India, China: Forces reshaping global economy, world order

China and India represent two of the most important forces reshaping the global economy, but they have arrived at this moment having followed very different paths. China surged ahead through manufacturing, exports, and an activist, but authoritarian state. India, by contrast, followed a more uneven path, shaped by democracy, a robust services sector, and a different relationship between government and markets.

A new book, Eclipsing the West: China, India and the Forging of a New World, by the British economist Sir Vincent Cable examines the bigger question of what the rise of China and India means for the future of the world economy—and the international order. Cable discussed the book on last week’s episode of Grand Tamasha, a co-production of HT and the Carnegie Endowment for International Peace.

Cable is an author and former politician who has spent decades thinking about the changing global economy. He served as Britain’s secretary of state for business, innovation and skills from 2010 to 2015 and later as leader of the Liberal Democrats. Before entering politics, he worked in government, international organisations, academia, and the private sector—including as chief economist at Shell. Today, he is a professor in practice at the London School of Economics’ School of Public Policy.

He spoke with host Milan Vaishnav about the contrasting reception to his writings on China and India, India’s ability to shape the global order, and three possible futures for an emerging world of superstates.

“The big difference in the pattern of development that has emerged is that the Chinese conquered the world economy in manufacturing. It became the factory of the world, starting with labor-intensive manufacturing,” said Cable. “India never really got into that. It didn’t liberalize sufficiently radically, and I don’t think the ambition was ever to become a major low-cost manufacturer. That is the big gulf.” Cable pointed out that India accounts for roughly 3% of global manufacturing value added, compared with about one-third for China.

While manufacturing has powered much of China’s remarkable growth in recent decades, Cable argued that India now has stronger growth momentum. “China is visibly slowing and struggling economically. I call it a combination of a crisis of communism and a crisis of capitalism,” explained Cable. “The crisis of capitalism comes from the collapse of a property bubble, the wealth effects that have flowed from that, and weak demand. The crisis of communism comes from the waste of capital, the very high ratios of capital to output. They are now getting these very innovative high-tech industries, but a lot of Chinese industry and infrastructure is very inefficient in economic terms, so you’ve got a slowing Chinese economy and an Indian economy that’s accelerating.”

On geopolitics, Cable argued that there are practical and important areas where China and India have a lot in common. He pointed to both countries’ ties with Russia, albeit for different reasons, as well as their shared energy interests in the Middle East. Both are vulnerable to climate change, he noted, while also playing major roles in expanding solar power and other renewable energy sources. “I think probably the most important one of all is not developing a common currency, which is unobtainable and makes absolutely no sense within the BRICS group, but diversifying payment systems so that they’re not dependent on US sanctions,” said Cable. “These common areas are very important, and I think India would be foolish to walk away from having good, workmanlike relations with the Chinese.”