India & China : race against or race with?

This is my second blurb on the same topic after last post on GDP comparison; hopefully we will find something different this time. Having compared the GDP as a whole, let's look at the breakdown of GDP of both countries. The figures below show that china's GDP growth engine is different than that of India. While China shows tremendous growth at the Industry sector, India's growth hero is services sector. China's industrial production saw so much rise that it is seen as the one of largest exporter in Asia today. Compared to that India's growth is propelled by internal consumption [IT services contribute merely 5-6% to India's GDP]. North American companies are the first to recognize this pattern and take advantage thereof. How? In this decade, many of the large North American equipment manufacturers have moved their manufacturing base from US to China [beside Malayasia] and equal number of them moved their Backoffice processing service to India. In short, it is amply clear that US is seeing India and China complementing each other here.

Now let's look at China and India's export scenario. Here we have a graph of relative size of bilateral trade between two countries. India's export to China has been lower-value component like mineral ores, cotton yarn and fabrics whereas China's export to India is more oriented towards finished goods, like electronic machineries, toys, etc. China is taking advantage of its mass-scale production capacity. Evidently the trade-deficit is huge from India [presently it stands at $4 billion]. Something needs to be done and both the govts are aware and working towards it as stated  by Nirupama Rao during her last diplomatic visit to China. India needs to find some niche in high-value export but it has to be something very different than what China has been building its strength on. But I bet both the Govt would be interested to find the complementing position that being in loggerhead. None would ignore the growing business volume between two countries.

Percentage of working population is another factor that is considered huge infleuncing parameter for GDP growth. Japan's one of the problem is its large aged population. Compared to that both India and China have a large working-age population [look at the figure below]. That undoubtedly is one of the great advantage for India [within next 15 years, India will cross China's population] and will continue to be so for next 2 decades.

As a corollary to that, India's credit growth is going to explode. As per the following data, India's credit ratio is much lower compared to China [Indians are known to be conservative people]. In other words, as the economy grows, as more and more people become economically 'confident', they will push the growth of the economy and fact is both China and India have lot to gain by complementing each other than fighting each other. In other words, the way to go forward is to race with as opposed to race against, however we dislike the concept. The latest WTO session showed that both the country understand that aspect very well.

As per the Goldman Sach's projection, India and China combined will become the largest economy bloc by 2050 [http://en.wikipedia.org/wiki/BRIC]. They claim that India is going to be 40 times bigger than its present size.

But a lot of it depends on how the governance play in next twenty years but let me keep it for future deliberation.