India-China Strategic Dialogue Revolves Around Indian Infrastructure Development

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BEIJING – India and China have been holding their third round of the joint Strategic Economic Dialogue in Beijing this past week, with changing demographics in both of these two Asian giants dictating future collaborations.

While China has apparently steamed far ahead of India in economic and development progress the past two decades, much of the reason for this has been China’s ability to exploit its demographic population dividend. Simply put, over the past twenty years China has had a large, young and available workforce coupled with a minimum number of dependents for each worker. India has had an older workforce during this period, with the additional burden of having to cater for more dependents per worker. That demographic is now shifting – fast – as China ages and India increasingly adds young workers to its labor pool.

As an indication of this turn around in demographic fortunes, China lost 2.7 million workers last year. India gained 7 million. The age demographic is now clearly heading in India’s direction. The upshot for China though is that as its population ages, and wages increase – a new middle class consumer base is concurrently being developed.

With a middle class population today of some 250 million – roughly the same as India’s – the difference between the two countries lies in the rapid expansion of the Chinese middle class. India’s will remain static for the foreseeable future, while China’s by contrast, is set to explode to 600 million over the next seven years. That is the equivalent of consistently adding to the population a new middle class consumer base of 58 million each year – about the size of the entire population of the United Kingdom.

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This is, of course, great news for manufacturers, including Indian, who are eying up access to this huge Chinese market. But it conversely also creates headaches for the Chinese one party state. With no meaningful social welfare state to fall back on, China needs to rely on filial piety amongst the young to support its aging population. That middle class, elderly population of 600 million also needs access to affordable products across all sorts of markets. A failure to supply its own population with such will create anger amongst the Chinese population, yet with domestic manufacturing costs increasing, China needs to look elsewhere for such commodities.

An obvious answer is India, whose population dividend and inexpensive labor force is almost tailor made for the task. A problem? India’s continuing struggles to adequately invest in its creaking, or is some cases, non-existent infrastructure. Building the new India in terms of required infrastructure developments is estimated to cost about US$1 trillion. China, meanwhile, has provided a solution – financing a whopping 30 percent of that total requirement. Accordingly, the Strategic Dialogue has been concentrating on areas where assistance from China could best be utilized.

Having established five working groups within the dialogue, talks have indeed concentrated on infrastructure upgrades in India, covering areas like railway, IT and heavy haul development, as well as operational agreements for service centers to be set up in India for Chinese power equipment. The agreements also highlighted environmental and resource protection through water management and policy coordination.

This new attitude of cooperation and economic funding by China towards India is borne out of practical political necessity. China needs India’s workforce. Without it, that increasingly demanding Chinese population, requiring everything from cheap healthcare to autos to everyday utensils, will become more outspoken and disenchanted if the Chinese government cannot provide them.

While China may have been the workforce for the world, India is now on target to become the shop floor for the new Chinese consumerism. The developments within the India-China-Strategic Dialogue would seem to indicate that those demographic changes are set to usher in a new era of commercial and economic collaboration that may well yet kick start the Indian economy to a return to 7-8 percent growth rates, just as China slows.

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