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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...