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China and India: Back to the Future?

With every new economic milestone reached by China, other countries are becoming increasingly nervous about China’s economic rise. India is also on track to attain a much more significant role in the global economy. We wonder: What share of world GDP did China and India account for two centuries ago – back in 1820?

A. 18%
B. 25%
C. 30%
D. 50%

A. 18% … is not correct.

As of 2017, China accounts for about 18% of the world economy (in purchasing-power-adjusted terms). India, by comparison, accounts for just 7% of global GDP.

Intriguingly, China’s current share of global GDP is about the same as the share of global wealth generated within Western Europe in the year 1500, when European nations began their own prolonged rise in the global economy.

Back then, 18% of global GDP was generated in Europe at the dawn of the colonial era, based on estimates by the Maddison Project at the University of Groningen in the Netherlands.

Europe’s subsequent economic rise was strongly related to colonial wealth being taken from the “New World” and other regions.

India’s 7% share of global GDP in 2017 is about the same as the combined share of the global economy in 1500 coming specifically from the territories that became modern-day Italy, Spain, Portugal and Netherlands – all leading maritime trading regions at the time.

B. 25% … is not correct.

Back in 1820, Western Europe and the United States produced 25% of global GDP.

Adjusted for purchasing power, China and India’s combined share of world GDP reaches 25.7% today – about one-quarter of the world economy. That is still considerably less than their 36% share of the global population.

By comparison, the United States economy in 2017 accounts for about 15% of the global economy (which is 3.4 times more than its 4.4% share of the global population).

China and India’s economic path during the 19th and 20th centuries is the result of political and social developments – including colonization, revolutions and a self-chosen, prolonged dependence on planned economies.

As a result, over the century from 1870 to 1970, China and India’s combined economies grew just 3.4 times in size. By comparison, Western Europe’s economy grew over ten-fold during that period, while the economy of the United States increased 31-fold – and Japan’s grew 40-fold.

However, the two countries are on a fast track to regaining a share of the world economy that reflects their overall population size. China has maintained an annual GDP growth rate of at least 6% since the turn of the 21st century – and India is now actually growing faster (7.1%) than China.

C. 30% … is not correct.

As recently as 1870, the territories that are now the countries of China and India were the largest and most important economic producers in the world. Back then, together they produced close to 30% of world GDP (29%, to be precise).

At the time, the two regions accounted for 48% of the world population – one-third more than their 36% share now.

Under British colonial rule in 1870, India actually generated more in economic value than the United Kingdom itself did. However, much of India’s production was being appropriated by the British economy.

Similarly, the Chinese Empire was being exploited through the Western-enforced “treaty port” system.

70 years later, in 1950, modern China and India had both secured control over virtually all their current territories and ended significant foreign presence. However, by that point, the combined economies of China and India equaled less than 9% of the global economy.

D. 50% … is correct.

All the way back in 1820, nearly two centuries ago, China and India together accounted for nearly half of the world economy, according to historical calculations by the Maddison Project. In contrast, the United States accounted for just 1.8% of the world economy at that time.

In 1820, the period of foreign interventions began in China. The country exported luxury goods, such as silk and porcelain, via merchants in maritime Southeast Asia and overland through Central Asia’s ancient Silk Roads.

India in 1820, by contrast, was a patchwork of agrarian kingdoms and declining empires struggling with each other and the British East India Company. The company began to take economic, military and political control as early as 1757.

Pre-British India was known for its cotton production and textile trade. British colonialism took the cotton to English mills instead and phased out local textile production.

Today’s rise of China and India suggests that the recent era of North Atlantic economic dominance will turn out to be a temporary interruption of Asian economic primacy in the world.

On a global basis, it also foreshadows a return to the rule of thumb that prevailed for most of human history. Until the onset of the Industrial Revolution, global GDP shares reflected population sizes, and not differing levels of development.

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