Should you invest client money in India or China? The two countries are running neck and neck in the developing Asia economic race.

The gross domestic product is expected to grow 9% in India and 8.9% in China in 2011, according to an April 2011 poll by the Economist magazine. Last year, India won by a nose, registering GDP of 10.4% to China's 10.3%.

Both economies have outperformed all developing Asian countries by more than 2% annually in GDP over the past few years. Meanwhile, McKinsey & Company in San Francisco, and the World Bank in Washington, D.C., estimate the middle classes of both countries will together tally well over 1 billion by 2025.

The growing middle-class consumption in India prompted the Wasatch Group of Funds in Salt Lake City, to launch the Wasatch Emerging India Fund in April. Fund co-manager Ajay Krishnan says the timing for the fund is right. India is a $4 trillion economy that is expected to grow 8% annually over the next five years. He's investing in small and midsize consumer companies that offer high returns on capital and expanding operating margins. These include HDFC Bank; Bata India, a shoe company; and the British-owned drug company GlaxoSmithKline Pharmaceuticals Ltd. The earnings of the fund's holdings are growing at double-digit rates.

"In India, 65% of the publicly traded companies are involved in domestic production," Krishnan says. "Small Indian companies are directly tied to the local economy and growing middle class. The government is pro-business."

Fast economic growth, however, does not always translate into higher stock prices. Both India and China face rising inflation that could destabilize their economies.

An April International Monetary Fund report stresses that accelerating credit demand, rising commodity and food prices and double-digit increases in real estate prices are leading to higher core inflation in Asia-particularly in India.

The IMF projects that inflation will hit 5% in China and 7.5% in India this year. Overall, developing Asia should experience 6% inflation in 2011.

Based on some accounts, however, China's inflation may be higher than anticipated. "The Chinese authorities seem to be stepping on the accelerator and the brakes of their economy at the same time," says Great Neck, N.Y.-based economist Edward Yardeni. "Minimum wages were raised 15% to 20%.

Chinese workers ... are starting to buy more with their higher salaries. That's contributing to higher prices for commodities, such as cotton and oil. [But] the Chinese authorities are so anxious about inflation that they declared that Unilever had broken the law when it spread information about impending price increases and disrupted markets. The Anglo-Dutch company was fined $308,000."