The government was right to go to India to carve out a new relationship based on the changing balance of economic activity and power in the world.
The world Stock market index still reflects the world as it was in the last century. The USA is dominant at 42% of the total, the EU next with 27%, whilst China has just 2% of the total value and India 1%. This is the comfortable world of old fashioned diplomats, who want the UK to cosy up to the US superpower in a special relationship, and strengthen her links through the EU with the continent.
It is a very different world from the one we see based on population. China with 19.5% of the world’s people and India with 17.3% each dwarf the USA with 4.5% and the EU with 7.3%. Both India and China have more people each than the total in both the USA and the EU . Taken together, India and China have three times as many people as the USA and the EU combined.
As the Indian and Chinese economies grow at three times the rate of the EU and USA, their GDPs are catching up fast. All the time most of the people in these two large countries were poor, and all the time China was an inward looking communist state keen to keep out western influences, the west could proceed on the assumption that it was dominant. Today it looks very different.
At current exchange rates the US accounts for 24.6% of world economic activity and the EU 28.3%. In contrast China commands 8.3% and India just 2.1%. In conventional GDP terms the USA and the EU still account for five times as much world output as China and India.
However, if you examine the origin labels of products in many shops in the UK today, you get a rather different feel. So many of the products have made in China or other parts of Asia on them. You have to ask, do these overall output figures reflect accurately the new reality? Attempts to allow for different price levels and for undervaluations of eastern currencies produces so called purchasing power parity figures for world output. In these figures the US has 20% of the total, the EU 21%, China 13% and India 5%. These are nearer to the truth, with India and China approaching half the level of output of the USA and the EU. In some industries China is now dominant, and determined to achieve the same in a range of other areas where the west and Japan were once unchallenged.
My feeling is that India and China will continue to outpace the west and these figures will continue to change rapidly in their favour. That is why we need to reorient our economic and diplomatic thinking. Asia has the people. She now has a lot of the world’s money. Europe is mired in slow growth and population decline. The future lies in the east.