China and India

In late September, Wharton professor Jeremy Siegel spoke at the Stanford Institute for Economic Policy Research (SIEPR). He said: “I believe that growth in the developing world will offset slowing in aging economies and support future equity prices.” In other words, the West’s aging populations must finance their retirements by selling their assets to Third World countries like China and India.

Few deny that China and India’s economic and political power is growing. Yet, many Americans still believe that the 21st century will be dominated by America, just as the 20th century was. Often, they do so for the following reasons:

First, many of us point out that the United States possesses an overwhelming lead in virtually every area of human endeavor: wealth, science, medicine, sport, and technology. In 2006, America’s nominal GDP was $13.2 trillion—far above China’s $2.6 trillion and India’s $890 billion. Of the six Nobel Prizes that were awarded for science and economics in 2006, the U.S. took all six. In the last summer Olympics, the U.S. won 103 medals; China had 63; India, only one. The United States dominates the world in so many fields that we often believe that our lead is insurmountable.

Second, we believe that America has the world’s most powerful military. Our projected military budget in 2007 is $550 billion, exceeding the EU, China, India, and Russia combined. In our last two wars—Afghanistan and Iraq—we toppled the Taliban and Baathist regimes within a matter of months, if not weeks. Like the ancient Romans of Christ’s time who thought their legions and catapults invincible, we look at our million-man army, battleships, and warplanes, and think exactly the same way.

Third, besides America’s material successes, many of us believe that America will ultimately triumph because of what she stands for: a land of opportunity, where all people—regardless of background—are free to determine their own destinies. Conservative columnist Victor Davis Hanson articulated this view in a May 2007 column: “Does any nation have a constitution comparable to ours? Does merit—or religion, tribe or class—mostly gauge success or failure in America? What nation is as free, stable and transparent as the U.S.?” The logic is that America will continue to dominate the world because her values—democracy, liberty, pluralism, meritocracy—make her superior to other nations with less enlightened beliefs.

Hanson then dismisses the entire East with two short sentences: “Try becoming a fully accepted citizen of China or Japan if you were not born Chinese or Japanese. Try running for national office in India from the lower caste.”

To be sure, China and India are not as liberal as we are. For example, India’s caste system remains so pervasive that their leading newspapers continue to classify matrimonial ads by caste, despite government attempts to outlaw class discrimination. Equally, China is hardly as diverse as the U.S. Even its “ethnic minorities”—Manchu, Tibetan, Zhuang, Hui, and Miao—still share the same skin color as their Han Chinese brethren. Unlike America, China and India are not nations where a person of African descent might be allowed to run for president.

At the same time, it is fallacious to judge the East through the lens of American values. Unlike America, a creedal nation built by settlers and immigrants, China and India represent civilizations that don’t need creeds to exist. It would be far more sensible to evaluate the Chinese and Indian systems on objective facts, not subjective values. Unfortunately, in looking at the facts, the future seems grim for American dominance.

How do the Chinese and Indian militaries compare to America’s? The Indian Armed Forces have 1.3 million active troops, comparable to our 1.4 million. China has 2.2 million active troops—not counting their million-strength reserves or their 4-million-strong “paramilitary” forces. China’s air force, armed with state-of-the-art Su-30s, J-10s, and J-11s, is particularly strong, and her growing collection of submarines and destroyers poses an increased strategic threat to America’s fleet, which has shrunk to less than half the size of Ronald Reagan’s six hundred ship navy. Moreover, the Iraq war has stretched the U.S. military—the world’s most expensive—to the limit and cast doubt on America’s will to prevail against a small nation, let alone a great power.

What about America’s enormous wealth—aren’t we leagues above China and India? This idea seems sensible until we look at the numbers. While America’s nominal GDP is still leagues above China’s, our GDP adjusted for purchasing power parity (PPP) is not. The World Bank estimates that China’s 2006 GDP (PPP) stands at $10 trillion, closely behind America’s $13.2 trillion.

Moreover, given that China’s economic growth has averaged at least 10% per annum, it seems plausible that America is at risk of being overtaken economically. At the same time, fuelled by huge U.S. trade deficits, China has accumulated over $1.3 trillion in U.S. dollar reserves as of March 2007, and has channeled hundreds of billions of these dollars into sovereign wealth funds (SWFs) to buy into American companies, most notably the Blackstone Group, our nation’s second-largest private equity firm. India’s economic growth is equally spectacular—it has averaged 8% for the past few years, and according to the World Bank, India’s GDP (PPP) is the world’s third-largest at $4.2 trillion.

Even America’s lead in science is eroding. As of 2006, China produces some 600,000 engineering graduates a year, while India produces about 350,000 and the United States only about 70,000. Moreover, the top Chinese and Indian universities are growing comparable to ours. China’s Peking University, for example, has broken the Ivy League barrier—they have been ranked among the world’s top 20 universities, within the same league as top U.S. colleges like Cornell, Columbia, and the University of Pennsylvania. Every year, Indian Institutes of Technology (IITs) receive 300,000 applications for 5,000 places—an acceptance rate of about 1.7%. To put this in perspective, Harvard and MIT had acceptance rates of 9% and 11.9% respectively in 2007. Within the next few decades, it is conceivable that China and India may win as many Nobel prizes in the sciences as we do.

As Americans, it seems almost unpatriotic to suggest that China and India are catching up with the United States, let alone overtaking us. Yet, the rise of the East is a geopolitical reality that should not be ignored by thoughtful Americans. Together, these two nations pose not just a geopolitical challenge, but also an ideological one: Will the 21st century continue to be dominated by America, a young republic founded on the principles of life, liberty, and the pursuit of happiness? Or, will it be dominated by China and India, two great civilizations that were run for millennia on long-established cultures that influence them to this day?

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