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May 13, 2011
Our China-India Chartbook presents a graphical overview of economic and social indicators in both China and India and highlights the changes that have taken place over the past decade. Both countries have experienced strong growth, which has led to improvements in health, education, and poverty reduction. While they emerged unscathed from the global financial crisis, they still face macroeconomic challenges such as containing inflation pressures and reducing external imbalances. Progress has been made on improving infrastructure and strengthening banking sectors. The next decade will likely see both economies continuing to grow strongly, with the sources of growth more evenly balanced between domestic and external demand. [more]
China-India Chartbook: Has strong growth led to structural changes? Chartbook China-India Chartbook May 13, 2011 China-India Has strong growth led to structural changes? Chi R isk Analysis Chi na 14% of world GDP (PPP) 20% of world population Nominal GDP per capita: USD 4,382 India Global R India 5% of world GDP (PPP) 18% of world population Nominal GDP per capita: USD 1,265 SO The shaded areas in the map represent South Asia, South-East Asia and North-East Asia. 6423-8057 This chartbook analyses the economic and social developments in China and India over the past decade, following up from our first China-India chartbook in 2005. China and India have experienced robust growth over the past decade, spurred by different drivers. Growth has averaged over 10% in China and nearly 7.5% in India since 2000. The services sector grew in both China and India as a share of GDP and this growth mainly came at the expense of the agriculture sector. The WTO agreement had a significant impact on China’s investment, the share of which in GDP growth went from 22% in 2000 to over 50% by the end of the decade. India’s growth, on the other Source: IMF WEO M aria Arakelyan  +65 hand, has primarily been driven by consumption. Investment, though increasing, still lags behind China’s. Fiscal accounts and inflation have deteriorated over the past 1-2 years. Both countries put in place large stimulus packages during the global financial crisis, which were effective in preventing a sharp decline in economic growth. Stimulus has started to be withdrawn but nevertheless fiscal accounts remain in worse shape than before the crisis. Particularly in India this is a concern, given high levels of fiscal deficit and public debt. Despite recent tightening, monetary policy remains loose, which, together with increases in commodity prices, has led to strong inflationary pressures in both economies. B anking sectors remain in good shape, as conservative regulationhas shi elded themfr om the n sakul, Rachna Saxena, M ag secto s ea good sap e , as co se at e egu at o as sed e d te o te fallout of the financial crisis. Given the relatively closed nature of domestic financial markets, the abundance of local savings and stringent regulation on leverage, China and India did not experience a boom-and-bust cycle in capital inflows during the global crisis. Over the medium term, a favourable GDP growth outlook and low penetration of financial instruments herald bright prospects for local capital markets. Living standards for the population have improved dramatically, less so the environment for business. The increase in GDP per capita and the reduction in poverty have been staggering, although income inequality has increased. The business operating environment has also improved, but further Contact: Syetarn Ha n income inequality has increased . The business operating environment has also improved, but further progress is needed in a number of areas. Infrastructure and environmental issues have gained prominence and there is more to come. Both countries’ 5-year development plans place substantial emphasis on infrastructure development. The energy sector (including nuclear energy) is also developing quickly given increasing domestic demand. China has made the environmental upgrading of old coal plants a priority, and the market for renewable energy in India has been growing at 25% per year. Has strong growth led to structural changes? 2 Contents 1. Economic structure 3 2. Macroeconomic overview 5 3. External sector 9 3. External sector 9 4. Financial sector 15 5. Infrastructure indicators & environmental sector 18 6. Social indicators 20 7. Business environment 22 1. Economic structure A tale of two growth models China has outpaced India. China has consistently grown at a faster rate than India during 2000-2010, 3 resulting in a widening gap in both nominal and per-capita GDP. Although investment has been increasing in both economies over the past decade, it is a significantly stronger driver of growth in China than in India. In China, investment began to overtake consumption’s contribution to growth after the country’s accession to the WTO in 2001. Given China’s large population and vast physical size, the investment “take-off” stage has several more years to run, now moving from coastal areas to inland provinces. Both countries are seeking to diversify the structure of their economies. In China, investment will remain strong for several years but the government is seeking to increase the share of consumption once again. In India, ongoing liberalisation in foreign investment restrictions and strong growth prospects should again. In India, ongoing liberalisation in foreign investment restrictions and strong growth prospects should help drive up investment ratios. Gradual shift towards service sector. The share of industry in relation to GDP has remained largely stable in both countries while the services sector has grown at the expense of the agricultural sector. This trend highlights the importance of improving agricultural productivity to ensure long-term food security and moderate spikes in food inflation. Real GDP growth China has persistently outpaced India Nominal GDP Gap in economic size increasing 10 12 14 16 % yoy 4,000 5,000 6,000 USD bn 0 2 4 6 8 10 00 01 02 03 04 05 06 07 08 09 10 0 1,000 2,000 3,000 , 00 01 02 03 04 05 06 07 08 09 10 Nominal GDP per capita China widens gap in per capita terms as well GDP per capita (PPP) In PPP terms, India fares better but still lags 00 01 02 03 04 05 06 07 08 09 10 India China Source: IIF 00 01 02 03 04 05 06 07 08 09 10 India China Source: IIF 4,000 USD 8,000 USD 1,000 1,500 2,000 2,500 3,000 3,500 2,000 3,000 4,000 5,000 6,000 7,000 0 500 00 01 02 03 04 05 06 07 08 09 India China Source: IIF 0 1,000 00 01 02 03 04 05 06 07 08 09 10 India China Source: IMF Titelmasterformat durch Klicken bearbeiten 1. Economic structure 4 China's economic structure Service sector gains in importance India's economic structure Agriculture’s importance continues to decline % of GDP % of GDP 15 39 Agriculture 10 Service 43 2000 2010 23 51 Agriculture 17 2010 2000 46 Industry 47 Source: EIU 26 Industry 28 Service 54 Source: EIU China's growth breakdown Dramatic expansion of investment India's growth breakdown High import bill had negative growth effect C Misc. (inven- tories,etc.) 5.0 % of GDP growth 2010 11.9 Consump- tion 39 Net exports 7.8 % of GDP growth 2010 2000 77.0 22.7 1.4 Consump- tion* 62.8 Investment 32.0 2000 Total real GDP growth 8.5 65.5 22.6 3 7.9 Investment Total real GDP growth 10.3 Domestic savings Global crisis dented India’s savings Domestic investment China’s stimulus plan boosted investment 60 % of GDP Sources: India's Central Statistics Office *Includes net exports. 54.4 Sources: China's National Bureau of Statistics, CEIC data 60 % of GDP 20 30 40 50 20 30 40 50 0 10 00 01 02 03 04 05 06 07 08 09 India China Source: IIF 0 10 00 01 02 03 04 05 06 07 08 09 India China Source: IIF 2. Macroeconomic overview Expansionary policy comes at a price Both China and India significantly increased public spending during the crisis to support growth, and 5 that is only being withdrawn slowly. India’s high spending on subsidies is keeping the deficit at a more concerning level while China’s deficit has been moderate, partially because of better revenue efficiency (i.e. revenues have grown at least as fast as GDP). Expansionary monetary policies have fuelled inflation. India’s inflation has been consistently higher than China’s, but China’s inflation cycle is more volatile. Over the past year or so, inflation has become a serious problem for both countries due to excess liquidity, upward global commodity price pressures, and high demand for private property. Food price inflation is particularly high, and it risks spilling over into core inflation, driving up inflation expectations. Both countries have witnessed very strong money supply and inflation, driving up inflation expectations. Both countries have witnessed very strong money supply and credit growth over recent years, causing intermittent concerns about asset bubbles and excess liquidity. Differing currency trends. The real effective exchange rate in China has appreciated substantially in recent years, while in India it has been more stable, depreciating moderately. The bulk of the RMB’s appreciation came after the de-peg from the USD in July 2005. Gradual appreciation of the RMB in nominal and real terms is likely to continue. China's fiscal balance Deficit contained below 3% of GDP India's fiscal balance Consolidation taking place, but deficit still high -4 -2 0 -60 -40 -20 0 -0.5 0.0 0.5 1.0 -20 0 20 40 -12 -10 -8 -6 -160 -140 -120 -100 -80 00 01 02 03 04 05 06 07 08 09 10 -3.0 -2.5 -2.0 -1.5 -1.0 -120 -100 -80 -60 -40 00 01 02 03 04 05 06 07 08 09 10 China's fiscal breakdown Higher revenue efficiency India's fiscal breakdown Revenue-expenses gap widened during crisis 18 20 % of GDP 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % GDP (right) Source: IIF 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % GDP (right) Source: IIF 25 % of GDP 4 6 8 10 12 14 16 18 5 10 15 20 0 2 00 01 02 03 04 05 06 07 08 09 10 Central government revenues Central government expenditures Source: IIF 0 00 01 02 03 04 05 06 07 08 09 10 General government revenues General government expenditures Source: IIF Titelmasterformat durch Klicken bearbeiten 2. Macroeconomic overview 6 China's public debt Rising toward 20% of GDP India's public debt Debt ratio declining, but still high 25 1 200 90 1,400 10 15 20 25 400 600 800 1,000 1,200 30 40 50 60 70 80 90 400 600 800 1,000 1,200 1,400 0 5 0 200 400 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: IIF, IMF 0 10 20 0 200 400 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IIF China's money supply (M2) Sharp increase in liquidity in China India's money supply (M2) Rising liquidity in India 60 70 80 90 40,000 50,000 60,000 M2 150 200 250 50 000 60,000 70,000 80,000 M2 0 10 20 30 40 50 0 10,000 20,000 30,000 00 01 02 03 04 05 06 07 08 09 0 50 100 150 0 10,000 20,000 30,000 40,000 50,000 00 01 02 03 04 05 06 07 08 09 10 Domestic credit in China over the past decade Credit stimulus in the crisis Domestic credit in India over the past decade Rapid credit growth in India INR bn (left) % of GDP (right) Source: IIF 80 90 60 RMB bn (left) % of GDP (right) Source: IIF 160 180 60 70 20 30 40 50 60 70 20 30 40 50 40 60 80 100 120 140 20 30 40 50 60 0 10 20 0 10 00 01 02 03 04 05 06 07 08 09 INR tr (left) % of GDP (right) Source: IIF 0 20 0 10 00 01 02 03 04 05 06 07 08 09 10 RMB tr (left) % of GDP (right) Source: IIF Titelmasterformat durch Klicken bearbeiten 2. Macroeconomic overview 7 Monthly domestic credit Deceleration post-crisis Inflation rates over the long term China's inflation has been more volatile % yoy % change yoy 2 4 6 8 10 15 20 25 30 35 -2 0 2 00 01 02 03 04 05 06 07 08 09 10 China CPI India WPI Source: IIF 0 5 10 01 02 03 04 05 06 07 08 09 10 India China Sources: CEIC, IFS Recent inflation trend Heightened inflationary pressures Food price inflation Volatility in India vs. steady rise in China 8 10 12 % yoy 20 25 % yoy -4 -2 0 2 4 6 2009 2010 2011 0 5 10 15 Feb 10 May 10 Aug 10 Nov 10 Feb 11 Core CPI (ex food & fuel) Core CPI also on an uptrend Property rental index Volatile rents in key cities contributing to inflation trends 2009 2010 2011 India, WPI China, CPI Source: Bloomberg Feb 10 May 10 Aug 10 Nov 10 Feb 11 India China Source: Bloomberg 120 20 Chi 70 iti (l ft) % yoy 10 12 % yoy 0 20 40 60 80 100 5 10 15 Chi na 70 cities (left) Beijing (left) Shanghai (left) Mumbai CBD (right) -4 -2 0 2 4 6 8 10 2008 2009 2010 2011 -60 -40 -20 -5 0 2008 2009 2010 Source: CEIC 2008 2009 2010 2011 China CPI China core CPI India WPI India WPI (non-food manufactured goods) Source: CEIC Titelmasterformat durch Klicken bearbeiten 2. Macroeconomic overview China's effective exchange rate Appreciation stabilising post global crisis India's effective exchange rate Trends remain similar for both REER & NEER 8 Index 2000=100 Index 2000=90 for REER and 95 for NEER 90 95 100 105 110 115 120 85 90 95 100 105 110 70 75 80 85 00 01 02 03 04 05 06 07 08 09 10 Nominal REER Source: IIF 70 75 80 00 01 02 03 04 05 06 07 08 09 10 Nominal REER Source: CEIC Policy interest rates India more aggressive in rate changes Real interest rates India still combating negative real interest rates 10 12 14 16 % 2 4 6 8 Policy interest rate - inflation (WPI is used for India) 0 2 4 6 8 10 00 01 02 03 04 05 06 07 08 09 10 11 -8 -6 -4 -2 0 2 02 03 04 05 06 07 08 09 10 11 India China Source: Global Insight 02 03 04 05 06 07 08 09 10 11 China India Sources: CEIC, WEFA 3. External sector Imbalances with opposite sign China’s trade and current-account surpluses stand in stark contrast to India’s widening deficits, 9 reflecting excess savings which mirror very low private consumption. China has successfully switched from exporting low-value-added consumer goods to focusing on the electronics industry – which has dominated global merchandise trade in the past couple of decades. Therefore, the export-oriented sector has boomed. In India, domestic demand has been the main driver of growth. This, coupled with insufficient inroads into global merchandise export networks and significant terms-of-trade losses (15% in 2000-2010), has led to trade and current account deficits. Rising oil prices have been a concern for both countries, but have a bigger impact in India given its high share of oil in total imports. However, India’s key exports are more diversified, which could be a high share of oil in total imports. However, India s key exports are more diversified, which could be a strong point in the longer-term. The surplus in India’s services account, driven by its strong outsourcing capabilities for everything from IT to banking, partly compensates the strong deficit in goods trade. China, in contrast, has a services trade deficit. Nevertheless, external liquidity remains sound in both countries. External debt has been growing in USD terms, but remains small relative to the economies’ size. Short-term external debt has risen rapidly as well but remains manageable (and in the case of China very minor) compared with FX reserves. China’s trade & CA balance Significant surplus remains India’s trade & CA balance Deficit has grown in past decade 4 5 6 7 8 200 250 300 350 -3 -2 -1 0 -60 -40 -20 0 0 1 2 3 0 50 100 150 2000 2005 2010 Trade balance, USD bn (left) Current account, USD bn (left) -7 -6 -5 -4 -120 -100 -80 2000 2005 2010 Trade balance, USD bn (left) Current account, USD bn (left) China’s merchandise exports 3 times larger than India’s as % of GDP China’s merchandise imports China’s imports driven by intermediate goods Trade balance, % of GDP (right) Current account, % of GDP (right) Source: IIF Trade balance, % of GDP (right) Current account, % of GDP (right) Source: IIF 35 40 1,600 1,800 25 30 1,200 1,400 10 15 20 25 30 400 600 800 1,000 1,200 1,400 5 10 15 20 25 400 600 800 1,000 1,200 0 5 0 200 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IMF 0 5 0 200 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IMF Titelmasterformat durch Klicken bearbeiten 3. External sector 10 India’s merchandise exports Strong post-crisis growth in USD terms India’s merchandise imports Strong post-crisis growth in USD terms 18 250 30 350 6 8 10 12 14 16 100 150 200 10 15 20 25 100 150 200 250 300 0 2 4 0 50 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IMF 0 5 0 50 100 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IMF China’s services exports Back to pre-crisis level in USD terms China’s services imports China is a fast growing services importer 2.5 3.0 3.5 4.0 100 120 140 160 3.0 3.5 4.0 4.5 150 200 250 0.0 0.5 1.0 1.5 2.0 0 20 40 60 80 00 01 02 03 04 05 06 07 08 09 10 0.0 0.5 1.0 1.5 2.0 2.5 0 50 100 150 00 01 02 03 04 05 06 07 08 09 10 India’s services exports Services exports have not recovered India’s services imports Strong post-crisis growth in USD terms 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: IIF, CEIC 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: IIF, CEIC 9 10 120 4.5 5.0 70 80 2 3 4 5 6 7 8 40 60 80 100 10 1.5 2.0 2.5 3.0 3.5 4.0 20 30 40 50 60 70 0 1 2 0 20 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: IIF, CEIC 0.0 0.5 1.0 0 10 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: IIF, CEIC Titelmasterformat durch Klicken bearbeiten 3. External sector 11 China's top export partners Trading partners remain largely the same India's top export partners UAE has become gateway to Gulf & Africa % of total % of total 10 15 20 25 2000 2010 10 15 20 25 30 2000 2010 0 5 US HK Japan EU ASEAN EU US HK ASEAN Japan Source: CEIC 0 5 EU US Asean UAE Japan EU UAE US Asean China Source: CEIC China's top import partners Japan & EU remain top import partners India's top import partners Import partners more diversified 14 16 18 20 % of total 2000 2010 8 10 12 14 % of total 2000 2010 0 2 4 6 8 10 12 p an EU w an r ea US p an EU A N r ea w an 0 2 4 6 8 EU ASEAN US d i Arabia EU ASEAN US d i Arabia HK China's principal export products Exports transitioned from low-skill to high-skill India's principal export products Exports transitioned from low-skill to higher-skill Ja p Tai w S Ko r Ja p ASE A S Ko r Tai w Source: CEIC 14 16 % of total 2000 2009 Sau d Sau d Source: CEIC 25 % of total 2000 2009 0 2 4 6 8 10 12 14 p arel e ry & x tiles t ions h ines e ry & 0 5 10 15 20 m ineral r es l othing extiles goods , etc.) w ellery o ducts Clothing & ap p Electrical machin e equipment Yarn & te x Telecommunica t equipment Office mac h Electrical machin e equipment Source: EIU Non-metallic m manufactu r C l T Engineering (Machinery , Gems & je w Petroleum pr o Source: EIU Titelmasterformat durch Klicken bearbeiten 3. External sector 12 China's principal import products Import profile largely unchanged India's principal import products Increasing electronic imports show wealth impact % of total % of total 0 5 10 15 20 25 2000 2009 0 5 10 15 20 25 30 35 40 s s y s s y 2000 2009 Electrical machinery Petroleum & petroleum products Yarn & textiles Electrical machinery Petroleum & petroleum products Industrial machinery Source: EIU Basic manufacture s Mineral fuel s Machiner y Petroleum product s Electronic good s Machiner y Source: EIU China's oil imports Energy needs intensify as high growth continues India's oil imports Import reliance increases risk from price shock 10 12 14 16 120 140 160 180 25 30 35 60 70 80 90 0 2 4 6 8 0 20 40 60 80 100 00 01 02 03 04 05 06 07 08 09 10 0 5 10 15 20 0 10 20 30 40 50 00 01 02 03 04 05 06 07 08 09 China's external debt Almost 3x larger, but less than 10% of GDP India's external debt Rising, but small relative to economy size 16 18 500 600 30 300 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of total imports (right) Source: CEIC 00 01 02 03 04 05 06 07 08 09 USD bn (left) % of total imports (right) Sources: CEIC, IMF 4 6 8 10 12 14 200 300 400 500 10 15 20 25 100 150 200 250 0 2 0 100 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IIF 0 5 0 50 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Source: IIF Titelmasterformat durch Klicken bearbeiten 3. External sector 13 China's short-term debt Rapid rise but financing is not a problem India's short-term debt Rapid rise in India’s short-term external debt 35 80 35 300 15 20 25 30 30 40 50 60 70 15 20 25 30 35 100 150 200 250 300 0 5 10 0 10 20 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % FX reserves (right) Source: IIF 0 5 10 0 50 100 00 00 00 00 00 00 00 00 00 00 00 USD bn (left) % FX reserves (right) Source: IIF China‘s FX reserves Pace of accumulation increased after 2007 India’s FX reserves Upward trend has resumed 2 000 2,500 3,000 USD bn 200 250 300 USD bn 500 1,000 1,500 2,000 50 100 150 200 FDI flows decline relative to GDP India’s FDI inflows On par with China’s as % of GDP 0 00 01 02 03 04 05 06 07 08 09 10 Source: IIF China’s FDI inflows 35 4.0 120 30 3.5 40 45 0 00 01 02 03 04 05 06 07 08 09 10 Source: IIF 1.0 1.5 2.0 2.5 3.0 3.5 40 60 80 100 1.0 1.5 2.0 2.5 3.0 10 15 20 25 30 35 0.0 0.5 0 20 00 01 02 03 04 05 06 07 08 09 10 USD bn(left) % of GDP(right) Sources: UNCTAD, IIF 0.0 0.5 0 5 00 01 02 03 04 05 06 07 08 09 USD bn(left) % of GDP(right) Sources: UNCTAD, IIF Titelmasterformat durch Klicken bearbeiten 3. External sector 14 China's FDI inflows Greater China, EU and the US were key investors China's FDI inflows Hong Kong becomes dominant % share, 2000 % share, 2009 HK 41.0 Taiwan 62 Others 23.5 HK 49.7 Others 33.5 EU 11.0 US 10.8 Japan 7.5 6.2 Source: CEIC EU 5.5 Japan 4.6 Singapore 3.8 Korea 2.9 Source: CEIC India's FDI inflows Channeling flows through Mauritius offshore hub Ma India's FDI inflows Japan no longer a top investor Mauritius 25.1 Others 35 1 % share, 2002-2003 Others % share, 2009-2010 USA 10.2 Japan 13.1 Nether- ld UK 10.8 35 .1 Mauritius 40.2 Singapore USA 7.5 UK Nether- lands Others 37.1 China's FDI outflows Exponential growth in past decade India's FDI outflows Liberalisation led to spike in outward investment 1.6 1.8 18 20 lands 5.6 Source: Department of Industrial Policy and Promotion Singapore 9.2 2.5 3.5 Source: Department of Industrial Policy and Promotion 12 1.4 60 70 0.4 0.6 0.8 1.0 1.2 1.4 4 6 8 10 12 14 16 0.4 0.6 0.8 1.0 1.2 20 30 40 50 60 0.0 0.2 0 2 4 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: UNCTAD, IIF 0.0 0.2 0 10 00 01 02 03 04 05 06 07 08 09 10 USD bn (left) % of GDP (right) Sources: UNCTAD, IIF 4. Financial sector The fruits of banking sector reform Much stronger banking sectors in both countries during the past decade. China’s banking sector 15 reform in the early part of the decade improved the banking sector’s health in a number of areas including capital adequacy, asset quality, as well as return on assets. Improvement in India has also been visible, albeit less dramatic. As they are increasingly sound financially and anchored in fast growing, under-banked economies, the banking sectors in China and India enjoy bright prospects for the future. Financial sectors in both countries emerged relatively unscathed from the global financial crisis of 2008-2009. This seems to have vindicated their gradual approach to liberalisation/internationalisation. Thus, further opening up of the sectors to foreign participation will likely continue but we do not expect it to proceed in a “big bang” manner. in a big bang manner. Promising outlook for capital markets. Local capital markets have grown markedly in size, both in the bond and in the stock market. On the contrary, issuance of external bonds remains small. Stock market valuations, which had risen rapidly in the years leading up to 2007, have become more “realistic”. Capital markets in China and India have very good prospects as companies increasingly seek alternative sources of funding and investors look to diversify away from bank deposits in order to enhance yields. Financial market size Yet to catch up with developed markets Capital adequacy ratio China makes significant improvements Brazil India China Bonds outstanding Private sector credit % of GDP, 2010 10 12 14 % US Germany Japan UK Russia Stock market capitalisation 0 2 4 6 8 China India Bank return on assets ROA of India's banks outperformed China's Loan/deposit ratio Domestic funding not a constraint for loan growth 0 200 400 600 Sources: BIS, Bloomberg, IMF IFS, DB Research China India 2005 2009 Source: IMF GFSR 85 1.2 % 60 65 70 75 80 0.4 0.6 0.8 1.0 50 55 2000 2002 2004 2005 2008 2010 China India Source: CEIC 0.0 0.2 00 01 02 03 04 05 06 07 08 09 China India Source: IMF GFSR Titelmasterformat durch Klicken bearbeiten 4. Financial sector 16 NPL ratio Sharp reduction in NPLs during the past decade 10Y government bond yields No significant rise in long-term interest rates 10 % % of total loans 3 4 5 6 7 8 9 10 15 20 25 30 35 0 1 2 3 2006 2007 2008 2009 2010 2011 India China Source: Bloomberg 0 5 10 2000 2001 2002 2003 2004 2005 2005 2007 2008 2009 China India Source: IMF GFSR Outstanding local currency bonds Markets have grown over 6X in past decade External bond issuance Low external issuance in China and India 2,500 3,000 3,500 USD bn 5 6 7 8 USD bn 0 500 1,000 1,500 2,000 00 01 02 03 04 05 06 07 08 09 10 0 1 2 3 4 5 00 01 02 03 04 05 06 07 08 09 Price earnings ratio Lower valuations after the global crisis Stock market indices Higher but volatile return on stock markets 600 2005=100 China India Source: ADB China India Source: IMF GFSR 40 45 200 300 400 500 5 10 15 20 25 30 35 0 100 00 01 02 03 04 05 06 07 08 09 10 11 Shanghai-A Shenzhen-A NSE BSE Source: Bloomberg 0 5 2000 2001 2002 2003 2004 2005 2005 2007 2008 2009 2010Q2 China India Source: IMF GFSR Titelmasterformat durch Klicken bearbeiten 4. Financial sector China’s IPOs Rebounding strongly after the crisis India’s IPOs Rebounding after the crisis 17 Quarterly, USD bn Quarterly, USD bn 20 25 30 35 40 3 4 5 6 0 5 10 15 00 01 02 03 04 05 06 07 08 09 10 Source: Dealogic 0 1 2 00 01 02 03 04 05 06 07 08 09 10 Source: Dealogic China’s M&A volumes Among the world leaders India’s M&A volumes Rebounding after the crisis 60 70 80 Quarterly, USD bn 30 35 40 45 Quarterly, USD bn 10 20 30 40 50 5 10 15 20 25 30 0 00 01 02 03 04 05 06 07 08 09 10 Source: Dealogic 0 00 01 02 03 04 05 06 07 08 09 10 Source: Dealogic 5. Infrastructure indicators & environmental sector Focus on infrastructure & environmental challenges Infrastructure in China and India has continued to develop over the past decade. Basic infrastructure 18 such as air and road transport continues to grow gradually while industries such as telecoms and energy are seeing more significant advances. The growth in the telecom industries in both countries comes from deregulation and increasing middle class wealth. As a result, mobile phone penetration has increased nearly 50x in China and 30x in India in the past decade. The energy sector is developing quickly given higher economic growth and increasing domestic demand. As can be seen in the development plans of both countries, infrastructure investment will remain important. India’s current 5-year plan has outlined USD 450 bn of investment into the sector while China’s 12 th 5-year plan has a significant focus on the transport and energy sectors, too. 12 5 year plan has a significant focus on the transport and energy sectors, too. Developed markets’ energy usage is several times higher than in China and India, but this gap is likely to narrow significantly in the next 10 years. Thus, using “clean” energy and improving energy efficiency in these countries has also become more important. In China’s latest development plan, one of the priorities is environmentally upgrading old coal plants. In India, the market for renewable energy and related technologies and businesses has been growing by 25% per year. Access to water China yet to catch up with India Mobile phone penetration Wealth effect & deregulation driving boom China Mobile phones per 100 people China % of rural population with access to an improved water source 0 1 02 03 04 05 0 India 60 65 70 75 80 85 India Internet penetration Internet usage still at initial take-off stage Air transport Air travel increases 3X in both countries 2000 2008 Source: World Bank Internet users per 100 people Registered carrier departures, thousands 2000 2008 Source: World Bank China India China India 0 5 10 15 20 25 2000 2008 Source: World Bank 0 500 1,000 1,500 2,000 2000 2008 Source: WDI Titelmasterformat durch Klicken bearbeiten 5. Infrastructure indicators & environmental sector 19 CO 2 emissions Still far from industrial countries’ level Road gasoline fuel consumption per capita Only seeing the tip of the iceberg in China & India Kt of oil equivalent Metric ton per capita 0.6 0.8 1.0 1.2 1.4 10 15 20 0.0 0.2 0.4 China India Germany US 2005 2006 2007 Source: World Development Indicators 2010 0 5 China India Germany US 2001 2004 2007 Source: World Development Indicators 2010 Energy use Diverging energy use trends GDP per unit of energy use India catching up with the US in energy efficiency 6,000 7,000 8,000 9,000 Kg of oil equivalent per capita 6 7 8 9 Constant PPP 2005 USD per kg of oil equivalent 0 1,000 2,000 3,000 4,000 5,000 China India Germany US 0 1 2 3 4 5 China India Germany US Alternative and nuclear energy Still significant room to grow for China & India Electric power consumption per capita Industrial use drives China’s faster growth 16 % of total energy use Kwh per capita China India Germany US 2001 2004 2008 Source: World Development Indicators 2010 China India Germany US 2001 2004 2008 Source: World Development Indicators 2010 4 6 8 10 12 14 China India 0 2 China India Germany US 2001 2004 2008 Source: World Development Indicators 2010 0 500 1,000 1,500 2,000 2,500 2000 2007 Source: World Bank 6. Social indicators Growing wealth delivers a better life Favourable population dynamics help drive economic growth. In both China and India, the population 20 has grown significantly over the past decade. But India’s population growth (16%) vs. China’s (5%) makes it likely that India will replace China as the world’s most populous country in the next 15 years. Both China and India benefit from a large youth population. The challenge lies in ensuring that the youth are absorbed into the workforce and that labour force participation continues to grow. In India, this is a greater challenge given that its population is even younger than China’s. By the same token, a younger population gives India an edge over China with respect to labour force availability in the future. China’s ageing population is going to restrict long-term growth prospects as the working age population is expected to peak over the next five years already. Another task for India is to ensure that female labour force participation (which has remained nearly stagnant over the past decade) begins to climb. Economic growth has helped improve social welfare. Key indicators of health and education such as infant mortality and school enrolment have improved in both economies over the past decade. This can be attributed to more enlightened policymaking, better advice from donors, etc. but also crucially to robust economic growth, which has given governments the resources to focus on these social areas. At the same time, income inequality has tended to increase over the past 10-15 years. Although incomes are on the rise, the gap between the rich and the poor has widened. Population overview India’s population will soon overtake China’s Urban population overview Growing urbanisation rate, especially in China 1 000 1,200 1,400 1,600 Millions of people 28 36 73 80 2000 % total 0 200 400 600 800 1,000 India China Germany US 29 30 41 45 74 74 82 83 0 20 40 60 80 100 2005 2010 Working age population Youth bulge driving strong economic growth Income distribution (Gini index) Higher income inequality in India India China Germany US 2000 2010 2020 Source: UN Population Division 0 20 40 60 80 100 India China Germany US Source: UN Population Division 900 Millions of people Gini index 200 300 400 500 600 700 800 37 45 2005 0 100 200 India China Germany US 2000 2010 Source: UN Population Division 34 36 38 40 42 India China Source: World Bank Titelmasterformat durch Klicken bearbeiten 6. Social indicators 21 Poverty headcount ratio Poverty is on a declining trend Life expectancy at birth Steady progress % of population Years 1994/96 61 62 71 72 2000 2004 0 1 02 03 04 0 2004/05 India China Source: World Bank WDI 64 73 55 60 65 70 75 2008 India China Source: World Bank Infant mortality Significant progress, especially in China Health expenditure China outweighs India in per capita expenditure 68 30 4 7 2000 Per 1,000 live births 117 150 200 2009 4,629 7,410 57 50 22 17 4 4 7 7 0 20 40 60 80 2005 2009 4.2 4.6 11.3 16.2 45 0 50 100 India China Germany US Adult literacy China has reached very high levels Tertiary enrolment China has shot past India in enrolment % gross % ages 15 and older 0 20 40 60 80 India China Germany US Source: World Bank % of GDP Per capita, USD Source: World Bank 10 11 13 8 18 2000 2004 61 63 91 2000-2001 2006-2008 13 23 01 02 03 0 2007-2008 India China Source: World Bank 94 0 2 04 06 08 01 0 0 India China Source: World Bank 7. Business environment Room for improvement in business environment Changes in governance have been a mixed bag over the past decade. Despite strong growth, 22 governance has not necessarily improved across-the-board over the past decade. While government effectiveness and regulatory quality in China and India are now higher, there have been mixed results on corruption, security, and contract enforcement. Moreover, in both economies, political stability has taken a hit. Regarding voice and accountability, India has improved while China has deteriorated, widening the gap between the two countries, which can be attributed to the nature of their political systems. Business environment remains onerous in India, but there have been significant strides in protecting investors and creating access to capital. India remains a notoriously difficult business environment (ranking 135 th out of 185 countries in terms of ease of doing business), but the country outshines China in (ranking 135 out of 185 countries in terms of ease of doing business), but the country outshines China in some areas: for example, it does far better in terms of access to financing and protecting investors. Nevertheless, further improvement in removing administrative hurdles is needed not only to attract foreign investment but also to enable local businesses to thrive. All things considered, China remains a more attractive business environment not only compared to India but also to Brazil and Russia. V oice & accountability Gap between India and China grew larger Political stability Deterioration for both countries 50 60 70 Ranking by percentile 30 35 40 45 Ranking by percentile 0 10 20 30 40 1998 2009 0 5 10 15 20 25 1998 2009 Government effectiveness Effectiveness improved over the past decade Regulatory quality Visible improvement in regulation 1998 2009 China India Source: World Bank Governance Indicators 1998 2009 China India Source: World Bank Governance Indicators 60 Ranking by percentile 50 Ranking by percentile 20 30 40 50 10 15 20 25 30 35 40 45 0 10 1998 2009 China India Source: World Bank Governance Indicators 0 5 10 1998 2009 China India Source: World Bank Governance Indicators Titelmasterformat durch Klicken bearbeiten 7. Business environment 23 Rule of law Improvement in China, decline in India Control of corruption In China, corruption has become more prevalent Ranking by percentile Ranking by percentile 30 40 50 60 70 20 25 30 35 40 45 50 0 10 20 1998 2009 China India Source: World Bank Governance Indicators Source: World Bank Governance Indicators 0 5 10 15 1998 2009 China India Source: World Bank Governance Indicators Ease of doing business Significant barriers remain in India Starting a business India requires fewer days to start business Brazil India Rank out of 185 countries 30 35 40 Days Singapore Hong Kong Saudi Arabia China Russia 0 5 10 15 20 25 Getting Credit Access to financing easier in India Closing a business Recovery rate much lower in India Brazil Rank out of 185 countries 0 50 100 150 Source: World Bank Doing Business 0 China India Source: World Bank Doing Business 40 Cents on a dollar India Saudi Arabia China Russia Brazil 15 20 25 30 35 0 2 04 06 08 01 0 0 Hong Kong Singapore Source: World Bank Doing Business 0 5 10 China India Source: World Bank Doing Business Has strong growth led to structural changes? 24 © Copyright 2011. 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