Bangladesh, India, and Taiwan, And its happening across consumer categories, including clothing, footwear, furniture, and various goods,. And that is only the tip of the iceberg in this story. With A massive population, a booming economy,, and rapid industrialization, many experts over the past few decades predicted that China would soon overtake the United. States.

But, as the years have gone by,, China got stuck in the mud while India pushed forward. Sure, India isnt there yet. It still struggles with poverty, corruption, and social inequality issues,. all that is true.

But, its long term trajectory is absolutely incredible. What used to be a poor, slowgrowing country now has the fifthlargest gross domestic product and one of the fastest growing economies in the world. With A population of over 1.4 billion people, a strong tech industry, a growing middle class, and terrific demographics, India is entering the next decade as a major force to be reckoned with, while China is heading in the opposite direction.. So How did China manage to lose its edge? And As importantly,, how did India managed to dig itself out of a hole into the fast track to success.

Lets Start with: China. Since I Can remember myself, China was always the most populated country on earth. However, being this big, was not always a good thing for this 1.4 billion people nation. It had to endure some serious hardships.

The Worst of it came 65 years ago. In 1950 Chairman Mao Zedong launched the "Great Leap Forward," an ambitious plan aimed to quickly industrializee and modernizee China's economy. The idea was to push forward agricultural and industrial development at the same time. That meant forming state owned and managed communes, which would combine several hundred households into a collective unit.

These Communes started using primitive backyard furnaces for the production of steel and other industrial goods. At The same time, they started building irrigation projects to increase agricultural productivity. The Idea was simple, a complete mobilization of the entire population of China to work towards the common goal of improving the industrial and agricultural infrastructures overnight. This was an adaptation of the Russian Kolkhoz system from the late 1920s, with a twist.

While The Kolkhoz system focused strictly on agriculture,. the Chinese plan was aimed to achieve instant agricultural AND industrial development, at the same time, and do it quickly, And that is where it all fell apart. While The Kolkhoz system in the Soviet Union lasted for several decades,. the Chinese system fell apart almost immediately.

The diversion of resources away from agriculture to industry caused widespread famine in China that killed tens of millions of people. However, by the late 1970s, things started to turn around for the better. After Mao Zedong's death in 1976, Deng Xiaoping started to loosen up its policies. The Concept was to open up Chinese economy to market reforms known as the "reform and opening Up" policy.

The Reforms abolished. Maos Centrally planned economy towards a somewhat free market-oriented economy, with private ownership, foreign investment, and the development of export-oriented industries. It Worked. China grew faster than anyone has ever seen before.

Its gross domestic product growth between 1990 and 2010 was consistently near double digits, and it seemed to be destined for greatness. Having The worlds largest population, along with the Deng Xiaping economic reforms, made China an incredible success story. And As the Chinese economy grew at this staggering pace, it quickly became the worlds 2nd biggest economy behind the United States and a serious counter power to challenge America for the first time since the fall of the Soviet Union. Investments in its technology, military and infrastructure pushed the Chinese economy ahead at an unrivaled pace, all while increasing its geopolitical sphere of influence through programs like the Belt and Road Initiative in Africa.

Things were going, and many economists and financial experts started predicting that China will not only challenge the United States, it can actually overtake it and become the number 1 global superpower in the world. There was only one problem, China Never had a chance. Remember Deng Xiaoping, the guy who opened up the Chinese economy and started its massive economic growth cycle? Well, He also made a critical mistake that would end up dooming China, 40 years down the road. During The late 70s, Chinas growing population began to strain the country's resources and infrastructure.

To Address this problem, Deng Xiaoping implemented the One-Child Policy, which was introduced in 1979 and lasted until 2015. The Basic principle of this rule was to limit most urban couples to having only one child. Couples who failed to comply faced harsh fines and other penalties, such as the loss of government benefits and job opportunities. There is a story in China about a couple who decided to pay the fine to have a second child, hoping that it would be a boy.

However, they ended up having a girl and named her "Fei Hong," which translates to "color TV" in English. The Couple reportedly chose this name because they had saved up a lot of money to purchase a color TV, but ended up spending it on the fine for their second child instead. They saw their daughter as a "replacement" for the TV they had hoped to buy. The One-Child Policy had a significant impact on China's demographics, as it led to a significant decline in the country's birth rate and slowed population growth.

However, it also created a number of unintended consequences, including a gender imbalance. Many families preferred to have boys and resorted to sex-selective abortions or sometimes even worse things, to achieve this goal. As A result of the One-Child Policy, China's fertility rate decreased dramatically. In 1980, the fertility rate was 2.8 children per woman,, but by 2010, it had fallen to 1.6.

For A population to stay the same size in the long run, each couple needs to have 2,1 children on average. That is called the replacement rate,, which is a measure that predicts the future population growth or decline of a country based on the fertility rate of women. Each Child replaces each parent and 0.1 children replace babies that pass away during birth. If The replacement rate is below 2.1, It indicates that the population will eventually decline over time.

For The past 30 years, China had a replacement rate of 1.2 children per couple, which is well below the minimum replacement rate. How Bad is it? Well, in 2022, China actually had more deaths than births, for the first time since the 1960s famine which killed tens of millions of people, which should give you an indication of how bad things are getting.. With Fewer children being born and therefore, fewer young people entering the workforce,, China's population has become older, with a larger proportion of elderly people and a smaller proportion of young people. The Imbalance in Chinese Family demographics is commonly referred to a 4-2-1 family structure.

The Term 4-2-1 refers to a family structure in which a single child is responsible for supporting two parents and four grandparents as they age. When The burden of supporting multiple elderly relatives is falling on the only child, and given the fact that with every year going by,, there are fewer young people to support the aging population in China. The End result is clear.: The Ability of these young people to carry the load will keep diminishing every year, until their inevitable collapse. Not To mention the other common issues with an increased aging population, such as elevated costs of healthcare and social welfare for the government, and with population getting older, this issue is only getting worse.

To Address this issue,: China has abandoned the One-Child Policy in 2015 and implemented a wide array of policies to increase childbirth, but it did little to change its trajectory. Although The policy was cancelled,. many couples who grew up under the policy have adapted to the idea of having only one child. Especially As the cost of living in China risen sharply in recent years, especially in big cities.

The One Child policy have left a lot of long-lasting scars on Chinese culture. The One child of the family must make it count. So, young Chinese professionals have become more focused on pursuing careers and education over having kids. Personal fulfillment and career goals are simply more important than having kids in this reality.

In 2020, the Chinese government announced that each couple should now have three children,, but that ended up in a major embarrassment. More Than 30,000 respondents to a an online poll from state news agency China, overwhelmingly said they werent considering having more than 1 child, even with this new policy. The poll was soon deleted. The Birth rate in China fell to a record low of 6.77 births per 1,000 people, down from 7.52 just in 2021 and the lowest level since 1949, despite a push from the government to encourage more married couples to have children..

High Costs of living, unstable pensions, an extremely competitive workforce, and complete gender inequality in the workforce, simply disincentivize Chinese women from having children. The Chinese Population actually shrank in 2022,, the first time that happened since the Great Famine in 1961.. According To estimates by the United Nations, by the year 2050, China's population is expected to decline even further, dropping around 9% from current levels. In 1978, Chinas median age was 21.5 years.

In 2020, the median age climbed to 38.5 years, with 20% of Chinese being 60 and older.. According To the National Bureau of Statistics of China, the working-age population was around 900 million, which is 63% of the total population, And as China's population continues to age,, this trend will only intensify.. And While the United States also struggles with aging population,, Chinas situation is significantly worse than the U.S. According To data from the United Nations, by 2050,, China's population aged 65 and over will be a quarter of the entire Chinese population.

In Comparison,, the population aged 65 and over in the United States is expected to only be one fifth of the population by 2050. The Thing is,, the U.S. has a get out of jail free card, and China doesnt.. The U.S.

can periodically improve its situation through immigration. America is a preferred destination for skilled workers and professionals from all over the world.. These Young workers boost the labor force, stimulate economic growth, and offset the declining birth rates in the U.S. China is in a very different position, for one simple reason: it lacks the ability to attract young, skilled immigrants,, and unlike the U.S., it cant alleviate its demographic hardship by opening the doors and letting workers in..

With Every year going by,, the pressure on the Chinese social welfare and healthcare systems is increasing, all while economic growth and productivity keep declining. Simply Put,, with fewer working-age people to support the growing number of elderly people in the population,, a collapse is just a question of time,, and the numbers show exactly that.. Between 1991 and 2010, China's GDP growth accelerated at an average annual growth rate of more than 10% per year. But Its economic growth has been slowing down in recent years.

In 2019, well before the pandemic,, China's GDP grew by 6.1%, the slowest pace in almost three decades. In 2023, China's GDP is expected to grow at a pace of around 5%, a far cry from the double-digit growth of the previous decades. Why Is this happening? As Anything in life, its a mixture of multiple factors. Obviously, the demographic challenges play a big part here.

Trade Tensions with the U.S. are not helping as well. An Increasing intervention and control by the Communist Party, as well as political and military instability, are also scaring away foreign investors, and the potential of war in Taiwan isnt helping. Another Important factor is increasing labor costs in China.

You See,, China's economy heavily relies on manufacturing, which makes up around 30% of the country's GDP. However, the declining population in China poses a significant challenge for the manufacturing sector. With A shrinking workforce and an aging population, manufacturers are facing difficulties in finding enough skilled labor to maintain their capacity. This labor shortage is driving up wages,, which is leading some manufacturers to relocate their production to other countries, which will eventually lead to slower GDP growth.

Over The past decade, the Chinese average monthly wage grew by almost 120%. The Average annual salary costs in China are now around $17,000. Compared To countries like Malaysia with $8,500 dollars and Vietnam with $3,500 dollars,, why do you think this shoe was made in Vietnam and not in China? Simple - China is just too expensive and investor interest is pushed towards other markets. Despite Being a hotspot for foreign investments since the 1980s,, increased Labor costs have driven away investors from China.

How Bad is it? Well, Foreign Direct Investments into China over the past 3 years are down across all sectors. Food and financial services are down by 66% and 63%. Electronics are down by over 56%, software and IT services are down almost 50% as well. Industrial investments are down by 56%, while business and services are down by 42% in that period.

Vietnam has taken the biggest bite out of the Chinese manufacturing capacity so far, with an almost 360% increase in far-distance trade since 2014, but it is not the only one. Malaysia and Bangladesh have also taken significant apparel manufacturing away from China. China has boxed itself into a corner. High Labor costs were already an issue before the pandemic, but disruptions in supply chains and the Zero Covid policy drove companies to pull the trigger and look for other sourcing geographies outside China, especially with countries like Vietnam, which is physically close to China and allows for much cheaper labor costs.

So What did we have here as far as China goes? Shrinking And aging population, increasing labor costs, strict currency controls, angry neighbors, tough to defend geography, lack of energy independence, and a totalitarian regime with no actual rule of law or due process, these are great ingredients for the Chinese economic decline. On The other hand, India, is a whole different story. The United Nations is now predicting that Indias population is projected to surpass Chinas sometime in 2023,, and some experts are even saying it could happen within the first half of this year. In Fact,, Indias population is expected to get to 1.7 within 30 years,, while China is expected to go below 1 billion by the end of the century.

With A labor force of 1 billion people by 2030,, a median age of just 29 years old,, and with 40% of its population under the age of 25,, India has the world's youngest and fastest growing workforce.. The Indian economy has been growing at an impressive rate in recent years. While Europe and the United States are expected to grow gross domestic product by 1-2% In 2023,, India is headed to 6.5% growth this year,, which is even higher than Chinas expected 5% growth in 2023.. While China's aging population and shrinking workforce is slowing down its economic growth, India is only getting warmed up.

In Essence,, China is the elevator falling from the 50th floor, while India is the elevator going up from the ground level. In 2022 India overtook the UK as the worlds fifth biggest economy with a gross domestic product of over 3 trillion dollars, and the trend is only getting stronger. According To a report by Ernst & Young, India's merchandise exports are projected to grow to $750 billion by 2030,. That is a 160% increase in exports from its current levels in less than 10 years.

India's population is projected to continue keep growing for decades, providing a large pool of skilled, educated and English speaking working age population for its growing economy, including high end professional services that nobody ever thought could be provided out of India. During My tenure as a Senior manager for Deloitte, one of the worlds largest consulting and accounting firms,, I saw how this process has already started forming. This is big business. The US Accounting services industry generates about $130.5 billion in revenue every year.

US Companies are audited by US accounting firms, and that is how it always worked, until now. Deloitte actually opened a local subsidiary in India, to do just that. Its called Deloitte USI, as in United States India, and its 50,000 employees, provide highly specialized accounting, compliance and advisory services, based on U.S. laws and regulations, to U.S.

clients from India, at Deloitte quality, but local India prices. And This is just the start of multiple service lines migrating into India in the next 30 years. For Example,: Apple is now planning to shift around 25% of its production capacity from China to India over the next couple of years. Samsung already operates the world's largest mobile phone factory in India.

The factory is spread over 129 acres and has the capacity to produce up to 120 million mobile phones per year. However, its not all about the size and age of the population in India. There are equally important factors in play here. You See,, despite its many problems,, India is actually a democracy with less capital controls, more transparency, and an independent judiciary system.

These Things attract foreign investments to India. Google significantly increased its presence in India over the past two decades,, and with plans to invest $10 billion in India over the next five to seven years,, this trend will only continue. Amazon also expanded its operations in India, with the company investing billions of dollars in its Indian operations and launching several initiatives aimed at supporting small businesses and local entrepreneurs. Coca-Cola is another company that significantly increased its investment in India in recent years.

New bottling plants and distribution centers have been built, and further investments are in the works. The list goes on and on, with names like Apple, Samsung, General Electric, and many others increasing exposure to India, while decreasing their presence in China. According To data from the Indian Ministry of Commerce and Industry, Foreign Direct Investments in India increased by 27% in 2021. As More investors flood into India, its economy is growing even faster,, which in turn attracts even more investors, and this cycle continues as India is leapfrogging over China right in front of our eyes, and will continue to do so for the following reasons.: India's geographic location is so much better compared to China.

India's geographic location places it at the crossroads of key global trading routes and easy access to key shipping lanes and natural resources, which enhance its economic and geopolitical influence over time. While China shares borders with 14 countries, many of whom it has ongoing military disputes with,, not to mention its issues with Taiwan, India only shares borders with 6 countries. Dealing with 14 neighbors is much more complicated than doing it with 6 of them. Now Dont get me wrong,, India isnt sitting around the camp fire singing kumba ya around the campfire with its neighboring countries,, but it has done a much better job at keeping things cool and calm, compared to China.

Over The years,, India has successfully resolved many of its border disputes with its neighboring countries through peaceful negotiations. India and Bangladesh are no longer in conflict since they were able to resolve their long-standing border dispute in 2015. The Issues with Sri Lanka were handled in a similar manner back in 1974. Same with Myanmar in the 1990s.

At The end of the day,, India has good relations with most of its neighbors, such Nepal, Bhutan, and Bangladesh, while China is on the brink of war with Taiwan and in the midst of territorial disputes with other neighbors.. This allows India to spend less on protecting its borders and more on growing its economy, which by definition enhances its regional influence.. And What about Energy? While Both countries are heavy energy importers, India has a better setup. India imports about 87% of its total oil consumption, making it the third-largest oil importer in the world, after the United, States and China.

However,. While India's energy consumption is growing rapidly,, it is still lower than China's per capita energy consumption, so it simply needs less oil than China. India has also done a much better job at the development and adoption of solar and wind energy sources. The Other thing is, that India has better relations with the US and the European Union compared to China.

This means that India gets many foreign dollars and Euros invested into its renewable energy development. In Contrast,, China is facing ongoing criticism from the the US and EU on the geopolitical stage. It simply doesnt get the same amount of attention and foreign investments into renewable energy, as India gets.. On Top of that,, India's strategic location in the Indian Ocean and its great relations with other countries in the region allowed it to leverage its strategic location to access energy resources from all over the worlds, including the Middle East and Africa.

All Things considered,: India got a better hand in this poker game. Of Course,, there are still challenges that India will need to overcome, such as corruption, poverty, infrastructure bottlenecks,, bureaucratic red tape, and income inequality.. The recent scandal around Adani Group is a great example of the issues India still battles with and that is part of the journey. For India To truly become a truly highincome country, it must solve its poverty crisis first.

As Of 2023,, 10% of people in India live on less than 10 dollars per day. Indias current per capita GDP of 2,200 USD, puts it at the 122 place in the world, behind Belize, Bhutan and El Salvador. Its a far cry of Chinas 12,500 dollars of GDP per capita and the United States 68,000 USD. Its Simply not there yet.

Extreme Poverty in India is a significant challenge that is holding back its economy. According To the World Bank, about 60 million people in India live in extreme poverty, with lack of access to food, clean water, healthcare, education, and housing.. The Lack of access to education and healthcare for tens of millions of people will cause lower productivity, reduced consumptions, and increased healthcare costs for the country. It doesnt help when large amounts of government funding intended to offer a solution to this problem, is stolen along the way due to high corruption and low governance..

Eventually This situation can actually lead to social unrest and political instability, which would be a death blow to foreign investments. Solving Poverty is not easy, but India has to do it, and here is how.: Increased Access to education and healthcare, improvement of social welfare systems,, the removal of structural inequalities, stopping Hindu radicals from oppressing minorities, improving gender equality, and allowing equal access to resources and opportunities for everyone.. On Top of that,, India has to liberalize the economy much further, improve governance, reduce corruption, mainly on the local government levels.. Despite Its problems,.

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