India Outsmarts China

The economic race between China and India is changing the way the world does business. By 2050, it is estimated that these two Asian heavyweights will account for nearly half the world's gross domestic product, up from just 6 percent today. But whose model is better, China's low-cost factories or India's low-cost financiers? For all the benefits of China's swift rise, India's brain power will finally give it the tools to catch up.

BY DIANA FARRELL | JANUARY 4, 2006

Reaping the Benefits

China's explosive growth has delivered new prosperity to millions of its citizens, whereas India's advance has been more gradual. In China, massive public-works projects and a strong manufacturing sector have so far been a successful recipe for jobs, making its population nearly twice as rich as India's.

Creature Comforts

China's wealth has brought the trappings of middle-class life to a new generation of urbanites. The average Chinese city dweller owns a television or two, does laundry with the help of a washing machine, and stays connected with a mobile phone. India, lacking China's knack for producing cheap consumer goods, is still playing catch-up.

At Your Service

Manufacturing is not a stable source of job growth -- not even in China, which has already shed 15 million manufacturing jobs in the past decade. That's why India's economy, half of which is made up of service-sector companies, is growing smarter. Indian businesses plying advice in medicine, technology, and finance will continue to grow steadily over the next decade, while China's vaunted manufacturing and construction booms will wane.

The Right Stuff

India is not only producing more young professionals, it is producing better qualified ones, too. According to a survey of local recruiters, only 10 percent of China's engineers have the skills necessary to work in a multinational corporation, compared to 25 percent of engineers in India. By 2008, India's total pool of qualified graduates will be more than twice as large as China's. If India's universities continue to churn out top-notch talent, its younger, cheaper, and larger professional workforce could help India edge out its neighbor to the east.

 

Diana Farrell is director of the McKinsey Global Institute.