The Coming of Internalised Superpowers
On China and India's emergence as economic powers driven primarily by domestic growth, and what this means for global trade and foreign policy.
2026 edit: Written in 2006 when this was speculation. Twenty years later, much of it played out—China’s domestic market dominance, India’s internal growth story, the tech censorship standoffs. What I underestimated was how quickly “pure self-interest” would become the default posture for everyone, not just emerging economies.
China and India are the most talked about emerging economies of the world today. China is already the second largest economy in terms of Purchasing Power Parity (PPP), and India is close to edging out Japan to be number three. The US, despite continuing financial growth, is not seeing much change when it comes to the purchasing power of its common citizens.
This is quite an interesting development.
Domestic vs. cross-border
Most western economies today, and China to an extent, are heavily dependent on cross-border trade. The US perhaps less so than Germany (the world’s biggest cross-border trader), but using a similar approach as PPP, they are quite dependent on international trade.
But these two emerging economies are different. India and China have so much potential to grow domestically that with just internal growth, they are in a position to become the top economies. This is very unlike the US and other OECD countries.
The Indian economy, perhaps more than the Chinese, is already an interesting case in this regard. Most of India’s growth (including the amazing growth of the BSE Sensex, which grew from around 7,500 to over 10,000 in just 12 months) is fueled by internal demand. As analysts groan over and over again, FDI flow into India has been limited compared to that of China. But nevertheless, there seems to be no end in sight to the growth.
Where does this lead?
This leaves me wondering about two scenarios.
First: where will this lead? Most western economies got heavily into international trade after more or less saturating growth potential in their domestic markets. That state will take a while to reach for both China and India. But by then, their economies will have grown substantially, dwarfing the rest of the world.
What does that mean for global trade?
Both India and China can be expected to act in pure self-interest for a much longer period than the rest of the world has ever experienced. Most of the developed world was soon forced to act in a more civilized manner due to reliance on mutual trade. This will not be the case for China or India.
The recent case of Google, Yahoo, and Microsoft with respect to internet censorship perhaps shows signs of what is to come. China is not going to give in anytime soon on these aspects. And why should they? The only thing that works in such situations is not laws, but international pressure. But I haven’t yet seen anything that would make them give in. That will not happen unless the world becomes relevant to them in quite a different way than it is today.
Foreign policy implications
The second question: how will Chinese and Indian foreign policy develop?
Both China and India, unlike Japan or Germany after World War II, are quite free in terms of strategic thinking. India, after its long flirtation with the erstwhile USSR, is now cosying up to the US. But the internal debates on Iran show that this is not written in stone.
There are no precedents to the emergence of either India or China. They are both going to disrupt the global scene with their tremendous growth and their use of foreign policy to fuel this growth.
Moreover, unlike the US or the erstwhile USSR, neither India nor China has any overpowering mission to overthrow regimes or impose either communism or democracy anywhere in the world. At least not yet.
Pure capitalism realized
My gut feeling is that we are only beginning to see what the promoters of pure capitalism were hoping for.
The behavior of both these countries will be based purely on their market requirements, which is ultimately what the concept of capitalism proposed.
And yes, they are going to be superpowers. But far more internalised than the US is today.
The next couple of decades will be quite interesting to watch as this game gets underway.