Assignment

Chasing the dragon! Compare the economies of India and China today. What are their GDP per capita and their economic growth rates? What has caused the rapid expansion of the Chinese economy to compare to India for the past 30 years? What are the important factors distinguishing these two economies from population growth, human capital, political systems etc. What the future holds?

Introduction

India characterized by a mixed economy with a  large private sector. A  capitalism ideology controls India market economy; the India economic system, therefore, experiences involuntary unemployment. China’s economy has been mostly state-controlled with the small private sector. The China command economy primarily characterized government control of macroeconomic activities, and the system significantly differs conventional capitalist approach to macro-economy(“Economics of Influence: China and India in South Asia,” 2019). Thus, the economies of the two countries embrace different economic policy, and the various systems may affect their respective economies. Notably, India and China are emerging economies of the world, and the economic policies they practice helps to influence economic growth and development(Wen Zhou, 2014). For the year 2016-2017, India’s real GDP was about 7.11 percent as compared to the 2016-2017  and this growth rate market at 7.93 percent.

In the year 2016-2017 India’s GDP at the current prices is at 11.52%. According to  the statistics

India’ GDP growth rate was at 7.6 percent, making it the 4^th nation whose economy increases in 2016. Therefore, India’s economic growth rates are known to be steady and ever increasing.

India’s GDP and GDP per Capita

China’s GDP  divided into three categories: primary category, secondary category, and tertiary category. Primary sector  includes fishery, forestry,farming, animal husbandry  and records accounts for about 9 percent of total GDP , while the secondary type involves both constructions of about 9 percent of GDP and industry of about 40 percent of GDP, the two sectors of the secondary category are critical in the contributions towards GDP and GDP per Capita. Tertiary  involves the remaining percentage of the total aggregate output, and it includes; storage, transport, retail and wholesale trade; real estate; banking and finance intermediation; hospitality(Wen Zhou, 2014). Notably, China’s GDP per Capita in Dec 2016 hit $8,127.47.

In 2016 China’ economy dropped to 6.7 percent as compared to the previous year 2015 whose growth was 6.9 percent. The GDP percentage mark was the lowest in the whole year and by extension since 1990. Nevertheless, the China government has targeted GP of between 6.5 to 7 percent, consumption an investment has experienced growth. Between 1989 and 2016, China’s Annual Growth Rate is of an average of 9.76 percent.

China’s GDP Annual Growth Rate ( Jan 2014- Jan 2017)

China’s GP per Capita is $ 12,880 while India’ GDP per Capita is $5855, and this implies that According to nominal method, China is approximately 4.5 times richer when compared with India, and also in terms of PPP method China is $2.20 times richer. Generally, China’ s economy an economic growth rate is far much better than that of India.

China vs. India’s GDP Growth Rate.

The two countries had a massive difference in their GDP in the early years ranging from 1980 to 2000(“India’s Economy On Track To Beat China,” 2019). As witnessed from the graph China and India’s GDP growth rate were parallel; however, the GDP per capita gap started to close in the year 1991, and by 2000 India’s GDP per capita was equal to China’s. Therefore, China’s GDP per capita enjoyed unmatched high levels of GDP for about 25 years(Wen Zhou, 2014).  Some of the factors that contributed to the wide margin in terms of GDP per capita for the two countries include;

Demographic Dividend: China’s one-child policy implemented in 1979 potentially decreased population growth rate, as it temporarily created a period of less number of children and a high number of adults who invested their time in working for the nation. Children are known to be consumers rather than producers; therefore; a country should control births for development. The high number of working population established new working positions to facilitate nation-building.  The scenario was a substantial factor that catapulted GDP development. China set a nsteady profit, something that uniquely saw China’s GDP rise tremendously. India is anticipated to experience the same situation starting in 2020 because of the stringent measures in terms of government policy introduced.

Divergent Perspective on Human Development Index(HDI):  By 1981 China was recorded to comprise of twice learned women as those of India, and the scenario continues up to today. Literacy levels are directly proportional to the GDP levels of the country. The higher the literacy levels, the higher the GDP and vice versa because human development in terms of education helps to unlock potential and opportunities for people to engage in productive and more profitable ventures.  Women play a critical role in society’s development.  Human development index in terms of health indicates the same picture whereby, the Mao means higher health levels as compared with Indian leaders. Again Nehru was not focused on reducing illiteracy levels but instead concentrated much on global political and leadership affairs.

Late opening up:  India did not embrace Deng Xiaoping ideas which made a significant impact in the 1980s. Again, PV Narasimha Rao of India followed 13 years later but failed to unlock the India economy by 1991(“Overview,” 2019). Furthermore, India did not tolerate capitalism ideology that was critical in the GDP growth. Generally, India did not adopt a strategic policy and plan on how to grow the economy and spur the development of various sectors of the economy.

Lack of Infrastructural Development Plan: In the 1980s and 1990s, China embraced quick, unplanned push for infrastructural development such as air terminals, roads, railway, etc and this promoted trade, transport, tourism, etc..  Infrastructure  development is critical in the realization of high levels of GDP growth rates(Rae, 2009). China administration encouraged brisk land acquisition, whereas India had obsolete land policies as hinged on their democratic structure. India did not help brisk land acquisition, and this was a deterrent measure to GDP growth rate because land is a primary factor of production and development.  Besides, some factors enable a better understanding of China’ fast economic growth in the most recent decades(Turner, 2010).

The factors include;

1. Labor supply: China has a huge workforce that provides a constant flow of labor, and with the rural, urban migration in search of income, young productive people involved in the various production sector. Again, due to mechanization of agricultural production in rural areas, people become jobless and therefore move to urban areas to look for jobs. It is estimated that in two decades about 500,000 people relocate from China’s up a country to towns.  Furthermore, a voluntary migration to cities has triggered by government plans to convert rural areas into manufacturing hubs.  Most families pushed to cities from rural places.
2. Unemployment and Wages: China’s most statics shows that unemployment rate has reduced by about 4 percent, however wages have been on reducing due to high population workforce. For example, when specialist demand for better higher salaries, there are many more who can perform the same job with low wages. Generally wages in the East Asian nations better than Chinese specialists. For instance, they earn even up to 10 more times. This scenario has attracted internal Foreign Direct Investment(FDI), and expanded gross revenue as Europeans, Americans and Japanese have captured the opportunity to establish industries through China’s permission(“Economics of Influence: China and India in South Asia,” 2019).
3. Political System: China had adopted autocratic leadership and political intolerance, and this implies that it did not embrace the western free market style. Furthermore, the state-controlled market and political framework. China’s arranged economy whereby the state-controlled market and flow of finance, accelerated growth because state-controlled decision making and private entities did not exploit the people in any way.  Under Mao leadership since 1953, the government engaged a Five Year Plans which enabled the state to initiate critical public projects. Between 2011 to 2016 China was in its 12th Five Year Plan, and plans were underway to include 2.2 percent of Research and Development(R&D) in the  Also, plans are underway to convert the coastline that has been known for manufacturing and production to assembling and  R&D regions.
4. FDI and Special Economic Zones:  China’s GDP boosted by the establishment of special zones situated in 6 economic zones or in 14 cities whereby the state could easily control the business environment and make it conducive. Special economic zones are areas where Trans National Corporations(TNC) are motivated through reduced tax to establish industries.  All corporate have one primary objective of making more profit and once more friendly policies are introduced such as a tax reduction business entrepreneurs set up operation in such places to enjoy huge benefits.  For example, Taiwan TNC, EUPA, a factory that makes coffee machines in the open city uses about 25,000 specialists.
5. Energy Supply: China has proactively established its energy base since the 1990s, and since energy is critical in manufacturing  China has experienced growth due to cheap and reliable energy. China has invested in atomic and hydro-electric power.  Additionally, China has set up a massive coal supported power station due to sufficient coals imports from Indonesia and Australia. Again it has its own generous coals reservoir. Otherwise, rampant air pollution in urban coupled with anti-carbon emission policy after  2030 has prompted the development of coal power energy base to be free of air pollution.
6. Investment Infrastructure: Chinese government has invested in extensive infrastructural development such as roads, railways, navigable rivers, etc. Again, China has five of the largest container ports in the world. Therefore infrastructure opens up areas for business and also promotes operation and activities that contribute to GDP growth.
7. Education: Education is one of the best-known tools that potentially promotes the growth and development of a country. The average level of education of human resource of a country is directly proportional to its GDP per capita. China’s education levels have soared consistently for the past 25 years at stands at 95 percent. Furthermore, high education supports and improves a country’s financial status. Consequently, China enjoys enormous number of qualified persons, as it trains a high number of talented specialist. For instance, China trains about 60,000 engineers annually.
8. Population Growth: Despite the one-child policy in China, the high already population in China provides a resourceful and dynamic workforce that promotes fast urbanization. High population in China has propelled industrialization to the next level. A high resourceful population is a critical factor in the growth of economy, but a high population not trained and resourceful in any useful way becomes burden to the economy.

In the other hand, India’ economic growth is influenced by factors such as;

1. The RBI global position: India currency depends on RBI Furthermore, RBI deals with adjustment and installation of RBI. Consequently, slight RBI evaluations bear a significant impact on India currency and positively or negatively affects India’ economy(Wen Zhou, 2014).
2. Currency trends of world economically powerful nation: India currency is linked and affected by most powerful countries of the world. For example, the UK, US, Canada, and Japan, etc have a stable currency. Thus when the currency of the most powerful nations is understated or undervalued, it bears a negative impact on India currency as it deteriorates in value. Generally, currency of these economically powerful countries determines India economic growth and development.
3. Political Changes: Political framework of a country potentially affects its growth and development. Consequently, the change of the country’s administration causes adjustment of economic, foreign policies and strategies especially related to export and import of merchandise and foreign direct investment. Generally, political changes of a country influence duty rates the overall speculation significantly affects a nation’s economic growth and development.
4. Oil and energy: A country endowed with oil and energy enjoys production and manufacturing at a cheap cost. India relies on imported oil for manufacturing, thus when global petroleum price change it hits India manufacturing directly and this affects economic development and growth. Again India’s currency remains unstable as a high cost of oils causes inflation escalating India’s currency value.
5. Demography and Poverty: According to statistics India is one of the crowded countries in the world with high population growth rate. India’s population is forecasted to hit 300 million by 2030. Some may argue that the high population provides ready and huge market but because the population is most likely to be unproductive for example the lack of social amenities such as hospitals schools, etc implies that the population is not productive and is an economic liability. Therefore the high population causes high poverty levels and this drags the nation’s economy downwards.

All the factors and arguments are interrelated and influence the economic growth and development of India and China, resulting to more growth for one country than another(“Economics of Influence: China and India in South Asia,” 2019). As highlighted earlier economists have considered three economic scenarios for China’s future.  First, “New Economy” will suffice and drive economic growth.  Financial Times has proposed this first scenario _Unmistakably the best ideal situation_ the article argues on the intent to the utilization of development targeting “New economy” in some regions of  China. As the new economic system anticipated by some individuals continue to take root in China, it will soon result in the introduction of new contracts of segments of the economy as the old system becomes obsolete. The scenario is viable as long as the principle of the new economy drives financial actions and maintains development rates high.

Secondly: “ stagnation” scenario cause development lag as financial changes become an unpredictable time frame. Nevertheless, if stagnation persists for more than ten years it eventually becomes stable, Beijing achieved stable credit development. The stagnation scenario includes an exchange of riches, and for GDP, a rate of 1-2 is politically viable.  The third economic scenario is “Acute Crisis” by which enhances trust reserves and this allows high returns in terms of administration riches and items to experts.  In case of most risky trust items, financial institutions particularly banks acts as experts, but not legally liable for any concerns about payouts.

Currently, India has adopted a development policy of investing in infrastructures such as electricity, roads, railways, energy and many more that drives the economy. 2020 India estimates it will join the world superpowers. Furthermore, the Indian economy is speculated to overtake the US economy by 2 percent by 2050 but will be 30 percent smaller than the Chinese economy. This situation means that China targets to completely outcompete the US and other economies of developed nations by a significant margin. Even though India’s economy has usually lagged behind China’s, it’s predicted to overtake and beat China economy by a massive margin in the few decades coming.

Conclusion

Even if India’s economic growth is faster and aggressive than that of China, the fact is that India economy is far from overtaking the Chinese economy.  India has several barriers that prevent from achieving development milestones such as stagnant agricultural industry, social instability, inadequate infrastructure, internal conflict and political instability in the government. The factors have constantly undermined Indian economy and seem not to end any time soon. On the other hand the Chinese government has struggled to avoid “middle-income tag” and spur development to the most developed nation level(Wen Zhou, 2014). The government has ensured enhanced quality of growth, scientific research and development and general efficiency in the Chinese economy. Again, whereas China has emphasized on labor-intensive industry to spur rapid growth, India focuses on promoting high-quality competency levels. For rapid economic growth and development, a country should concentrate on managerial experience and adoption on developed technology, as this minimizes dependency on FDI   and also boost growth pegged on domestic consumption and government investment.

References

Rae, A. (2009). The Dragon and the Elephant: Agricultural and Rural Reforms in China and India. European Review Of Agricultural Economics, 36(3), 453-455. doi: 10.1093/erae/jbp033

Turner, B. (2010). Martin Jacques When China Rules the World. The End of the Western World and the Birth of a New Global Order. Society, 47(6), 565-567. doi: 10.1007/s12115-010-9379-2

Wen Zhou. (2014). Comparing the Economic Growth of China and India: Current Situation, Problems, and Prospects. World Review Of Political Economy, 5(4), 455. doi: 10.13169/worlrevipoliecon.5.4.0455

India’s Economy On Track To Beat China. (2019). Retrieved from https://www.forbes.com/sites/panosmourdoukoutas/2018/04/21/indias-economy-on-track-to-beat-china/

Overview. (2019). Retrieved from https://www.worldbank.org/en/country/china/overview

Economics of Influence: China and India in South Asia. (2019). Retrieved from https://www.cfr.org/expert-brief/economics-influence-china-and-india-south-asia