Op-Ed Commentary: Chris Devonshire-Ellis
Jun. 10 – As China and India continue to show some of the world’s fastest GDP growth rates, both are also undergoing huge demographic changes. In some ways, there are similarities between the two, yet in others, completely opposite positions exist. Understanding these subtleties is key to working out where future innovation, talent and growth will come from.
In terms of similarities, it is interesting to note that 20 years ago, the average age of a worker in China was 23. That is now the age of the average worker in India today, while the average age of a worker in China has risen to 37. So India’s current young, dynamic, and maybe somewhat undisciplined, workforce is at the same age and in similar numbers to China’s 20 years ago; the very same demographics that propelled China from 11th position in global GDP rankings 20 years ago, to 2nd position today behind only the United States.
While India may be 15 years behind China in its infrastructure development, it has now inherited that worker demographic dividend. Given the right set of policies, India should start to rise along similar growth curves that China has shown over the past two decades.
Also 20 years ago, in China, over 60 percent of the country’s workforce was employed by massive state-owned enterprises. At the time, many of these SOEs were unprofitable behemoths pouring out shoddy products with employees given little incentive to change under the iron rice bowl system. China modified that system and relaxed labor laws, making it easier to offload working staff. Although labor laws were re-tightened a couple of years ago as China’s workforce aged and the State needed to protect pensions and employment, the effect was a reduction in the number of Chinese workers employed by SOEs to around 20 percent today. China, in effect, has a huge latent entrepreneurial class.
But there are problems. While much of the work force has been shed from China’s SOEs – the State’s funding of them has not caught up. China’s banks continue to pour billions of dollars into its SOEs, and are likely to continue to do so as many government officials are far from impartial when it comes to their financial involvement in these same companies. That is bad news for that group of potential Chinese entrepreneurs – they are denied access to funds.