Chindia

CHINDIA

A tale of two giants

ABN AMRO

Emerging Market Analysis & Multilateral Organisations

Serdar Küçükakın

Swe Thant

May 2006

Emerging Market Analysis & Multilateral Organisations

Table of contents

Introduction

3

Chapter 1:

China and India in the global economy

5

Chapter 2:

Competitive issues

10

Chapter 3:

Infrastructure

13

Chapter 4:

International relations

16

Chapter 5:

Trade and FDI opportunities for the Netherlands

22

2

May 2006

Emerging Market Analysis & Multilateral Organisations

Introduction

After decades of self-inflicted isolation, China and India have made a grand

entrance on the world stage. Markets have been forced to pay attention to the two

neighbouring Asian giants because of their growing influence on global economic

trends. The two countries have had an enormous impact on commodity prices and

on global economic growth. Their competitive labour costs mean that they are

expanding their global market share in a number of industries. The low prices of

Chinese and Indian exports remain a powerful force for global disinflation. The

importance of the two countries extends far beyond the current business cycle.

However, it must be remembered that they still have a long way to go when it

comes to the living standards of their populations, which are still very low

compared to those of the Western world. Furthermore, growth in the two countries,

and especially in China, has so far benefited mainly urban populations, laying the

ground for social unrest in rural areas.

Looking at the economic dynamics of the two countries, in terms of demographics,

education, labour market flexibility, capital formation and infrastructure, the two

economies diverge considerably. Because of its one-child-policy China will

experience the effects of ageing much faster than India. According to projections,

growth of the working age population in China will halt in 2020 and decrease

thereafter. This will have an adverse effect on the potential growth of...