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I've seen a few threads from awhile back that basically flip the India/China economic situation. IE, China remains comparatively sluggish, while India's economy booms. Typically, this is a scenario in which the Indian License Raj is avoided, and the Deng Xiaoping reforms don't succeed. However, I'm interested in a slightly different scenario: in which both economies are liberalized and see growth similar to what China has seen since economic liberalization. At the moment, the GDP/capita (PPP) of China is $18k and India is $8k, so this scenario assumes that they're much closer together. Of course, there are lots of moving parts in this question, so lets look at some of them:
If India liberalizes well before China and experiences the results predicted (high economic growth), then there will be ripples in China. Many will want to pursue a similar path, especially if China is experiencing some of the Mao-made disruptions that crippled it during his regime. Could this lead to China's economy liberalizing earlier, as well? Perhaps with Mao removed from power early, or Mao biting the bullet and letting economic reforms in.
If India liberalizes, does this mean that the US is more able to court them as an ally in the Cold War? In similar threads, the idea of Nixon going to India has been raised. Either way, this could forestall the US-Pakistan alliance (which is a much later development, but worth mentioning).
If the US pursues India as an ally (likely a formal ally, since India would be both democratic and capitalist in this scenario), where does that leave China? Might the PRC still be recognized, just to help further the split with the Soviets? Or does the US figure its better to keep them at arm's length, and continue to recognize the ROC? (remote alternative: attempted coup against Mao by those thinking he's holding China back from imitating India's prosperity destabilizing the PRC enough that the ROC can move back in)
If both India and China are liberalizing in tandem, more or less, how does this impact their own growth? Would they be more likely to cooperate with each other in a semi-cartel of cheap labor, or compete for western markets? For example, I could see their governments getting together and establishing a division of labor, such as "India takes textiles, China takes plastics. Then India takes autos, China takes electronics," on up the export chain. Or would their competition likely retard each state's growth a little?
Alternatively, if India has a headstart but China still liberalizes more or less on schedule, can this help China's economy catch up even quicker, as they have a rich neighbor to export to, that is in the process of moving up the export chain?
Last, what does the economy look like with two billion plus population economic superpowers, right next to each other?