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Review of scenarios for India & China – seven years on

November 11, 2013

In 2006, the Corporation of London commissioned a report on “Scenarios for India and China to 2015: implications for Financial Services”. They were concerned at the impact of India and China on London’s Financial Services

  • Were India and China the same or different?
  • Were India and China a threat or an opportunity?

SAMI worked with Oxford Analytica’s country experts to develop the scenarios. We held workshops in the City of London to explore implications for asset management, insurance and  international banking, and published the report in October 2006. The pdf is on the SAMI web site Under News & Publications.

This blog focuses  on “What were the scenarios and what has happened since?”

We started by comparing China & India, and found that

  • It is a mistake to see them as homogeneous – there are many Chinas and Indias.
  • The dynamics of development apply to China or India as much as they do anywhere else.
  • China or India  can be thought of as a producer, a political power or a marketplace, each raising distinct questions leading to distinct approaches
  • Our approach was – what are these countries going to be like as places to do business, in which to invest, with which to collaborate or compete?

Comparisons between China and India often focus on the similarities in population, and the differences in growth rate. However we found that cultural differences were very significant.

India is a very complex and consensus driven society. The questions were

  • whether  frustration about China’s example of growth, and loss of esteem in Asia, together with a booming new generation with new views would lead to further liberalisation of  economic, regulatory and social controls?
  • How would the balance of power between a federal style of government with localism, and a more centralised system, play out?

The resulting scenarios are shown in the graphic: it has been very difficult at times to track which scenario is developing. However, analysis suggests that the balance of power between the central government and the states has shifted slightly towards central government as India moves to play a bigger part on the world stage viz-a-viz the UN, Pakistan, etc. (For comparison purposes, the central government of India has more power than the US Federal Government.) Also, India is one of the fastest growing economies in the world as a result of liberalization of the last decades, covering manufacturing, agriculture and financial services. These and a number of other factors suggest that India is following the “Elephant Breaks its Chains” scenario.

Nov 11 pic

The big questions for China are

  • how long can China’s rapid economic growth persist? Can China cope with the complexity it is creating? What are the adaptation mechanisms?
  • How will China interact with the rest of the world? Will she be seen as a source of economic wealth and growth? And/or a threat on the world stage, a source of instability?

Since 2006, China’s economic growth has continued (7.7% growth annualised in last quarter), and in fact is less connected to US trade after 2008 as the focus moves more to growing internal consumer markets. China has a foreign policy to protect its interests, with investments in raw materials in Africa, Latin America, SE Asia, ex-USSR countries ,—. It is seen as a source of cyber-crime. Its foreign policy is aggressive in the South China Sea and supports North Korea (shared road bridge).

These and other factors suggest that the “Crane Flies Against the Wind” scenario is closest to a useful lens for thinking about China.

Nov 11 pic 2

This study brought out several lessons in developing scenarios. One was that scenarios need to build on history but not be constrained by the past:  experts can find it difficult  to recognise signs of change when they are steeped in the current or history of a country.

Another was that thinking about the trajectory – how the situation might get from A to B is important for identifying early indicators that might show which scenario was emerging. So for instance, an early indicator of “Elephant Breaks its Chains” was Indian companies off-shoring to lower wage economies.

What the scenarios did was to allow for discussion of previously less explored potential future directions for China and India, challenging the “official future”.

Written by Gill Ringland

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