The majority of you have likely heard of the growing reference to “Chindia,” the regions of China and India. The explosive demand for goods and services here will be driven by a combined population of about 2.5 billion people, or about 37% of the world’s population.
Yet it will not be just the staggering growth in population that will substantially increase demand, but also the size of each country’s economy and middle class. China and India, whose respective economies are ranked second and tenth in the world, will be a driving force behind the global demand for goods and services.
According to consulting firm Bain & Company’s web site, “China, followed by India and other emerging Asian economies, is creating a vast new population of consumers, whose growth will continue into the coming decade.” (Source: “The Great Eight: Trillion-Dollar Growth Trends to 2020,” Bain & Company, September 9, 2011.) The research suggested that about two-thirds of the world’s growth in the middle class will be derived from Chindia.
While the real gross domestic product (GDP) growth in the U.S. is estimated to run at 2.4% in 2013 and 2.8% in 2014, the number is below the world average of around three percent and 3.3%, respectively, according to the World Bank. China, which is showing some stalling, is still expected to expand its economy by 8.6% and 8.4%, respectively, while India’s GDP growth is estimated at 6.9% and 7.1%, respectively. The GDP growth in China is optimistic, as the country tries desperately to avoid a hard landing that is being affected by slower growth in the eurozone and global economy.
I firmly continue to believe China will continue to be the one of the major top-growth regions in Asia, leading Japan, which has been mired in a two-decade economic slump that the country cannot seem to shake off. (See “China & India vs. Japan: The Best Place to Put Your Capital.”) Japan’s GDP growth is estimated at 1.5% in 2013 and 2014, based on data from the World Bank, but I doubt the growth will be achieved, given the economic problems there.
The country that I believe has immense long-term growth potential is India, with its population of over 1.2 billion people, estimated to surpass China by 2025 and hit a staggering 1.6 billion by 2050, according to the British Broadcasting Corporation (BBC). That’s a lot of people and consumers.
What makes India attractive is its democratic government, young and educated workforce, and high literacy rate at 71.7% for those seven years and older, according to the country’s Ministry of Statistics and Programme Implementation.
The combined markets of China and India and the growing middle class and rising average income excite me. India’s GDP per capita of USD$3,703 in 2011 was ranked 127th in the world, up from 142nd in 2009, according to the International Monetary Fund (IMF). China was ranked 90th with a GDP per capita of $8,394 in 2011, a steady jump from $3,735 in 2009.
In my view, it will take some time, but as income levels rise, I expect to see a corresponding rise in spending and GDP growth in Chindia. With higher incomes will come more consumer spending.
Consider this: at the present time, only a small fraction of both China and India’s GDP is driven by consumer spending compared to about 70% in the U.S. Both countries want to drive consumer spending over the long term, and this will drive organic GDP growth in both countries, meaning it will also drive stocks in these countries.
Further reading: “China Aims to Drive Domestic Consumption.”