- By 2025, China will have overtaken the United States to become the world's biggest consumer market, with India as the third-largest and Russia the fourth-largest.
- By 2010, the middle class in China and India will outnumber the entire population of the United States.
- The number of credit cards in India grew by 35 percent in 2006 to more than 26 million.
- No country buys more TVs or mobile phones than China.
- Mexico is the second-largest consumer market for soft drinks
- China is the world’s largest consumer of grain, meat, coal and steel.
Emerging markets are countries that are restructuring their economies along market-oriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment. According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. Other countries that are also considered as emerging markets include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea. These countries made a critical transition from a developing country to an emerging market. Each of them is important as an individual market and the combined effect of the group as a whole will change the face of global economics and politics.
Traditionally, the growth of emerging markets has been built on supplying low-cost goods and services to the developed world. Now, however, these emerging markets are becoming lucrative targets for multinational manufacturers, service providers and retailers as employment rates and income potential continue to soar. Emerging economies, which are experiencing a budding middle class numbering in the millions, are on target to account for more than half of global consumption by 2025. What is also evident is that multinational companies are refocusing their sights on emerging economies as the sheer growth potential of these markets is thriving. China, the largest market for mobile phones with more than 395 million subscribers, is set to overtake Japan as the world's second-largest car market. And Mexico represents the world's second-largest soft drink market. Developing economies are challenging the traditionally strong markets of the past as new markets, coupled with consumers who now have spending power, continue to emerge.
Population –gives the edge
More than 80 percent of the world's six billion people live in emerging economies with China and India each boasting populations of more than a billion. China will double its per capita income in 10 years (five times more quickly than the United Kingdom and the United States did during the industrial revolution). While new consumers enter the market, existing consumers will seek more sophisticated products and services. The fastest growth in consumption will be in the burgeoning middle classes, those with earnings high enough to trigger discretionary spending. Our research suggests that, by 2010, China and India will together have 123 million middle-class households. This is more than the total number of households, not just middle class households, in the United States. Many emerging economies will see their consumption levels fueled by a considerable demographic dividend as the proportion of the population that is of working-age swells.
New Jobs
Incomes in emerging economies will also be boosted by rising levels of employment. Asia is forecast to supply 66 percent of new jobs between 2005 and 2020, with the United States contributing just 3 percent and the European Union contributing 2 percent. These jobs will not just be low-wage. Salaries will be boosted by urbanization and the acceleration in the trend of global sourcing, which will shift higher value-added jobs to emerging economies. The rapid economic growth enjoyed in emerging economies will be the primary catalyst underpinning these trends.
A virtual circle of economic prosperity
As consumption takes off, increased output will in turn drive increased employment, wages and domestic spending, creating a virtual circle of economic prosperity anchored increasingly in domestic demand. Saving has traditionally been high in a number of emerging economies. With low welfare safety nets, families put money aside for the costs of illness, unemployment, education and old age. But there is evidence that purse strings will be loosened in the coming years, thanks to rising incomes, strengthening social provision and government policies to reduce reliance on growth driven by investment and exports.
Consumer spending in emerging economies has also been held back by a lack of access to consumer credit. The use of credit cards, a major facilitator of consumer spending, remains very low in emerging economies. In 2005, for every 100 people in China, India and Russia, there were approximately two credit cards compared with 240 in the United States. But financial market liberalization across the emerging world will boost the availability and affordability of consumer credit, fueling spending and reducing the savings rate across emerging markets.
Population –gives the edge
More than 80 percent of the world's six billion people live in emerging economies with China and India each boasting populations of more than a billion. China will double its per capita income in 10 years (five times more quickly than the United Kingdom and the United States did during the industrial revolution). While new consumers enter the market, existing consumers will seek more sophisticated products and services. The fastest growth in consumption will be in the burgeoning middle classes, those with earnings high enough to trigger discretionary spending. Our research suggests that, by 2010, China and India will together have 123 million middle-class households. This is more than the total number of households, not just middle class households, in the United States. Many emerging economies will see their consumption levels fueled by a considerable demographic dividend as the proportion of the population that is of working-age swells.
New Jobs
Incomes in emerging economies will also be boosted by rising levels of employment. Asia is forecast to supply 66 percent of new jobs between 2005 and 2020, with the United States contributing just 3 percent and the European Union contributing 2 percent. These jobs will not just be low-wage. Salaries will be boosted by urbanization and the acceleration in the trend of global sourcing, which will shift higher value-added jobs to emerging economies. The rapid economic growth enjoyed in emerging economies will be the primary catalyst underpinning these trends.
A virtual circle of economic prosperity
As consumption takes off, increased output will in turn drive increased employment, wages and domestic spending, creating a virtual circle of economic prosperity anchored increasingly in domestic demand. Saving has traditionally been high in a number of emerging economies. With low welfare safety nets, families put money aside for the costs of illness, unemployment, education and old age. But there is evidence that purse strings will be loosened in the coming years, thanks to rising incomes, strengthening social provision and government policies to reduce reliance on growth driven by investment and exports.
Consumer spending in emerging economies has also been held back by a lack of access to consumer credit. The use of credit cards, a major facilitator of consumer spending, remains very low in emerging economies. In 2005, for every 100 people in China, India and Russia, there were approximately two credit cards compared with 240 in the United States. But financial market liberalization across the emerging world will boost the availability and affordability of consumer credit, fueling spending and reducing the savings rate across emerging markets.
It’s going to be China vs. INDIA
Of the emerging markets, the real fight is going to between China and India.
Let’s have a look at some numbers between China and India:
1. World Bank forecasts china’s 2008 GDP growth rate to 9.6%.While Indian economy to grow at a bit lower rate of 8.7%.
2. Chinese economy is worth more than three times that of Indian economy.
3. China’s forex reserves exceeds $ 1.6 trillion while Indian forex reserve is at $292 billion.
4. China boasts of having five out of 10 biggest companies of the world in terms of M-Cap, whereas India has not a single company listed in top 10 companies of the world in terms of M-cap. (As per 2007 data)
So what do these numbers signify? Is China all set to outpace India? Let’s look beyond numbers.
FDI vs Entreprenurship
China has discouraged or actively undermined local entrepreneurship in favour of foreign direct investment-dependent approach. India, on the other hand, is building an infrastructure—however slowly—that allows entrepreneurship and free enterprise to thrive. By making fuller use of its resources, India's long-term outlook may be far stronger.
India is achieving some impressive results with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. China is investing close to 50 per cent of its GDP in domestic plant and equipment - roughly equivalent to India’s entire GDP. That is higher than any other country. China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency. The world-class manufacturing facilities for which China is famous are products of FDI, not of indigenous chinese companies.
India has a more laissez-faire attitude in entrepreneurship. Infosys was founded by seven entrepreneurs with few political connections who nevertheless managed, without significant hard assets, to obtain capital from Indian banks and the stock market in the early 1990s. It is unimaginable that a Chinese bank would lend to a Chinese equivalent of an Infosys. China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reforms that would permit more foreign investment and domestic private entry in the financial sector.
China’s hidden weakness is the massive and often centrally planned investments, which are often less productive than the Indian investments. In the long run, that’s not going to work without more open competition, creativity and entrepreneurship. India’s hidden strength is that the country is already extremely entrepreneurial - but in the informal sector. Most of the cars we see on the roads, and many computers in the offices, are assembled in small, informal factories, outside the law, to avoid the many regulations and taxes that still curb the Indian economy. Imagine what the Indians could do if all that energy was legalised.
Democracy vs. Repression
India’s ace in the hole is its democracy vs. China’s repression. There’s no way China will beat India in the long run with its new, even stricter censorship. Centralizing thought dampens innovation. And a democracy gives you a much better shot at political and economic stability in the long run. A financial crisis does not seem unlikely, and how the undemocratic system would deal with such difficulties is another mystery. As long as China’s political and legal system is not as open as the economy, China will remain a risky and unpredictable place.
Let’s have a look at some numbers between China and India:
1. World Bank forecasts china’s 2008 GDP growth rate to 9.6%.While Indian economy to grow at a bit lower rate of 8.7%.
2. Chinese economy is worth more than three times that of Indian economy.
3. China’s forex reserves exceeds $ 1.6 trillion while Indian forex reserve is at $292 billion.
4. China boasts of having five out of 10 biggest companies of the world in terms of M-Cap, whereas India has not a single company listed in top 10 companies of the world in terms of M-cap. (As per 2007 data)
So what do these numbers signify? Is China all set to outpace India? Let’s look beyond numbers.
FDI vs Entreprenurship
China has discouraged or actively undermined local entrepreneurship in favour of foreign direct investment-dependent approach. India, on the other hand, is building an infrastructure—however slowly—that allows entrepreneurship and free enterprise to thrive. By making fuller use of its resources, India's long-term outlook may be far stronger.
India is achieving some impressive results with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. China is investing close to 50 per cent of its GDP in domestic plant and equipment - roughly equivalent to India’s entire GDP. That is higher than any other country. China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency. The world-class manufacturing facilities for which China is famous are products of FDI, not of indigenous chinese companies.
India has a more laissez-faire attitude in entrepreneurship. Infosys was founded by seven entrepreneurs with few political connections who nevertheless managed, without significant hard assets, to obtain capital from Indian banks and the stock market in the early 1990s. It is unimaginable that a Chinese bank would lend to a Chinese equivalent of an Infosys. China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reforms that would permit more foreign investment and domestic private entry in the financial sector.
China’s hidden weakness is the massive and often centrally planned investments, which are often less productive than the Indian investments. In the long run, that’s not going to work without more open competition, creativity and entrepreneurship. India’s hidden strength is that the country is already extremely entrepreneurial - but in the informal sector. Most of the cars we see on the roads, and many computers in the offices, are assembled in small, informal factories, outside the law, to avoid the many regulations and taxes that still curb the Indian economy. Imagine what the Indians could do if all that energy was legalised.
Democracy vs. Repression
India’s ace in the hole is its democracy vs. China’s repression. There’s no way China will beat India in the long run with its new, even stricter censorship. Centralizing thought dampens innovation. And a democracy gives you a much better shot at political and economic stability in the long run. A financial crisis does not seem unlikely, and how the undemocratic system would deal with such difficulties is another mystery. As long as China’s political and legal system is not as open as the economy, China will remain a risky and unpredictable place.
Tortoise vs Hare So this race is analogous to the classic race between tortoise vs Hare. China has raced ahead but is missing in key fundamentals like entrepreneurship, social stability and democracy. While India has sustainable growth model with a long term vision. Who will win the race is anybody’s guess...
3 comments:
cmon man... dont discount Brazil just yet... after all is has similar demographics as india, agriculture is growing, has just found large oil reserves of the coast, good tourism, stable economy etc etc... i am rooting for it :P
@ Nebulous
hi
i feel Brazil has not had the spectacular economic growth record over the last decade that has been seen in China and India in spite of its policy reforms. Brazil has faced a number of challenges over the last 60 years in its search for a high sustainable rate of economic growth. A number of external and internal economic shocks have delayed Brazil's progress.
Hello Ram,
Me and some of my frnds have started an e magazine called Reader's Quotient, it is totally for a noble cause of funding education to needy children. I came across your blog in my quest to search talented writers and felt worth to inquire if you shall be interested to come along with us.
If yes pls contact us at sangeeta.goswami@readersquotient.com or sangeetag169@gmail.com
Waiting for your revert
Regds/Sangeeta
www.readersquotient.com
Post a Comment