China is All Set to Become World’s Largest Economy: What Does it Mean to India?

According to the data compiled and released by the World Bank under its International Comparison Program about the gross domestic product in purchasing power parity terms reveals that the US is likely to lose this year its preeminence as the largest economy of the world—a position that it is enjoying ever since it usurped it from the UK in 1872—to China.  

What does this inexorable emergence of China as the largest economy in the world that too, sooner than widely expected, mean, particularly to India? First things first: during 2011 the US remained the world’s largest economy, but was closely followed by China with its GDP standing at 87% of the US, and with IMF expecting China’s economy to have grown 24% between 2011 and 2014 as against the 7.6% achieved by the US during the same period, China is expected to overtake the US as the largest economy of the world.

This change is all set to dramatically alter the world’s economic landscape. Along with China, the importance of middle-income countries—such as India that is likely to become the third-largest economy in the world, and Russia, Brazil, Indonesia, Mexico that are expected to occupy the top 12 in the global largest economies—swells up in the management of global financial institutions such as the World Bank and IMF.   

That aside, this kind of a ‘sorpasso’ by China—with reserves of $4 tn, exports that are 14% higher than that of the US—is certainly to be treated as a ‘wake up’ call to the world, particularly to the US hegemony. There are however, Pundits who prefer to brush it off as a mere accomplishment of a statistical milestone by China that too, confined to the economy and nothing beyond. This school of thought therefore asserts that China cannot step into the shoes of the US. Even economically, many thinkers prefer to treat China as still a developing country. For, China’s per head purchasing power places it at 99^th position in the world. In per capita terms, the US is five times richer than China. To cap it, China’s financial system is saddled with many owes—the challenge of exiting from a gigantic credit boom is still an issue for China to tackle.  

As against this, the US financial markets and its financial institutes continue to be at the center of the global financial system. Even today, they exert tremendous influence on the global trends—both in financial behavior and its regulation. Secondly, technology is another factor that gives remarkable power for a country to exert influence on the world economy. On this score, Chinese companies are far, far away from not only the US corporates, but also that of Europe and Japan.  The US is indeed, the home for the world’s leading institutions of higher learning with an unmatched scientific base of its own.  All this cumulatively keeps America still as the influencer of the global affairs. 

Militarily too, China is no match to the global clout that the US enjoys. True, China is heavily investing in its armed forces but it is no match to the stock of hardware and technological prowess that the US owns. Indeed, the annual defense budget of the US is three times that of China. That aside, China, being not a democratic state, has no attractive political system of its own that is good enough to enable it to influence global opinion. On the other hand, the commitment of the US to the ideals of freedom and democracy makes it much more attractive to much of the world. Over and above all this, China’s historic culture is far more alien to the world than that of the US. Thus, there is much to be done by China before it can really challenge the global hegemony of the US.  

At the same time, paradoxically, the US too is not in a position today to address the vast challenges that the world is facing—in tackling the emerging countries’ demand for increasing their representation in the global financial institutions, managing climate change, finishing the trade agreements, etc.—more out of its own domestic compulsions. Unless, America reinvents its spirit of enlightened self-interest that it exhibited during Cold-War phase, it cannot engage the countries to negotiate for a better outcome that would benefit both the world and itself. In short, what the analysts are arguing about is:  it’s not the China’s ‘sorpasso’ that could replace the US as the global influencer but its own very policies. For instance, in his recent tour through Asia, President Obama gone to extraordinary lengths to let China know that his mission to allies of US was in no way aimed at Beijing , while America’s partners like the Philippines need reassurance from him as they feel threatened by China. An irreconcilable dilemma!

Coming to India, China’s economic might cannot be brushed aside, as in the case of the US, that casually. Certainly, it is not that insignificant for India. As we have almost lost half-a-decade with no growth to gloat about, China has already become the biggest exporter, biggest manufacturer, and biggest carbon emitter and by 2030 its economy is predicted to be larger than that of Europe and the US combined. All this economic clout has already emboldened it to heighten its friction with Japan over the Senkaku/Diaoyu islands and with Vietnam, the Philippines and others over the South China Sea. China did air its displeasure at India entering into an agreement with Vietnam for oil exploration in South China Sea, without, of course, naming it. What does all this mean?  China’s ‘sorpasso’ is certainly a wake-up-call for India!  Which is why, at least the new government should focus its energies on how to make India a better equipped nation to counter the regional hegemony of China with no further loss of time.