World Energy Outlook 2007

China and India in the Global Economy
China and India are the emerging giants of the world economy. Growth in
both countries has accelerated in recent years, boosting their shares of world
gross domestic product. In 2006, China accounted for 5.5% of global GDP at
market exchange rates (15% in purchasing power parity terms) and India 1.8%
(6.3%). High growth rates in the 1980s made little difference to the world
economy, because both countries’ economies were relatively small. Today, their
size means that continuing high growth makes a much bigger difference to the
world economy. For example, 10% growth in China is equivalent to almost 2%
of US growth at market exchange rates. Large populations, which are fuelling
the labour pool, and still low levels of income compared with the industrialised
countries are expected to maintain the momentum of economic development.
Over 37% of all the people in the world are either Chinese or Indian. Their
expanding skills base, combined with high rates of investment (especially in
China), points to enormous potential for raising productive capacity.
Development in China and, to a lesser extent, in India has been driven by
massive domestic and inward investment, high saving rates, and a concomitant
expansion of exports of manufactured goods and services as well as capital.
Thus, development is proceeding hand in hand with their integration into the
global economy. China and India are at the heart of the current wave of
economic globalisation, involving rising international trade and capital flows,
and integration of financial markets. As a result, developments in these two
countries are increasingly affecting the economic health and the structural
evolution of the economy of the rest of the world, with inevitable
consequences for global energy markets.
A common question is: how does the rise of China and India affect my country
economically? This chapter tries to answer that question. The next two sections
review recent macroeconomic trends in China and India, and the role of trade
between them and the rest of the world. The following sections look at the
implications of growing economic interdependence – between China and India
on the one hand and the rest of the world on the other – and assess
quantitatively which regions gain or lose from economic development in China
and India, and why.
Explaining China’s and India’s Economic Growth
Measuring GDP using market exchange rates – the most appropriate basis
when assessing the impact of one economy on another (Box 3.1) – China had
the world’s fourth-largest economy and India the 13 th -largest in 2006. 1 The
economies of both countries have been growing very rapidly, with China
1. GDP measured in US dollars at current price and market exchange rates (IMF, 2007).
136 World Energy Outlook 2007 - GLOBAL ENERGY PROSPECTS: IMPACT OF DEVELOPMENTS IN CHINA & INDIA