Surely the argument is more complex than that…I think what is being asserted is that for China to sustain the type of growth it has enjoyed so far means fixing things like introducing the rule of law, a democratic process and a healthy financial system. Yasheng Zhang and Tarun Khanna are arguing that these things - unlike the type of reforms China has carried out so far - cannot be fixed easily and since India does enjoy these things (well, at least more so than china currently), they can translate into competitive advantage over the “long run.”

As usual in these discussions, things have got mixed in with nationalistic feelings. What is interesting, however, is not so much whether “India will overtake China” but the idea that there are institutional constraints to growth. Since neither India nor China has “perfect” institutions, this is an issue of concern to both countries. It would be nice to examine what exactly are the institutional constraints to growth in India.

Personally I would say the ability of India to stay together and democratic for so much of its history is an accomplishment as great as any in the modern world. Indians often complain about corruption….all countries have corruption even at the highest levels. I would say that the leadership in India is actually quite scrupulous. Noticeably most new democracies in the last 50 years have collapsed due to violence…while in India transfer of power has remained fairly peaceful, which if you think about the neighborhood is an astounding achievement.

I suggest you check your stats on literacy. Literacy of those under from 10-18 is something like 85%(from census). Literacy of people over 40 is like 45%. In twenty years there will be a monstrous jump in literacy. In addition many many Indians are literate in more than one language. The linguistic talent in India is unique, and a source of wealth in itself.

China overproduction: China’s economy is fundamentally flawed in that it is based on investments/exports in the manufacturing sector. India’s is based primarily on domestic demand. It is service oriented. Now go compare China, India and the US in service/manufacturing distribution. India is much closer to the US model. China’s advantage in manufacturing is inherently limited by labor prices. China will have to increase worker wages or risk rioting due to the rise in income inequality. Its advantage therefore is short lived, while India and its knowledge-based service economy is better poised to handle growth.

I see China as a grand gamble by the communists. The previous poster must realize that China will not transform to a democracy quietly, it will be chaos and a probably blood-bath. To survice intact, China must raise wages and keep up growth at the same time. It must ensure that unemployment does not rise to levels it cannot control. There is the impending gender gap of 30 million surplus males in the next five years.

On the other hand India has built a vibrant democracy that has stood the test of time. No doubt it has paid for this freedom with a lower growth rate. The creation of long-lasting institutions of democracy is an expensive, but beneficial, investment. China will have to make this investment at some point or face unimaginable problems. The question is, how much will it cost?

What makes you so sure that China won’t also become a democracy 50, 100 years from now? Look at Taiwan and South Korea.

It doesn’t matter that China’s median age will be higher than India, when China’s youths are FAR MORE educated and healthy than the average Indian youth 20 years from now. China’s productivity will increase regardless of its aging population. Female illiteracy rate in India is over 50%!!! One in 2 Indian children under 5 years old today is MALNOURISHED. You think malnourished Indian children can compete against Chinese children who go through 12 years of public schooling?

Most of westerner’s impression on China’s banks are based on that from 5 year ago. Things have changed a lot since then. China’s banks’ bad-load rate has been reduced to 8.9% from the double-digit figure just 2 years ago (still high but improving fast). Do you know the world’s last year (Year 2005)’s largest IPO is from China Construction Bank ($8billion)? Before this summer, another big bank, Bank of China, will file the IPO. Then China’s largest bank, China Industry and Commercial Bank, will do the same thing. At the same time, almost all western banks and financial institutions are injecting funds to China’s banks because China will open her Banking sector by 2007. This will largely raise the local banks’ managerial skills and competitive ability. Overall I feel the Chinese banking sector’s future is bright just as other sectors through these years.

The birth control policy and median age issue are very controvercial. When I was in India, I learned that some Indian states also carry out two-children policy (i.e. Andre Pradesh). On the other hand, China has already loosed its birth control policy and in many areas, families are allowed to have more than one child. So I don’t think this will be a factor to affect the China’s economy after 20 years.

At last, China is a capitalist country now. Some westerners say it’s a hyper capitalist society. US president Bush says it’s “Very capitalistic” (which I personally don’t like it very much). And China’s top-down system is also debatable but it has been successful for over two decades. So I couldn’t see a clear reason why China will collapse as you guys always say. And this is the same as I couldn’t see a clear reason why India will collapse, though India may have a higher risk suffering some social and economic crisis.

I don’t care how fast China grows,but if it continues disrespect capital it will eventually collapse, not withstanding the communist party pontification about chinese future glory and like such..