Most of us still look at China, the world’s second-largest economy, as the undisputed leader among major developing countries. In the long run, however, I’m betting on India to emerge as the more significant global economy.
Those who are dazzled by China often forget that much of the rapid growth before 2008 was caused by the shift of global manufacturing from Europe and the US, not by domestic-oriented activity. China’s economy remains export-driven, with consumers accounting for only 38% of gross domestic product, far below the levels of many developing and developed countries.
Chinese leaders are working to shift toward a more domestically directed economy. They want households to spend more and save much less than the current rate of almost 30%. One of the reasons that savings play such a big role is the high value Confucian society puts on providing for one’s family. The Chinese also save to pay for education for their children and to cover health care and retirement costs because there is no equivalent of Medicare and Social Security.
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