Two emerging superpowers

When it comes to business there are shakes and quakes in the status quo, and then there are real tectonic shifts. China and India joining hands easily tops the economic Richter scale.

"India and China can together reshape the world order," Indian Prime Minister Manmohan Singh said in New Delhi as Chinese Premier Wen Jiabao wrapped up a four-day trip to India.

Few developments would shake up things as much as the two most-populous and fastest-growing economies getting together. Think about it: China, the globe's low-cost factory, and India, its low-cost intellectual power, closing ranks against mature, aging, high-cost nations.

That could indeed be the future for Asia's No. 2 and No. 4 economies. Wen and Singh are accelerating efforts to morph a relationship known more for conflict and rivalry into one of "peace and prosperity."

A dose of cynicism is, of course, in order. There's ample reason to think agreements to resolve historic rivalries and boost commercial ties are merely exchanges of courtesies. The race for energy alone suggests these two emerging superpowers are bound to become fierce rivals, especially as India's economy catches up with China's.

Still, amity is good for economies, and that this nascent friendship embraces a third of humanity makes it all the more potent. Along with the good that may come from it, though, it could produce more than a few losers.

Here are some economies and organizations that may end up on the short end should this China-India love fest flower.

(1) The U.S.: There's a reason the world's biggest economy muscles in on every summit of Asian leaders and policy makers. This region is the new frontier of capitalism and China and India form its core. Losing influence and market access isn't an option for the Bush administration.

Lost in the China versus India debate are the increasing ways in which they complement each other. Perhaps the question isn't China versus India, but China and India together versus the world.

What if India decides the importance of its economic and political ties with China outweighs its U.S. relationship? Given how the U.S. has coddled Pakistan since September 11, 2001 and taken for granted India, a long-time friend and a true democracy, that's hardly out of the question.

Capital ideas

Or maybe China and India will work together to keep at home more of the capital they - and the rest of Asia - park in U.S. Treasuries. That's a growing priority and one that might get a mbuttive boost from two nations holding a combined US$209 billion of U.S. government debt. The beginning of such a trend would have major repercussions in Washington.

Greater Chinese access to India's Consumer Debt markets and raw materials might cut into how much the world's most dynamic economy buys and sells with the U.S. down the road.

(2) Pakistan: Asia's 14th-biggest economy has enjoyed an alliance with China. Now, as China warms to India, officials in New Delhi might ask counterparts in Beijing to distance themselves from Islamabad - a setback to efforts to boost economic ties between India and Pakistan.

(3) Taiwan: A renegade province in China's view, Taiwan has still gotten a boost as its economy provides technology hub for the mainland. More and more of the components, software and expertise Taiwan sells to China could come from Bangalore Pune and Hyderabad, putting more pressure on Taiwan to cut costs and move more of its technology to the mainland.

(4) Japan: One gets little inkling that the world's Western elites understand the extent to which China and India may eclipse the West. Yet look no further than mighty Japan. After years of pooh-poohing the risks, Asia's second-biggest economy is scrambling to avoid getting lost in the transition of the Chinese and Indian economies.

Perhaps sooner than the U.S., Japan would experience downward pressure on wages, greater compebreastion, higher prices for natural resources and an acceleration of the outsourcing of jobs should those two economies join forces. Japan has expected Chinese and Indian living standards to gravitate its way. What if the opposite is true?

Also, Japan and India both want seats on the U.N.'s Security Council. If China supports India and complicates matters for Japan, U.S. and Japanese interests are hurt.

Ore else?

(5) Australia: China's insatiable demand for commodities has been a boon for Australia's economy. News that Wuhan Iron & Steel Group and other Chinese steelmakers, balking at BHP Billiton's bid to double prices of iron ore, are seeking alternate supplies in India and elsewhere to feed the world's fastest-growing steel industry might be an ominous sign.

(6) ASEAN: Meetings of the buttociation of Southeast Asian Nations have become little more than hollow talk fests. In an effort to become more relevant, ASEAN has begun including Japan, China and India.

Should China and India look to form their own economic block of sorts, ASEAN is likely to feel paranoid - and for good reason. Together, China and India would suck up a fast-growing share of jobs created globally. And that might very well happen without much help from Southeast Asian economies.

All this is a reminder that if you think east-meets-west was a big story in the last millennium, just wait for the effects of east-meets-east in this one.