1. 1 CESifo Economic Studies Conference on Understanding the Chinese Economy 10 – 11 June 2005 CESifo Conference Centre, Munich India China: Diverging to Converge Surjit S. Bhalla

2. 2 India - China: Diverging to Converge CESifo Economic Studies Conference on Understanding the Chinese Economy: ifo Institute, Munich, Germany June 10-11, 2005 Surjit S. Bhalla * *O[x]us Research & Investments, New Delhi Email: ssbhalla@gmail.com

3. 3 India - China: Diverging to Converge CESifo Economic Studies Conference on Understanding the Chinese Economy: ifo Institute, Munich, Germany June 10-11, 2005 Surjit S. Bhalla * *O[x]us Research & Investments, New Delhi Email: ssbhalla@gmail.com

4. 4 India - China: Diverging to Converge CESifo Economic Studies Conference on Understanding the Chinese Economy: ifo Institute, Munich, Germany June 10-11, 2005 Surjit S. Bhalla * *O[x]us Research & Investments, New Delhi Email: ssbhalla@gmail.com

5. 5 Objectives Compare China and India performance on a variety of indicators – past, present, and future

6. 6 Growth Performance…India, China

7. 7 Growth and Undervaluation

8. 8 TFPG…India, China

9. 9 Investment/GDP…India, China

10. 10 Industrial Production…India, China

11. 11 Interest Rates…India, China

12. 12 Inflation…India, China

13. 13 Saving…India, China

14. 14 Governance Indicators…India, China Governance Indicator Values, India and China ChinaIndiaChange 19972002 19972002 ChinaIndia Voice-1.37-1.430.260.36-0.10.1 Rule of Law-0.32-0.340.100.070.0 Govt. Efficiency0.140.18-0.14-0.070.00.1 Political Stability0.260.14-0.44-0.67-0.1-0.2 Regulation-0.09-0.35-0.11-0.36-0.3 Corruption-0.11-0.42 -0.23-0.26 -0.30.0

15. 15 Governance Indicators…India, China Governance Indicator Rank, India and China ChinaIndiaChange 19972002 19972002 ChinaIndia Voice83851814-2.04.0 Rule of Law443627238.04.0 Govt. Efficiency212034281.06.0 Political Stability25306160-5.01.0 Regulation52565357- 4.0 Corruption2845 3632 -17.04.0

16. 16 Governance Indicators…India, China

17. 17 Corporate Tax Rates…India, China

18. 18 Foreign Direct Investment…India, China

19. 19 Foreign Direct Investment…India, China

20. 20 Undervaluation of Currencies… Undervaluation is defined as the ratio of per capita GDP in current US dollars to per capita GDP in current international PPP dollars.

21. 21 …Undervaluation of Currencies

22. 22 …Undervaluation of Currencies

23. 23 …Undervaluation of Currencies

24. 24 Growth Model…India and China The growth model uses the following variables for the period 1980 – 2003; data arranged in five-year periods. Log Initial Per Capita Income, Log Initial Years of Education, Latitude (proxy for Geography), Log Change in Undervaluation, and Share of Investment in GDP are the independent variables.

25. 25 Living Standards…India, China Poverty Levels Infant Mortality Fertility Rate Dependency Ratio Education Attainment, All Education Attainment, Females

26. 26 Poverty Levels…India, China

27. 27 Poverty Levels…India, China

28. 28 Poverty Levels…India, China

29. 29 Poverty Levels…India, China Poverty levels in India and China in the year 2003 are the same.

30. 30 Infant Mortality Levels…India, China

31. 31 Infant Mortality Decline…India, China

32. 32 Fertility Rates…India, China

33. 33 Dependency Ratio…India, China

34. 34 Education Attainment…India, China

35. 35 Education Attainment Female…India, China

36. 36 Conclusion Undervaluation of exchange rate is a very important theoretical and empirical contributor to the Chinese growth performance. Each 10 percent appreciation of the yuan would lower China’s growth rate by 1.4 percent per annum. India growth rate is expected to be higher than China by 2010. Poverty levels ($ a day poverty line) are the same in India and China (circa 2003).