China, India growth bulls take heart from censuses

BEIJING (Reuters) - Should investors wanting a bet on growth double-down on China, the thoroughbred with an unmatched track record? Or should they take a punt with India, a plodder in the past that has at last started to rewrite the form books?

Both countries have just produced a decennial census, a timely guide to an array of demographic characteristics that are critical not just for their own development but also for global commodity demand and inflation and much else besides.

The good news for India and China -- but not for anyone wanting a clear winner -- is that both can point to powerful population trends that augur well for continued strong growth in the world’s two most populous countries.

“Picking one and leaving out the other would be a high-risk strategy,” said Mukul Asher, a professor of public policy at the National University of Singapore.

“The two countries have very different challenges,” he added. “There is no uniform advantage for either country and, by the same token, no uniform disadvantage for either.”

DEMOGRAPHIC PRESSURES

The censuses confirm that demographic pressures on China are mounting. There were fewer children, but more pensioners, as a percentage of the total population in 2010 than in 2000, increasing the so-called dependency ratio.

The result is an added urgency to create higher-productivity jobs as the labour market tightens.

India is urbanising more slowly than China, but it has a younger population that will not start to turn grey until around 2035, and then only slowly. Its population grew three times faster than China’s between 2001 and 2010, but less rapidly than in the previous decade.

“For India, slowing population growth implies that it will soon see a massive bulge in working-age population, which if employed productively will lead to higher GDP growth,” said Amlan Roy, head of global demographics and pensions research at Credit Suisse’s investment banking division.

MAKING THE MOST OF IT

China’s success in making the most of its own favourable demographic profile is one reason why its per capita gross domestic product is now triple India’s. A generation ago, they were neck and neck.

Take the gender gap in the labour force. In China two out of three women work; in India, only one in three does.

“It makes the effective working population much larger than that of India,” noted Yifan Hu, chief economist at CITIC Securities in Hong Kong.

Beijing also has a much better record than Delhi in infrastructure development and urban management. Almost one in two Chinese now live in cities, where jobs pay better, compared with about one in three Indians.

Both countries made progress in basic education, with the illiteracy rate in China dropping to 4.08 percent in 2010 from 6.72 percent a decade earlier.

Roy said he was encouraged by a jump in India’s literacy rate to 74 percent in 2010 from 64.8 percent in 2001. The gap between male and female literacy also shrank.

“But India still lags behind China and has a long way to go,” Roy said, noting that only 10 of India’s 35 states and Union Territories had reached the 85 percent literacy target set by the Planning Commission to be achieved by 2011-2012.

EDUCATION

A better-educated workforce is crucial for China to ease the impact of an ageing population on its job market. A shrinking supply of surplus rural labourers is already pushing up migrant workers’ wages sharply, raising the prospect of higher export prices that could feed into inflation worldwide.

Chi Sun and Tomo Kinoshita at Nomura in Hong Kong took comfort from a leap in the number of Chinese with high-school education or above to 307.6 million in 2010 from 143.9 million in 2000.

“This should support total-factor productivity, which China needs in order to keep a lid on unit labour cost growth,” they said in a report.

Ting Lu, Bank of America Merrill Lynch’s chief China economist, agreed that a more qualified labour force, along with a stress on innovation, would cushion the blow to growth from a decline in the number of young workers.

But he said the census data still supported his view that Chinese growth would slow from double digits in the past decade to an average of 8.6 percent a year in 2011-2015 and 7.0 percent in 2016-2020.

Demographic trends, then, demand attention. But Asher, the Singapore professor, said what really counts is how a society copes with the changes. A greying society is not condemned to stagnate: Western Europe rose to prosperity in the second half of last century even as it aged, he noted.

“The economic performance and social cohesion of a country will depend on how it anticipates demographic trends and adjusts to them,” Asher said.

“Both India and China have vast areas of their economies where they are far from utilising the current state of knowledge in the world. If they can use that to improve, there is no reason why ageing is going to impact adversely on their quality of life,” he added.