Batuk Gathani

OBSERVERS OF India and China in Western capitals are often perplexed by the current obsession about these two Asian nations growing share of world trade and expanding economic profiles, which at best are rated as "modest and steady".

According to latest estimates,while India has 7.2 per cent share of global GDP, China has 15.7 per cent compared to the US' 26.4 per cent, and the Euro Zone economies' 19.3 per cent. The heart of matter is that economists are worried about the rising global imbalances and suggest that American politicians, business and industry, should stop blaming key Asian economies and monotonously demanding currency revaluation, especially China's.

Asian observers point out that market forces regulate currency appreciations or depreciations and "artificial" moves by the authorities concerned would have a less desirable impact. Obviously, Asians and Europeans are both concerned and worried over the ever widening and seemingly unbridgeable divide in the US balance of trade deficit and its insatiable capacity of borrowing more and living off low interest credits.

Now, the US current account deficit stands at $529,000 million, Euro Zone's at $64,100 million compared to surpluses reported by Russia and West Asia $160 billion, newly industrialised Asian economies $124 billion, Japan $75 billion, Latin America $72 billion, China $35 billion and India $5 billion.

Asians have also argued that any artificial revaluation of their currencies would trigger deflation. Economist Mr Avinash Persaud, who is also one of the authors of the report, said that even if it was true that high saving rates in Asia were the root cause of growing global imbalances, the US had become addicted to cheap credits supplied by foreigners and withdrawal of the same would hurt the American economy.

The report states that, so far, low inflation, low interest rates and steady yield rates have created a smooth financial environment for the financing of US current account deficit, but there are always question marks about its permanence and even credibility when the US is addicted to cheap borrowing and rising current account deficit.

A sudden rise in oil prices could push inflation or the global economy could face prospects of a "natural and unpredicted" catastrophe. For example, scientists are warning about fast-warming tropical seas and the double rate of hurricanes. The global community has yet to "positively respond " to this challenge and the issue is still academic. Hence, it is often argued in the west that western economies are "better prepared " to withstand such economic or natural surprises.

The west European nations are spending a substantial portion of their revenue on financing welfare states and obviously this has triggered higher taxation. It is often stated that the welfare State system has also initiated wild abuse of the system and many remain permanently unemployed or become unemployable and addicted to living off welfare State handouts.

In the European Union, some 20 million are unemployed or underemployed — almost 9 to 10 per cent of the workforce compared to less than 5 per cent in the US.

According to European observers, the two "awakening economic giants" of Asia — China and India — pose a serous threat to European manufacturing and job prospects, with their rising share of global trade and exports. China, in recent years, has drastically improved its productivity and Chinese manufacturers have also become more innovative. There is an overall quest to modernise manufacturing and Chinese companies are fast moving into foreign markets by buying "sick" European and American companies.

According to informed observers, some 80 Chinese companies are on a "global move" and could make inroads into key Western markets. With over 10 per cent economic growth per annum Chinese companies will not be restricted to trading and manufacturing in the Far East.

China and India are looking to expand their horizons for supply of oil and key metals and China is fast emerging as a major buyer of iron ore and other minerals. India is also intensifying its search for oil and promoting the use of alternative fuels as high prices threaten the country's energy security and economic growth. Both India and China are fast modernising their civilian nuclear programmers to boost their economies and reduce dependence on foreign oil supplies.

Three of China's companies are bidding for stakes in overseas — American, and European — energy companies, while India still has only one — ONGC Videsh.

Rio Tinto Zinc is the world's leading metal and iron ore trading company and, currently, China accounts for 15 per cent of its turnover. According to an India observer, both India and China should have their own Rio Tinto-size metal companies backed by a more determined search for key metals from domestic resources. As an analyst put it: "It is all there, perhaps in abundance but it has to be located, identified and brought into commercial production, and unless this happens both India and China will have a modest global economic profile."

Chinese pragmatism is rated the key motivating factor and Indian companies have yet to "drastically improve" their competitive edge in the global market place and some fear that the Indian IT technology hegemony may not last for ever.

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