This document discusses the economic implications of growth in China and India. It notes that China and India have contributed significantly to global GDP growth in recent years. Their large populations and surplus rural labor have kept wages low, benefiting manufacturers but putting downward pressure on wages in advanced economies. Rising Chinese demand for raw materials has increased prices for commodity exporters but also led to more volatile commodity prices globally. The integration of China and India into the world economy has substantially increased the global labor pool and reduced the global capital/labor ratio, placing further downward pressure on wages in capital-rich countries.

3. Each year since 2001, their combined contribution to global output growth has been around 30 per cent. Helped to hold global output growth above the 4 per cent threshold which is critical for improving the terms of trade for primary commodity producers. Formula to compute a country’s contribution to world growth: China’s (India’s) growth rate times China’s (India’s) percentage share in world output divided by the sum of China’s growth rate plus the growth rate of the rest of the world, each weighted by their respective share in world output.

6. FX Reserves and US Treasury Holdings -end 2005- Source: treas.gov/tic; central banks;HKMA 14 0.7 145 9.7 India 296 13.6 980 30.2 China + Hong Kong US Treasury Holdings bn US$ % of sum FX Reserves bn US$ , of which %UST

27. Figure 7 : Annual percentage change in commodity import prices, 1994-2004 -US$ per Kg- Source : UN Comtrade No wonder: prices have been rising since 2001. Prima facie , this is good for raw material producers.