China and India — The New Growth Engines of the Global Economy?

While the leading industrial nations are still recovering from the consequences of the global financial crisis, China and India are already boasting very high growth rates again. In the third quarter of 2009 China’s economic growth was 10.7 percent; India’s was 7.9 percent. Both countries are again being portrayed as the growth engines of the global economy.

Analysis

Despite their impressive economic successes, China and India face the following social and economic challenges:

In the context of the economic growth, poverty in the two countries, particularly in China, has declined significantly. However, disparities have increased in both China and India.

• High and increasing disparities in income and public goods such as health and education could trigger societal conflicts and endanger social stability. In addition, unequal access to education could hamper human capital formation.

• The migration of the rural population to the cities is bringing about not only positive income and learning effects in both countries, but also considerable burdens on infrastructure and social security systems.

• Both countries are confronted with major environmental challenges, which threaten economic growth. Environmental policy measures often fail due to a lack of implementation at the local level.

• The inadequate expansion of infrastructure continues to be a barrier to growth. This is particularly true of India and the rural areas of China.

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