Two Giants — The Rise of China and India

Last time, we saw how postwar Asia rose up from rubble and poverty, achieving growth so striking it was called a ‘miracle’ through export-driven industrialization. Japan ran out in front, followed by South Korea, Taiwan, Hong Kong, and Singapore, and East Asia became one of the centers of the world’s growth. Yet there were two presences that had not yet stepped onto the stage as protagonists of that story.

They were the two most populous countries in the world: China and India. Both possess long histories, and both were once great powers at the center of the world economy, yet they spent most of the twentieth century mired in poverty and inward-looking systems. These two countries, called the ‘sleeping lion’ and the ‘sleeping giant,’ awoke in succession at the close of the twentieth century. Their awakening began to move the very center of gravity of the world. In this chapter, we trace the process by which the two giants began to stir, looking at both their momentum and the shadows left behind.

The Door Deng Xiaoping Opened

After Mao Zedong passed away in 1976, China faced a major turning point. How was it to rebuild an economy worn down by long-running political movements? The one who took the helm was Deng Xiaoping.

It is held that, using the important Chinese Communist Party meeting held in December 1978 (the Third Plenary Session of the 11th Central Committee, the so-called Third Plenum) as a watershed, China made a major turn toward the path known as ‘reform and opening-up.’ Domestically, it introduced a system of contracting out production in the countryside, so that people were rewarded in proportion to how much they worked. Externally, to take in foreign capital and technology, it established special economic zones along the coast. These areas, beginning with Shenzhen, became testing grounds for attracting foreign investment and eventually achieved remarkable development.

Reform and opening-up did not immediately enrich the whole country. Large gaps emerged between the coast and the interior, between cities and the countryside. Regions that grew rich, and regions left behind. That disparity, as a shadow of growth, remains a challenge that Chinese society carries to this day.

To the World’s Factory

Companies from all over the world were drawn to China, which had opened its door. An enormous workforce, and relatively low labor costs. Foreign capital and technology joined with these, and China transformed into a base for producing products for the entire world. The name ‘the world’s factory’ became a phrase used to describe this country.

What decided this trend was its accession to the World Trade Organization (WTO) in 2001. By being formally incorporated into the world’s trade rules, China greatly expanded its exports and drew in foreign investment even more. It was from this period that the words ‘Made in China’ came to be seen on much of the clothing, electrical goods, and toys we handle every day.

The speed of growth was astonishing. Around 2010, it was widely reported that China’s economic scale had surpassed Japan’s to become the world’s second-largest. A country once seen as a poor agricultural nation became, in little more than thirty years, one of the principal players in the world economy—the magnitude of that change fundamentally altered how the world saw things.

India, a Turn from Crisis

Around the time China was racing toward becoming the world’s factory, another giant, too, was about to stir from a long slumber. India.

After independence, India long maintained a system in which the state strongly managed the economy and industries required detailed permits and licenses. This system, in a sense bound by permits and licenses, was often called the ‘License Raj,’ and is held to have hindered the free growth of industry. The turning point came, ironically, in the form of a crisis. In 1991, India fell into a severe shortage of foreign currency and faced a situation in which its ability to pay was in doubt.

In response to this crisis, it is said that, with figures such as Manmohan Singh, who served as finance minister under the Narasimha Rao government, at the center, India embarked on bold reforms known as the New Economic Policy. It sweepingly abolished the industrial licensing system, eased regulations on foreign investment, and took in the forces of the market more broadly. It was the moment a closed economy was opened to the world.

The Path IT Opened Up

India’s growth had a different character from China’s. In contrast to China, which grew with manufacturing at its axis, India’s growth is said to have been led by service industries, represented by information technology (IT).

Behind this, it is pointed out, lay the fact that since independence India had poured effort into higher education in science and mathematics, building up educational institutions beginning with the Indian Institutes of Technology (IIT). An abundance of engineers, and an environment where English was widely used. These joined together, and India drew the world’s attention as a base for software development and for services that took on the operations of overseas companies. Cities like Bangalore (now Bengaluru) came to play a part in the world’s IT industry.

That said, the strides of the two giants were not all brilliant. In both China and India, the benefits of growth were not distributed evenly, and the gap between rich and poor is said to have widened. The burden on the environment, divisions among regions and classes, tensions over the shape of politics. The stronger the light grew, the deeper its shadow also became.

Even so, the fact that the two giants had begun to stir carried a weight heavy enough to redraw the map of the world. Asia, long placed on the periphery of the world, was trying once again to return to the center of the world economy. That sense of anticipation began to appear as real figures. The world’s center of gravity was shifting back toward Asia once more.