The Economic Race, China or India?

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China seems to have picked up some of the most effective economic policies of the two “miracle economies” that preceded it. Note that I use the word effective and not efficient.
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China boldly opened itself to a flood of foreign direct investment. This brought in a cascade of dollars, technology and management practices. It created a huge amount of foreign equity in the economy and laid the base for technological progress in the coastal areas.

What China did with the surpluses is even more dramatic.

It invested massively in the economy – close to 50 percent of GDP in infrastructure, farm productivity and soft areas like education and healthcare. No other country, at no other point in history, has invested capital at this astonishing scale.
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Today it is grappling with major imbalances: between investment and consumption, in the massive bad debts that its banks are saddled with, and in a ravaged environment. But equally, it cannot be denied that no other nation in history has pulled more people out of poverty in as short a time.
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Traditional theory says that investment should be ‘sustainable’, that is, it should be ‘matched’ by rising consumption.

But what if you pump so much capital into your economy—similar to putting extra fuel into a rocket—that you ‘escape’ the gravitational pull of low thresholds?

Especially if the bulk of your capital is spent on infrastructure (roads, railways, schools, hospitals, ports), as against factories which produce toys and televisions?

This could be the Chinese masterstroke, the single discontinuity which could defeat 200 years of economic wisdom. Perhaps big factories create waste, while big infrastructure, especially life-enhancing social assets, empowers people. By rapidly educating your workforce, by brilliantly executing immensely large projects, by importing expertise and dollars in a shrinking world, you could create a ‘shower of wealth and productivity’ such that consumption ‘trickles through’ quickly into the bubble. The sheer scale of your activities could end up swelling the tide in which everybody and everything rises together; a new model of ‘tidal wave investing’ could buoy the whole ocean to a much higher watermark.
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India’s economy is healthily private, with state-owned corporations accounting for less than a tenth of the output. Its stock exchange was set up in 1875, the oldest in Asia—it is also perhaps the most digitized in the world. Indian banks had virtually zero exposure to the sub-prime paper that ravaged America and Europe. About 40 per cent of the economy is exposed to global trade (exports and imports)—low enough to escape world crises, yet high enough to remain an open, competitive economy. The Indian rupee largely floats against world currencies, in contrast to China’s yuan, which is globally pummelled for being artificially undervalued.
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http://www.cnbc.com/id/39802324/