Rise of Chindia

The rise of Chindia (China and India) will be beneficial to the world economy, just as the rise of America has been in the last century. While the 20th century was driven by political ideology of advanced countries, the 21st century will be driven by markets of emerging nations. Among the large emerging economies such as Brazil, Russia, Nigeria, and Indonesia, it is rise of China and India (Chindia) which will have enormous business and public implications during the first half of this century. First, both nations will require enormous natural resources because not only are they manufacturing and service centers of the world, but also because of their own rapid expanding domestic consumer markets. These natural and industrial resources will be for many years. The rapid aging of Chinese population attributed to its one child policy implemented over two generation will impact its domestic economic growth. On the other hand, India will experience accelerated growth in less than 10 years through better infrastructure, political reforms and financial transparency.

Outsourcing of work such as manufacturing or services will increasingly result domestic political turmoil. Political leaders of all advanced nations have realized that what maters most to people in elections across national and cultural boundaries, is hardcore realities of economic growth as manifested in jobs and wealth creation for the masses.

Also, India will refocus manufacturing both for global supply as well as for its domestic demand. Unlike China, India’s manufacturing will be selective and largely concentrated on high-end aerospace, military, space and industrial raw materials. Also, it will continue to expand its service sector especially through organized retailing and financial services. It will begin to catch up with China and some experts even believe that its growth rate will surpass that of China.

In any case, both nations with more than a billion people each will have enormous need for industrial, agricultural, other natural resources and raw materials. Since a vast majority of these untapped resources are in other emerging economies in Africa, Caribbean, Latin America, Central Asia and Russia, the rise of Chindia will create an economic boom for them which otherwise did not happen for nearly 200 years of colonial rule.

The global integration of China and India will be radically different. India’s economy and enterprises will be globally integrated especially with other advanced countries (Europe, US, Canada, UK, Australia, Singapore Japan, South Korea) through large scale acquisitions of well established and well-respected foreign companies with technology, branding and manufacturing assets. The journey has already begun. India will contribute to global growth as much, if not more, through revitalizing and reinvesting in Western assets as it would through growth of its domestic consumer markets.

China’s growth will be proportionately more domestic and only selectively through global acquisitions. This is due to several reasons. First, China has begun to focus on domestic demand especially in consumer markets such as consumer electronics, appliances automobiles, and financial services. It has the physical infrastructure as well as large scale domestic state-owned enterprises such as Haier, Lenovo, China Mobil, Petro China and China Development Bank to capitalize on domestic demand. Second, the advanced world seems less willing to sell their assets to China especially technology assets.

Consequently, Chinese enterprises that have the scale and incumbency advantage to dominate the domestic Chinese markets will expand globally by first going to other emerging economies, both through trade as well as FDI. In addition, despite history and the current uneasiness of China’s rise, it is inevitable that both Japan and South Korea will quickly integrate their economies with China just like Hong Kong and Taiwan. This will result in rapid growth in bilateral trade as well as reciprocal FDI between China and Japan and China and South Korea. Consequently, the largest trading bloc will be Asia especially with free trade with India. This will require formation of new currency similar to the Euro which will become the dominant currency of the world. While the global integration paths taken by China and India will be different their impact on businesses worldwide will be beneficial ad enormous. The future survival of most admired enterprises from advanced economies will depend on how quickly they participate in the ensuing rise of China and India even if they have to distance from their own government’s politics and public opinion. This includes companies like General Electric, HSBC, Siemens and Alcatel.

As China and India become largest economies of the world, their geopolitical and culture hegemony will expand. World agencies like the World Bank and IMF must encourage significant involvement of China and India.. It will be of course beneficial to businesses and entrepreneurs, but also to the masses at the bottom of the pyramid. It will generate unprecedented innovation by making existing technologies more affordable and accessible and by inventing or discovering ways to replicate natural resources.