004

USD bn (right)

% of GDP (left)

Source: IIF

-30

-25

-20

-15

-10

-5

0

5

-5

-4

-3

-2

-1

0

1

2

1980 1984 1988 1992 1996 2000 2004

USD bn (right) % of GDP (left)

Source: IIF

-20

-10

0

10

20

30

40

50

60

70

80

-6

-4

-2

0

2

4

6

8

10

1980 1984 1988 1992 1996 2000 2004

USD bn (right) % of GDP (left)

Source: IIF

-10-8

-6-4

-20

24

68

1012

-4

-3

-2

-1

0

1

2

3

4

1980 1984 1988 1992 1996 2000 2004

USD bn (right) % of GDP (left)

Source: IIF

0

100

200

300

400

500

600

700

800

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Jan-

05

Feb-

05

Mar

-05

Apr-

05

May

-05

Jun-

05

China India

Source: CEIC

USD bn

8

External sector

China: Oil imports India: Oil imports

China: External debt

China: Short-term debt India: Short-term debt

India: External debt

0

2

4

6

8

10

12

1994 1997 2000 20030

5

10

15

20

25

30

35

40USD bn (left)% of total imports (right)

Source: CEIC

0

5

10

15

20

25

30

35

40

1994 1997 2000 20030

5

10

15

20

25

30

35USD bn (left)% of total imports (right)

Source: Reserve Bank of India

0

50

100

150

200

250

1980 1984 1988 1992 1996 2000 20040

5

10

15

20

25

30USD bn (right)% of GDP (left)

Source: IIF

0

20

40

60

80

100

120

140

1980 1984 1988 1992 1996 2000 20040

5

10

15

20

25

30

35

40 USD bn (right)% of GDP (left)

Source: IIF

0

10

20

30

40

50

60

70

80

1990 1992 1994 1996 1998 2000 20020

50

100

150

200

250USD bn (right)as % of reserves (left)

Source: IIF

0

2

4

6

8

10

12

14

16

18

1990 1992 1994 1996 1998 2000 2002 20040

100

200

300

400USD bn (right)as % of reserves (left)

Source: IIF

9

FDI inflows

China: Net FDI inflows India: Net FDI inflows

China: Top 5 sources of FDI in 2003, in % of total utilised FDI

India: Top 5 sources of FDI in 2004,in % of actual flows

India: Top 5 sources of FDI in 1994, in % of actual flows

China: Top 5 sources of FDI in 1994, in % of total utilised FDI

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004-30

0

30

60

90

120

150

180

210

240USD bn (right)% yoy (left)

Source: DBR

0

1

2

3

4

5

6

7

1990 1992 1994 1996 1998 2000 2002-60

-30

0

30

60

90

120

150USD bn (right)% yoy (left)

Source: Reserve Bank of India

EU-1511.1%

Japan14.2%

South Korea12.7%

USA11.8%

Hong Kong50.2%

Source: CEIC

2003

USA8.5%

Taiwan11.5%

Hong Kong67.5%

EU-155.3%Japan

7.1%

Source: CEIC

1994

USA16.6%

United Kingdom

5.4%

United Arab

Emirates9.5%

Singa-pore9.6%

Mauritius58.9%

Source: CEIC

2004USA

55.4%

Germany9.0%

United Kingdom

20.6%

Mauritius8.5%

Japan6.4%

Source: CEIC

1994

10

Fiscal accounts

China: Fiscal balance & total public sector debt

India: Fiscal balance & total public sector debt

China: Central government revenues & expenditures

China & India: Interest payments as % of general government revenues

India: Central government revenues & expenditures

-5

-4

-3

-2

-1

01998 2000 2002 2004

0

5

10

15

20

25

30

Total public sector debt (left)Central gov't f iscal balance (right)

% of GDP% of GDP

Source: DBR

-12

-10

-8

-6

-4

-2

01998 2000 2002 2004

0102030405060708090

Total public sector debt (left)General gov't f iscal balance (right)

% of GDP% of GDP

Source: DBR, Reserve Bank of India

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 20040

5

10

15

20

25

Central gov't expenditures (left)Central gov't revenues (right)

% of GDP% of GDP

Source: DBR

0

4

8

12

16

1990 1992 1994 1996 1998 2000 2002 20040

4

8

12

16

Central gov't expenditures (left)Central gov't revenues (right)

% of GDP% of GDP

Source: DBR, Reserve Bank of India

0

1

2

3

4

5

6

7

1997 1998 1999 2000 2001 2002 2003 20040

10

20

30

40

China (left) India (right)

Source: Moody's

11

Monetary sector and prices

China: Monetary sector (M2) India: Monetary sector (M3)

China: Domestic credit

China & India: Annual inflation China & India: Recent inflation trend

India: Domestic credit

0

5000

10000

15000

20000

25000

30000

1980 1984 1988 1992 1996 2000 200420

40

60

80

100

120

140

160

180

200RMB bn (left)% of GDP (right)

Source: DBR

0

5000

10000

15000

20000

25000

1980 1984 1988 1992 1996 2000 200430

40

50

60

70

80INR bn (left)% of GDP (right)

Source: Reserve Bank of India, DBR

0

1

2

3

1990 1992 1994 1996 1998 2000 2002 200460

90

120

150

180RMB tr (left)% of GDP (right)

Source: IFS

0

0.1

0.2

0.3

0.4

0.5

1990 1992 1994 1996 1998 2000 2002 200440

45

50

55

60

65INR tr (left)% of GDP (right)

Source: IFS

-5

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004

India: WPI, aopChina: CPI, aop

% yoy

Source: DBR

0

2

4

6

8

10

2004 2005

China CPI India WPI

Source: Bloomberg

% yoy

12

Exchange rates & interest rates

China: Exchange rate (nominal & REER*) India: Exchange rate (nominal & REER*)

China: Base lending rate*

China: 7-year generic government bond yield India: 10-year government bond yield

India: RBI Bank Rate

0

50

100

150

200

250

300

350

1980 1983 1986 1989 1992 1995 1998 2001 2004

0

2

4

6

8

10

RMB/USD, aop (right)REER (left)

* a low er value indicates depreciationSource: IIF

Index, 2000=100 inverted scale

0

50

100

150

200

250

300

1980 1983 1986 1989 1992 1995 1998 2001 2004

0

10

20

30

40

50

RMB/USD, aop (right)REER (left)

Index, 2000=100 inverted scale

* a low er value indicates depreciationSource: IIF

5.0

5.5

6.0

2000 2001 2002 2003 2004 2005Source: CMABB

%

* 12 month w orking capital

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05

Source: Reserve Bank of India

%

2

3

4

5

6

Feb 03 Jun 03 Dec 03 Apr 04 Sep 04 Jun 05

Source: Bloomberg

%

5

6

7

8

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05

Source: Bloomberg

%

13

Banking sector & financial markets

China & India: Bond issuance China & India: Price earnings ratios*

China: Stock market India: Stock market

China & India: Bank return on assets China & India: NPL ratios

0 0.5 1

2000

2001

2002

India

China

Source: IMF

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004

China India

Source: IMF

% of total loans

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005100

600

1100

1600

2100

2600

Shanghai B-Share Index, eop (right)Shanghai A-Share Index, eop (left)

Source: Bloomberg

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004 2005

BSE National Index, eopMumbai SENSEX 30 Index, eop

Source: Bloomberg

0

1

2

3

4

5

2000 2001 2002 2003 2004

China India

Source: IMF

USD bn

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004

China India

*China: Shenzhen A-Share Index; India: Mumbai SENSEX 30 Index

Source: IMF

14

Population & labour force

Population: CN, IN, DE, US China & India: Urban population

Workforce, ages 15 - 64: CN, IN, DE, US

China & India: Female labour force participation

China & India: Skilled labour & engineers

China & India: Labour force participation*

0

200

400

600

800

1000

1200

1400

1960 1970 1980 1990 2005 E

CN IN DE US

millions of people

Source: UN, DBR

27

39

26

28

0 10 20 30 40 50

1990

2003

as % of total

Source: World Development Indicators, 2005

India

China

0

200

400

600

800

1000

1960 1970 1980 1990 2005 E

CN IN DE US

Source: UN, DBR

millions of people

89

87

72

71

0 20 40 60 80 100

1990

2003

%

Source: DBR, World Development Indicators, as % of total population, ages 15-64

India

China

80

79

42

45

0 20 40 60 80

1990

2003

as % of total

Source: World Development Indicators, 2005

India

China

4.8

4.129

7.8

8.94

0 2 4 6 8 10

Skilled labor

Qualif iedengineering

*) Data are based on response from Institute for Management & Development's annual Executive Opinion Survey. High score equals high availability of skilled labour and qualif ied engineers.

India

China

15

Social indicators

China & India: Average life expectancy China & India: Infant mortality*

China & India: Health expenditure in 2001

China & India: Adult literacy* China & India: Tertiary enrolment rate

China & India: Gini coefficient

69

71

59

63

0 20 40 60 80

1990

2003

years

Source: World Development Indicators, 2005

India

China 30

84

63

38

0 20 40 60 80 100

1990

2003

Source: World Development Indicators, 2005* per 1000 live births

India

China

49.0

24

5

5.5

0 10 20 30 40 50 60

Healthexpenditureper capita in

USD

Healthexpenditure,

% of GDP

Source: World Development Indicators, 2004

India

China

44.7

33

0 10 20 30 40 50

2003

Source: World Development Indicators, 2005

India

China

87

62

68

95

0 20 40 60 80 100

1990

2003

Source: World Development Indicators, 2005

* % ages 15 or older

India

China

3

13

6

11

0 5 10 15

1990

2003

Source: World Development Indicators, 2005

%

India

China

16

Infrastructure

China & India: Fixed-line vs. mobile phones per 1000 people in 2003

China & India: Internet users per 1000 people in 2003

China & India: PCs per 1000 people in 2003

China & India: Roads network in 2001 China & India: Electric power in 2001

China & India: Aircraft departures in 2003

209

215

46

25

0 40 80 120 160 200 240

Telephonemainlines

Mobilephones

Source: World Development Indicators, 2005

India

China

63

17

0 20 40 60 80Source: World Development Indicators, 2005

India

China

28

7

0 5 10 15 20 25 30Source: World Development Indicators, 2005

India

China

264

946

0 200 400 600 800 1000

in thousands

Source: World Development Indicators, 2005

India

China

2

91

3

46

0 20 40 60 80 100

Total roadnetw ork,

millions of km

Paved roads,%

Source: World Development Indicators, 2004

India

China

893

7

365

27

0 200 400 600 800 1000

Consumptionper capita,

kw h

Transmission& distributionlosses, % of

output

Source: World Development Indicators, 2004

India

China

17

Business environment & investment climate

China & India: Governance indicators* China & India: Obstacles in doing business indicators

0 1 2 3 4

Voice andaccountability

Politicalstability

Governmenteffectiveness

Regulatoryeffectiveness

Rule of law

Control ofcorruption

*) The six governance indicators are measured in units ranging from about -2.5 to 2.5, with higher values corresponding to better governance outcomes. Data have been rescaled to 0-5.

Source: World Bank Governance Index 2002

India

China

0 20 40 60 80 100

Number ofstart-up

procedures

Days to starta business

Proceduresto enforce a

contract

Employmentlaw index*

Source: World Development Indicators, 2004*) Higher score = more rigid labour laws

India

China