China and India: Battle of the Titans
After 44 years, the Silk Road pass that connects India and China was reopened. Closed in 1962 due to a border war between these two great Asian powers, the restoration of the Himalayan route on 7 July 2006 is heavy on symbolism and hope.

Back in 1954, Prime Minister Nehru of India called for an "Indo-Chinese brotherhood," but as The Economist reported, "Sibling tension soon surfaced and sharpened when India gave sanctuary in 1959 to the Dalai Lama and 100,000 of his followers as they fled China's suppression of an uprising in Tibet. It ended in humiliating betrayal for Mr Nehru and India."

A fierce battle ensued in the late 1950s, when the Chinese army built a road across what India regarded as part of its own territory. The following brief war was won by the Chinese who, after an invasion of the east, voluntarily retreated to "the line of actual control" one month later.

As in that past conflict, the present still sees China holding the upper hand over India. According to World Bank estimates, "[By 2001], China's national income per head... was $890, nearly double India's $450. Adjusted for purchasing power, the Chinese were still 70% wealthier than Indians were. In the ten years from 1992, India's GDP per head grew at 4.3% a year, China's twice as fast. Some 5% of Chinese now live below the national poverty line, compared with 29% of Indians."

Comparisons between these two titans are hard to resist. Both have populations over a billion, are developing rapidly, are crying out for energy resources, are reliant on poor agricultural-based citizens attempting to drag themselves out of the 19th century, and both have firm aspirations at being a superpower. Of course, both are vastly contrasting cultures, and only one of them is a democracy.

When looking at the facts and expert opinions on offer, it all seems to point toward China remaining number one in the region. China started earlier in 1978 with its reforms, and India's attempts at catch-up remain just that. China, by virtue of being a World War II winner, is one of the five permanent members of the UN Security Council. India isn't. While China suffers some minor friction and outbursts of hot air with the United States over Taiwan, this is nothing compared to India's tangible dramas with Pakistan over Kashmir.

In addition, China's dictatorship basically has the power to do anything anytime it wants, free from the restrictions a democratic government must face. Some experts, though, think this view is too simplistic and misleading. The real reason for China's ascent, they argue, is that when the reforms started, the country had a larger working-age population to tap into. Also, China modernized with much greater determination while India got stuck in the spider web of bungling bureaucracy and corruption.

I think the Chinese were maybe just more ruthless in their pursuit of economic expansion. What I am witnessing here is that new shops, high rises and housing complexes are springing up at breakneck speed. A month can pass since my last visit to a part of town, and on return the skyline is now a new array of concrete concoctions, heaving with human activity.

India unsurprisingly sees China as a threat since it attracts considerably more Foreign Direct Investment. The Economist states that "According to the official data, China received $52.7 billion [in 2002]; India got just 4% of that amount, $2.3 billion... some Indian economists have cried foul. India's figures are understated, they say, because they exclude foreigners' reinvested profits, the proceeds of foreign stock market listings, intra-company loans, trade credits, financial leases and so on. China's, on the other hand, are inflated by 'round-tripping' of domestic investment through Hong Kong."

While India may argue over numbers, they'd be better served by looking for a solution, otherwise they'll end up like the other losers in previous duels for domination. History shows us that the wars between Carthage and Rome, Britain and France, the U.S. and the Soviet Union all had a clear and outright winner.

All this talk of China's success due to the right population at the right time or being more dynamic is true, but nagging doubts still linger in my mind. I'm wary to go up against the supreme intellects of the economic boffins, but I live here and see things at first hand. Being vague is en vogue here. Nothing is transparent. All the figures and data coming out of the Middle Kingdom will be about as reliable as a Chinese wristwatch bought at a street market.

Also, because there are no laws to protect the people, the powers treat them in the manner of a feudal lord exerting authority over his serfs. As the world's media has widely reported, land is grabbed with no financial compensation. It's then converted quickly to a factory or other construction. The economic miracle continues because the totalitarian state does not tolerate dissent or obstruction. When the government says "jump," the people really do say "how high?". They have no alternative. Can India do that? Does India do that now? No. I believe this factor is instrumental in China's success.

Currently, there is some tension over the Dalai Lama and the unresolved area of Sikkim, but most neighbors argue at some point. China and India have always continued to trade, and the volume of trade has grown from $338 million in 1992 to nearly $5 billion in 2002. In a sense, this is a crucial aspect of globalization. Countries' economies are so deeply entwined with each other that military conflict is ruinous to the affected states. Pragmatism has the potential to replace nationalism in the 21st century.

Nearly two-fifths of the world's population live in China and India. How they react to each other and how they develop will have massive implications for the rest of the world.



Not only are China and India the emerging economic world powers, at least one of them also practically owns the U.S. lock, stock, and barrel.

With the U.S.-Chinese trade gap ever widening and an increasing number of central banks, including that of China, moving toward trading out of their large reserves of U.S. dollars, you may wonder what's left to safely invest in. Right now, the answer is gold, silver and carefully selected, high-quality natural resource stocks.

The commodity bull market is still in its early stages. Learn how to make the most of it here.

Posted 07-25-2006 8:58 PM by AntonyPeyton
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