When I get the question – “Is India the next China?” – to the surprise of many, I respond with a resounding NO! And the Indians should be extremely happy about that. When most people look at India, they see a ton of people and cheap labor. But once you dive a little deeper, the stark differences between India and China start to appear.
Thanks to globalization, China became the manufacturing powerhouse it is today; India missed the globalization train. So India will probably be just fine when the rug gets pulled out from under the global system.
China’s economy owes much of its success to hyper-financialization due to the government flooding projects with loans and capital. Great for the appearance of economic growth, but wildly inefficient and unproductive. In India, capital availability is low, so the projects that get funding are actually productive.
And finally, my favorite topic, demographics. China is a mess; just go watch my videos on that. India is just now industrializing, so their demography has shifted into the chimney we often see (having the same amount of people in their 40s, 30s, 20s and so on). However, this has happened much later and is proceeding much slower than their peers.
On top of all that, India is geographically blessed with access to food and energy right around the corner. Don’t get me wrong, India has its own set of issues, but they are all on a magnitude lower than what China’s got going on.
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TRANSCIPT
Hey everybody. Peter Zeihan here coming to you from the great golf course wilds of Ojai, California. Today, I wanted to do something that a lot of folks have been asking for a while and talk about India. So this is kind of like half in the demographic series, half on its own.
Lots of folks are always wondering if India is going to be the next China because it’s a big country. It has more people now. It has a faster growth rate. And, you know, it’s a legitimate question, but I have to give it a resounding no. And that is something the Indians should be very happy about. Chinese success to this point has been based on three factors. First of all, the strategic largesse of the United States in creating the globalized system, to allow the import and the export of everything on a global basis without having to first secure territory or sea lanes militarily. This came about as a result of not just the American globalization push after the Second World War, but when Nixon went to see Mao in China and to engineer the Soviet Sino split, which ultimately made China an ally of the United States in the later years of the Cold War. That is what created the manufacturing powerhouse that we know as China today.
Now, the United States have lost interest in that, and the United States sees China as a rival. So the continued existence of the Chinese economic model is dependent upon the ongoing strategic largesse of the United States, which is a very bad plan. And we’re seeing the United States hack out bit after bit after bit. It’s already happened in agriculture and energy, in manufacturing, especially in semiconductors. And the United States has the ability to kill any of this overnight if it should choose to. So the economic future of China is, one, without exports and imports and market access. And I don’t know how they can square that circle.
In the case of India. India never joined the system. India was pro-Soviet during the Cold War, and even when the Soviet system went away, the Indians kind of reflexively remained a degree pro-Russian in the years since. So their system is never internationalized. Now that means they missed out on the big growth push that the Chinese had in the eighties, 19, 20 and 2010s. And that’s why the Indian economy is so much smaller. But it also means that when the rug gets pulled out, India really doesn’t suffer all that much.
The second big piece of China’s success is hyper financialization. The idea that the state confiscates the bank deposits and the savings of the population and just floods would be projects without money, making sure that everybody has a bottomless supply of 0% loans so that everyone can have a job. Now you will get economic growth with this, but it will be wildly inefficient and in many cases flat out nonproductive. The closest comparison we have in the United States is Enron and subprime. We know how that went. Now, imagine doing that for every single economic subsector throughout the entire economic structure, which means when it goes down. And it will go down. You don’t just have a financial and a housing crisis. You have an everything crisis. And the economic sector that has been most exposed, that is most dependent to this capital is agriculture. So you can toss a famine on top of that. This isn’t a problem in India.
Now, the Indians system is capital poor, no navigable waterways of note, very high population per person capital availability in India is among the lowest in the world, lower than most of sub-Saharan Africa. But that means that the Indians actually treat capital like money. It’s an economic good as it should be, as opposed to a political good as it is in China, which can be thrown at whatever you want. So again, you don’t get the growth, but you also don’t get the instability.
The third big factor is demographics. Now, we’ve already talked about China at length in terms of just the hollowing out of the entire system. This simply hasn’t happened in India at all. Now, India has, like everybody else, started to industrialize. And so India has, like everyone else, slowly transition to kind of that chimney demography where they have as many people in their forties as the thirties of their twenties. Those are teens. But the process started a lot later than it did in China, and it’s proceeding a lot slower. And so while India is in the midst of rapid aging, it’s from a very late start, at a relatively slow speed compared to a lot of other countries in their peer group, much less the Chinese, which really are in a category all their own. Which means that India today has plenty of people under age 40 to do consuming and even still have kids. If they can find a way to reverse some of these trends. And that means in 10, 20, 30, 40 years, India is going to have a lot of people aged 40 to 65 who are going to be capital rich and high value add and in a system with one and a half billion people, even if that’s only 10% of the population, and it’s more, that’s still a whole lot going on.
Now, in the worst case scenario, where birthrates continue to shrink and the Indian population continues to age, we are still talking about it still being the world’s largest population for at least another half a century. And they won’t be in a European style crunch for their demographic within 40 years. So even if they do everything wrong, even if everything turns against them, the future of India looks pretty good. And they’ve got one other thing going for them that the Chinese don’t. They’re a lot closer to the things that they need. Australia is a much more friendly nation to the Indians than it is to China, and so there’s always going to be some extra food supply or mineral supply that’s available. And India, the subcontinent is the first stop out of the Persian Gulf.
So India is one of the last countries in the world that you should expect to ever have an energy crisis. Whereas China, is the last country on a very, very long easy to disrupt chain. So all of the normal issues that we think about when we think of India inefficiency, women’s rights issues, what that means for their economic growth, the fact that Pakistan is right there. Now, these are all relevant along with corruption. These are things we should worry about. But they’re an order of magnitude less than the problems that are plaguing China now, and they’re all survivable.
There are solutions that the Indians can come up, and even if they can’t, they can cope with these as they continue to grow. Whereas China, we are very close to the end. Alright. That’s it for me. See you guys next time.
