The following was written by my friend Vivek Kaul at Mumbai-based Equitymaster.com, the biggest independent investment research firm in India.
Fifty-five years ago, people living in India had higher average incomes than people in China. In 1962, India's average per capita income was $90, 29% higher than China's per capita income of $70. The story was the same in 1980 and in 1990. India's per capita income surpassed China's.
But then, Chinese per capita income took off, and India was left far behind. Twenty-five years later, in 2015, China's per capita income had grown to $7,820. This was 400% higher than India's $1,590.
And there's one big reason why China pulled so far ahead.
How Other Asian Economies Grew
Before we explain how China did it, it's important to understand how other Asian countries like Japan and South Korea went from being third-world countries to Asian economic powerhouses. These countries enjoyed high economic growth rates for a very long period of time.
And most of this growth came from exports.
Their export success is explained by Ryan Avent in his book The Wealth of Humans - Work and its Absence in the Twenty-First Century: "Success in exports markets once required economies to develop an entire suite of capabilities. To export electronics or cars, South Korea and Japan needed to build an entire, high-quality supply chain domestically; they needed lots of firms capable of designing and manufacturing components, and well-organized corporations capable of planning and coordinating the design, production and sale of complex goods."