Mythbusting China's Indian match-up

During a presentation to a group of mainly businesspeople recently, I made a casual and unremarkable observation that the Indian model had a long way to go. The response by a significant number was muffled and even mocking laughter about the South Asian giant’s shortcomings.

In contrast, comments about the weaknesses of the Chinese model were greeted with a combination of sober concern, surprise and scepticism. No one chided or mocked the Chinese Communist Party leaders and their planners in Zhongnanhai. There was only respect for what the CCP had achieved, even if formidable obstacles to further success remain. As one member of the audience put it to me after the talk, "China has its problems but at least China isn’t India".
The respect for the Chinese model and the dismissal of the Indian one is surprising if we consider some basic facts. As readers would know, both are poor and developing countries of about 1.35 billion and 1.25 billion people respectively. The Chinese economy has been growing at around 8 to 9 per cent since 1979, while the Indian economy has been growing at around 7 per cent since 1991. China’s rise has been the most remarkable economic story over the past four decades, but the Indian performance is nothing to be scornful of. While the Chinese economy is far more important to Australia than India’s, the widespread belief that authoritarian China is deserving of praise and democratic India scorn is both misguided and unbalanced.

Chinese economic achievements since 1979 are irrefutable, praiseworthy and spectacular. But this article is about exposing a number of contemporary myths that are recurrent in comparing the two countries. This is not primarily designed to denigrate Chinese achievements but to challenge some of the sneering assessments about Indian achievements.

Myth 1: China’s authoritarian system produces order while democratic India is plagued by chaos

The proposition seems to make intuitive sense. The CCP clamps down on political and many social freedoms, and in return delivers order to the country. As former Singaporean leader and the country’s Minister Mentor Lee Kuan Yew says in a just released book, Lee Kuan Yew: The Grand Master's Insights on China, the United States and the world, if China became a liberal democracy, would collapse. Lee is no friend of liberal democracy. But the argument is that freedom and order are often at the expense of each other: India favours the former and China the latter.

In fact, there is far more social disorder and violence in China than there is India. In 2011, leaked official figures revealed that there were at least 128,000 instances of ‘mass unrest’ throughout the country – with mass unrest being defined as 15 or more people in some provinces, and 50 or more in others, violently protesting against the regime, mainly at the local official level. That’s around 350 instances of mass unrest each day, rising from just a few dozen a decade ago. This is evidence of far more disorder in China than in India.

Indeed, Beijing spent over $US115 billion on the People’s Armed Police, a one-million strong and military-trained organisation whose sole purpose is to control domestic unrest throughout the country. The PAP is distinct from the People’s Liberation Army, which is China’s professional army in charge of national defence. Officially, the amount Beijing spends on internal security (i.e. on the PAP) exceeds what it spends on national defence (i.e. the PLA) even though almost every independent analysts believes that Beijing is significantly under-calculating its true PLA expenditure. Even so, this means that around 15 per cent of the annual fiscal budget for the Chinese central government is allocated to controlling mass unrest throughout the country. This does not even include the further resources spent on other forms of coercion and monitoring by the central and local governments in China.

Myth 2: India enjoys more freedom but it comes at the price of economic inequality compared to China

This is untrue. Using the commonly accepted standard of the Gini-coefficient (GN) of measuring inequality by distribution of income (where ‘0’ is perfect equality and ‘1’ is perfect inequality), China’s official score is 0.47.

The majority of experts, including researchers from the government-backed Chinese Academy of Social Sciences, believe that the true figure is between 0.5 and 0.57. This means that within one generation, China has gone from being the most equal society in all of Asia to the least equal.

In contrast, India’s is 0.33 to 0.36, and has remained in that range for several decades – suggesting that economic growth is raising the incomes of median households at similar rates of national economic growth.

China’s GN was actually steady at around 0.33 during the first decade of reform. Since the era of state-corporatism from the mid-1990s onwards, the country’s GN has steadily worsened.

As a comparison, Australia’s GN is about 0.3, America’s 0.45, Japan’s 0.37, Brazil’s 0.52 and Bolivia’s 0.58. In other words, income inequality in China is closer to South American levels than it is to the somewhat better levels in successful Asian economies. On the other hand, Indian levels of inequality are similar to that in countries such as Japan, South Korea and Singapore – albeit from a much lower economic base.

Myth 3: China is leaving India behind when it comes to urbanisation

China is definitely ahead of India in terms of raw urbanisation numbers: 48 per cent to 35 per cent. But the rate of urbanisation is actually neck-and-neck at about 1 to 1.5 per cent for both countries.

Remember that Chinese urbanisation numbers tend to overestimate actual urbanisation since urban Chinese include the estimated 250 million migration workers from rural areas. These economic migrants work in the cities but are registered as rural residents under the hukou registration system – meaning that they have limited rights to education, health and other government services presented to registered urban residents. Migrant workers cannot afford urban housing, but even if they could, there are subject to restrictions on purchasing urban property – a further reason why so many of the luxury apartments in China will remain without tenants.

Myth 4: The contemporary Chinese model is far better at poverty reduction than the Indian model

The World Bank’s standard of poverty is those people living on less than $US1.25 per day. Let’s take that as gospel.

By this standard, about 13.5 per cent of Chinese live in poverty while around 29 per cent of Indians live in poverty. In the 1960s, the percentage of those in poverty in both countries was roughly equal. Prima facie, this suggests that China’s economic model has been far more successful than India’s by this measure.

The facts are undeniable: China has made greater progress than India when it comes to poverty reduction.

However, note that some 80 per cent of the poverty reduction in China took place during the first decade of reform (1979-1989). The masterstroke was land reform – when Chinese peasants were allowed to use their plot of land to produce anything they wanted; and having met basic quotas, sell their surplus products at market prices. This ‘household responsibility system’ led to the rise of so-called town and village enterprises, small-scaled businesses that drove private enterprise and initiative.

This was the country’s ‘entrepreneurial decade’ of rapid across-the-board rises in household income and mass poverty reduction. Significantly, the state facilitated the private initiative rather than suppressed it as the contemporary Chinese political-economic model does today. In Deng Xiaoping’s own words, the explosion in economic activity ‘was spontaneous and not anything that we had planned'. But Deng had the good sense to encourage it to occur once it took off.

The era of state-corporatism did not remerge until the mid-1990s. Since the mid-1990s, poverty reduction in China has advanced at less than 1 per cent each year – bettered by India which is advancing at slightly more than 1 per cent each year.

Note that since around 2005, absolute poverty in China has actually increased from about 10 per cent to 13.5 per cent currently, while the same has happened in India since 2007 (from about 25 per cent to 29 per cent). In other words, more people have fallen back into poverty over the past few years in both countries. The point is that neither country can claim a superior performance by this measure over the past two decades.

China’s economic and social achievements over the past few decades are praiseworthy. The point of this article is to make the argument that so too are India’s.

Dr John Lee is the Michael Hintze Fellow and adjunct associate professor at the Centre for International Security Studies, Sydney University. He is also a non-resident senior scholar at the Hudson Institute in Washington DC and a director of the Kokoda Foundation in Canberra.