Towards a Worldwide Index of Human Freedom

Liberty in Comparative Perspective: China, India, and the West • 211
Hong Kong, they were nearly eight times as high. Moreover, 94 percent
of Chinese exports resulted from manufacturing, compared with only 67
percent of Indian exports (World Bank, 2011: 352). China has become
a magnet for foreign direct investment. In 2009, China (excluding Hong
Kong) attracted more than twice as much foreign investment as India.
Even Hong Kong alone attracted more than did India (World Bank, 2011:
352). In 2010, China still attracted more than four times as much FDI as
India (Economist, 2011, March 26: 68). By as early as 2004, China had
overtaken Japan to become the third largest trader in the global economy
behind the US and Germany. In 2009, China overtook Germany
to become the largest exporter in the world (Economist, 2010, February
13: 74). China’s trade-to-GDP ratio has risen from 21 percent in 1982 to
about 65 percent in recent years. By contrast, in recent years, India’s ratio
has risen from 16 percent in 1990-91 to 45 percent (Bardhan, 2010: 25).24
By the time China was the third most important exporter in the world,
India’s rank as an exporter was not even equal to that of Taiwan (Economist,
2005, April 23: 101). Of course, trade in manufactured goods is China’s
comparative advantage. India might have a comparative advantage in services,
particularly in software exports.25 Moreover, the approximately
3-million-strong affluent Indian-American community of doctors, engineers,
businessmen, and software experts (Dhume, 2008: 27; Feigenbaum,
2010: 79) may link India at least as closely to the United States as Sino-
American trade does China. Conceivably, Indian expatriates might contribute
to India’s future globalization as much as Chinese expatriates have
already done for China through past direct foreign investment. Certainly,
there is little reason to doubt that more trade openness and globalization
will help India. Its per capita growth rate was 6.2 percent in 2008-2009,
by contrast to China’s 8.5 percent (World Bank, 2011: 344).
Although recent data suggest that previous analyses have underestimated
China’s poverty rate, new data show that the country’s poverty
rate has fallen even more dramatically than older data indicate (Chen and
Ravallion, 2008). In 1981, 84 percent of Chinese had to survive on less
than US$1.25 a day (in 2005 prices); by 2005, that proportion was cut to
only 16 percent. By contrast, the proportion of India’s population that was
below the same poverty threshold was lower (60 percent) in 1981, but the
country was much less successful in cutting the ratio down: it dropped
to 42 percent by 2005 (Economist, 2009, November 28: 68). Although
24 There is some disagreement about these data. According to Panagariya, the Indian tradeto-GDP
ratio increased from 25 to 43 percent between 1990 and 2006 (2008: 109).
25 According to Bardhan, information technology (IT) and IT-enabled services employ less
than one-half of one percent of the Indian labor force. Two thirds of India’s service output
remains in traditional and “unorganized” activities (2010: 6).
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