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Indian Democracy, Chinese Autocracy
Tiger vs dragon: China opened its economy to the world in the 1970s. India didn't follow suit until the 1990s. Despite China's 30-year head start, India's economy is quickly gaining ground, ready to overtake the Chinese economy. Who will win? And what does it mean to the North American economy?
Gordon Chang, columnist at Forbes.com, and author of The Coming Collapse of China.
Sarah Kutulakos, executive director and chief operating officer of the Canada China Business Council.
Gregory Chin, associate professor of political science at York University.
Partha Mohanram, associate professor at the Rotman School of Management, University of Toronto.
Douglas Goold, director, National Conversation on Asia & senior editor Asia Pacific Foundation of Canada.
Join the discussion on The Inside Agenda blog » India versus me
All episodes of The Agenda with Steve Paikin are available on-demand in streaming video and audio & video podcasts at: tvo.org/theagenda.

China will not use force

China 'will not use force' in South China Sea disputes

Vietnam staged live-fire drills in the South China Sea on Monday amid rising tensions with China

China has said it will not resort to the use of force to resolve maritime border disputes in the South China Sea.

Several Asian nations claim territory in the South China Sea, which includes important shipping routes and may contain oil and gas deposits.
On Monday, Vietnam staged live-fire drills after weeks of rising tensions between the two nations.
Vietnam has also issued a decree specifying who would be exempt from military call-up in a time of war.
"We will not resort to the use of force or the threat of force," Chinese foreign ministry spokesman Hong Lei said.
He condemned any action that would exacerbate the dispute, and urged those involved to "do more that is beneficial to regional peace and stability".
As well as Vietnam, the Philippines, Malaysia, Brunei and Taiwan also have rival claims in the area.
As chair of the regional grouping Asean last year, Hanoi actively promoted a multilateral approach to the problem. However, Beijing says it prefers to negotiate with individual states separately.
Responsibility
In an apparent message to China that Vietnam is willing to stand its ground, the Vietnamese government issued a decree earlier specifying which people would be exempt from military service during a time of war.
The decree lists eight examples where Vietnamese citizens would not be obliged to join a military call-up. They include people holding senior positions in state organisations and those providing essential services such as lighthouse operators.
The BBC's South East Asia correspondent Rachel Harvey says the significance lies not in the exemptions themselves but in the timing of the decree.
The news comes a day after the Vietnamese navy conducted exercises it described as routine, but which at least one Chinese newspaper interpreted as a deliberate show of force.
Vietnam is engaged in a renewed row with China over sovereignty of two groups of islands in the South China Sea; the Spratly and Paracel islands.
Tensions have escalated following two separate confrontations involving Vietnamese and Chinese boats in recent weeks.
In a thinly veiled reference to Hanoi, Mr Hong implied Vietnam was to blame for the recent row.
"Some country took unilateral actions to impair China's sovereignty and maritime rights and interests, and released groundless and irresponsible remarks with the attempt to expand and complicate the issue of the South China Seas," Mr Hong said.
"This is where the problem lies."
The US has also expressed concern about China's rising naval ambitions in the region.
On Sunday, the Japan-based carrier USS George Washington left port for deployment in the region, which is almost certain to include the South China Sea.

China is different

The China doubters are back in force. They seem to come in waves - every few years, or so. Yet, year in and year out, China has defied the naysayers and stayed the course, perpetuating the most spectacular development miracle of modern times. That seems likely to continue.
Today's feverish hand-wringing reflects a confluence of worries - especially concerns about inflation, excess investment, soaring wages, and bad bank loans. Prominent academics warn that China could fall victim to the dreaded "middle-income trap", which has derailed many a developing nation.
There is a kernel of truth to many of the concerns cited above, especially with respect to the current inflation problem. But they stem largely from misplaced generalisations. Here are ten reasons why it doesn't pay to diagnose the Chinese economy by drawing inferences from the experiences of others:
Strategy
Since 1953, China has framed its macro objectives in the context of five-year plans, with clearly defined targets and policy initiatives designed to hit those targets. The recently enacted 12th Five-Year Plan could well be a strategic turning point - ushering in a shift from the highly successful producer model of the past 30 years to a flourishing consumer society.
Commitment
Seared by memories of turmoil, reinforced by the Cultural Revolution of the 1970s, China's leadership places the highest priority on stability. Such a commitment served China extremely well in avoiding collateral damage from the crisis of 2008-2009. It stands to play an equally important role in driving the fight against inflation, asset bubbles, and deteriorating loan quality.
Wherewithal to deliverChina's commitment to stability has teeth. More than 30 years of reform have unlocked its economic dynamism. Enterprise and financial market reforms have been key, and many more reforms are coming. Moreover, China has shown itself to be a good learner from past crises, and shifts course when necessary.
SavingA domestic saving rate in excess of 50 per cent has served China well. It funded the investment imperatives of economic development and boosted the cushion of foreign exchange reserves that has shielded China from external shocks. China now stands ready to absorb some of that surplus saving to promote a shift toward internal demand.
Rural-urban migrationOver the past 30 years, the urban share of the Chinese population has risen from 20 per cent to 46 per cent. According to OECD estimates, another 316 million people should move from the countryside to China's cities over the next 20 years. Such an unprecedented wave of urbanisation provides solid support for infrastructure investment and commercial and residential construction activity. Fears of excess investment and "ghost cities" fixate on the supply side, without giving due weight to burgeoning demand.
Low-hanging fruit: ConsumptionPrivate consumption accounts for only about 37 per cent of China's GDP - the smallest share of any major economy. By focusing on job creation, wage increases, and the social safety net, the 12th Five-Year Plan could spark a major increase in discretionary consumer purchasing power. That could lead to as much as a five per cent point increase in China's consumption share by 2015.
Low-hanging fruit: ServicesServices account for just 43 per cent of Chinese GDP - well below global norms. Services are an important piece of China's pro-consumption strategy - especially large-scale transactions-based industries such as distribution (wholesale and retail), domestic transportation, supply-chain logistics, and hospitality and leisure. Over the next five years, the services share of Chinese GDP could rise above the currently targeted four per cent point increase. This is a labour-intensive, resource-efficient, environmentally friendly growth recipe - precisely what China needs in the next phase of its development.
Foreign direct investmentModern China has long been a magnet for global multinational corporations seeking both efficiency and a toehold in the world's most populous market. Such investments provide China with access to modern technologies and management systems - a catalyst to economic development. China's upcoming pro-consumption rebalancing implies a potential shift in foreign direct investment - away from manufacturing toward services - that could propel growth further.
EducationChina has taken enormous strides in building human capital. The adult literacy rate is now almost 95 per cent, and secondary school enrolment rates are up to 80 per cent. Shanghai's 15-year-old students were recently ranked first globally in mathematics and reading as per the standardised PISA metric. Chinese universities now graduate more than 1.5 million engineers and scientists annually. The country is well on its way to a knowledge-based economy.
InnovationIn 2009, about 280,000 domestic patent applications were filed in China, placing it third globally, behind Japan and the United States. China is fourth and rising in terms of international patent applications. At the same time, China is targeting a research-and-development share of GDP of 2.2 per cent by 2015 - double the ratio in 2002. This fits with the 12th Five-Year Plan's new focus on innovation-based "strategic emerging industries" - energy conservation, new-generation information technology, biotechnology, high-end equipment manufacturing, renewable energy, alternative materials, and autos running on alternative fuels. Currently, these seven industries account for three per cent of Chinese GDP; the government is targeting a 15 per cent share by 2020, a significant move up the value chain.
Yale historian Jonathan Spence has long cautioned that the West tends to view China through the same lens as it sees itself. Today's cottage industry of China doubters is a case in point. Yes, by our standards, China's imbalances are unstable and unsustainable. Chinese Premier Wen Jiabao has, in fact, gone public with a similar critique.
But that's why China is so different. It actually takes these concerns seriously. Unlike the West, where the very concept of strategy has become an oxymoron, China has embraced a transitional framework aimed at resolving its sustainability constraints. Moreover, unlike the West, which is trapped in a dysfunctional political quagmire, China has both the commitment and the wherewithal to deliver on that strategy. This is not a time to bet against China.
Stephen S Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and author of The Next Asia.

China feels credit squeeze as expansion slows

China factories feel credit squeeze as expansion slows

The manufacturing sector been one of the biggest drivers of growth in the Chinese economy

China's manufacturers have started to feel the effects of the government's policy to reduce credit-fuelled growth in the country.

China's official purchasing manager's index (PMI) fell to a nine-month low, the latest figures showed.
The PMI, an indicator of conditions in the manufacturing sector, fell to 52 in May from 52.9 in the previous month.
Manufacturing is a key contributor to growth in China's economy.
Even though the figure remained above the threshold level of 50, indicating expansion in the sector, the drop from the previous month shows that expansion is slowing down.
"The continued fall in PMI in May, after the drop in April, shows the rising possibility of a slowdown in economic growth," analyst Zhang Liqun said in the report.
Credit squeeze

"There has been a strain on the ability of manufacturers to raise capital”  Michael Pettis Peking University

China has witnessed robust growth in the past few years, in the process going on to become the world's second-largest economy.

However, concerns of overheating and rising consumer prices have seen the government implement measures to slow down growth.
One of those measures has been to tighten the supply of credit.
Analysts say the move is starting to affect growth in the sector.
"There has been a strain on the ability of manufacturers to raise capital," said Michael Pettis of Peking University.
"The majority of the funds that are available in the market are being channelled towards infrastructure development or real estate development in the country," he added