China & India1

7/30/2019 China & India1

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1.IntroductionThe birth of two giants

China-the rise of CCP IN 1949

India independence in 1947 China copycat of soviet model

India-democratic and decentralized


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Similarities Population explosion

Socialism as economic model

State as a promoterAgriculture and rural push

Infighting and external tension


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Underperformance and

Comeback Since 1950 till 1980 growth rate of China -2.3% .India-

1.3-1.5%.

World as a whole grew at 2.9%. Internal economic instability in china

External political problems of India

Voluntary economic isolation


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2. Sources of economic growth

The outputs of goods and services of an economydepends on quantities of inputs like capital and labour.

Aggregated production function

Y=A.F(K,L)

where Y = GDP, A = Joint productivity of factors,K =capital, L = labour.

Growth of Hong-Kong and Singapore from 1966-1991.


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Growth Dynamics Neoclassical Model

This model establishes the relationships between thegrowth rate of a country, the size of its saving rate, its

labor force growth rate and the growth rate of jointproductivity

A common prediction of these models is that aneconomy will always converge towards a steady state rateof growth, which depends only on the rateof technological progress and the rate of labor forcegrowth.

If there is no productivity growth, the economy willreach the steady state equilibrium in the very long run.


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Determinates of Long run living standards When the saving rate rise

When growth rate of labour force falls

When Joint productivity rises

Polices to step-up living standards Improve infrastructure

Building up human capital

Remove barriers to entrepreneurial activities

Encourage research and development


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Endogenous Growth Theory This theory tries to explain the foundations of the

evolution of the joint productivity of factorsendogenously

In the long run per worker growth rate will depend onits rates of saving and investment and not onproductivity growth

Y=AK 2 main reasons

Role of human capital growth

Research and development activities


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Problem of population in

developing countries The theory of demographic transition

Demography in traditional society

Stage of population explosion Final stage of demographic transition

Growth of labour supply


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Growth and structural change More per-worker income grows less will be income

fraction devoted to food expenditure. Demand for foodwill grow less compared to production in other sectors.

Agriculture as tended to progress more quicklycompared to other sectors thus reducing the number of

workers required.


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3.Chinas Economic History-1949 Effects by Great Leap Forward(1958-1960) & the

Cultural Revolution

GDP rose around 80% Maddison suggested 4 economic targets:

Radical reform of property rights

Achievement of sufficient public revenues

Substitution of former price system

Monopolization by the state of all external economicrelations of China


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Agricultural Policy:

Phase 1-Confiscation of half the cultivated land

Phase 2-Peasants lost their property rights

In 1958, communes were created. Led to shift of 30million Chinese workers, caused a dip in theagricultural per capita production, created famine.

New Agricultural Policy:

Mao died, new politicians redistributed the land withresponsibility contracts to families.

Rural land was still not tradable


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Industrial Policy:

CCP prioritized fast industrialization

Industrial production multiplied by 43 between 1952-1995

Agricultural output multiplied by 4 times

Size of industrial public firms remained small.

Employment stabilizedForeign firms were confiscated

Workers were returned

Joint productivity-0.5%


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Financial Sector:

In 1990, the Shanghai Stock Exchange was started

Post reform, Peoples Bank changed into a CentralBank

Income distribution:

Gini Index rose to 0.45 in 2001 from 0.4-0.41 in 1996

Gross national savings reached 43.7 percent inGDP terms.


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International Economic Relations:

1971- UN & Security Council

In 1980

WB & IMF1982- ADB & GAT

2003- WTO

Creation of SEZ

Chinese exports =29% of their GDP


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Issues Problems Faced:

Public Firms faced huge loses and turned into burden forEconomy.

Re-allocation human resources. Under valuation of the Yuan.

Negative distribution of Income.

Urbanization.


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4.Indian Economy-1947 Crippled Economy with a scant Industry & a stagnant

Agriculture at the time of Independence

Effects of Industrial Revolution in England Effects of Swadeshi Movement, 1st&2nd World War

Colonial Mistreatment of Indian Commerce

Financial Mistreatment of India


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Evolution of AgricultureAgriculture Contribution to Population & GDP

Contribution towards Industry and Exports

Green Revolution and Land Productivity PDS and Subsidies

Land Reformation and its flaws

Types of Rural Financing


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Indian Industrial Policy Industrial Policy (1956)

-Quick Industrialization, Encourage SSIs

-Removal of Disparities of per capita income

Negative Industrial Policy (1977)

-Support SMI and LSI sector redefined

-Significant part of banking redirected to SSI

Restated in 1980,-Automatic Expansion of LSI

-Private formal manufacturing sector flourished

-Joint Productivity of Factors jumped to 3.7%


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New Industrial Policy(1991) Removed License Permit Raj

Opened some public sectors to private

Opened the economy for Investments from MNCs Liberalized Import & Export duties

Resulted in High Economic Growth


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Population Growth & Employment Current Growth Rate is 1.9%

Population Policy aim TFR to 2.1 children

Rising Female Education

Labor force increases to 1.8-2%

Jobs would be raised to 8 million

Only 8% are working in Organized Sector


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Financial Capacity Indian Internal Savings

The Indian Financial System

External & Internal Financing in India Evaluation of Indian External Debt


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5. Socio Economic Factors Poverty

Per capita consumption of electric power

Growth rate

Population growth

Per capita GDP


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Structure of GDP China

Agriculture-15%

Industries-51%

Services-34%

IndiaAgriculture-23%

Industries-27%

Services-51%


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Commercial Trends International structure

Intra-regional trade-evolution in the 90s

Chinese-Indian trade Limits of Chinese-Indian trade


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Internal Obstacles Political problems

Economic problems

Income distribution The banking system


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Financing Process Savings in terms of GDP

FDI

International reserves


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6.Possible Hindrances Of

India & ChinaMore factors hindering the convergence:

Inaccurate thinking and biased behaviour of internationaleconomic institutions.

IMF forced the developing countries of the region to practise abeggar-thyself policy.

Adjustment Programmes devised by the World Bank have alsobeen accused to increase inequality.

Current trend in international trade have been conducive due to

the defective access of agricultural and service products comingfrom the developing countries Rich countries have for years put pressure on developing

countries on certain matters, such as competition, labour-socialdevelopments, environment matters, etc.


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Asias Growth Factors essential for the growth: The continuation of the current relative divergent trends in

GDP growth rates of these regions in comparison to thoseof western countries.

The continuation or not of the same behaviour of the westin the treatment of imports of goods coming fromdeveloping countries.

In 2015, 23-24% of total exports, instead of 13-14%

Now 2015 2020

High Income 75% 65% 60%

Low & MiddleIncome

25% 35% 40%


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UN BifurcationIf the current international framework worsens,damaging the economies of the developing countries,UN bifurcation could occur.

Reasons:

Due to generalised feeling of lack of representation ofthe interests of the developing countries - for instance

IMF and World Bank Insufficiency of results in WTO negotiations

Widely perceived misuse of the UN by the hegemonicpower and its allies in international policy matters


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Probable Strategies in the

Current Commercial Framework Encouraging International Economic Relations with

Neighbouring Countries

Facing Future Scarcity of Oil

UN Reform Attempts by China and India and SecondaryWay Out

Obsoleteness of the UN

Unilateralism and Political Re-Positioning of China andIndia

Financing Development of LDC by China and India


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CONCLUSION

An Insight Into The Future


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Aggregate Conclusion Total available savings in terms of GDP will be the

main conditioning variable for rapid growth

According to the neo-classical model of growth andthe endogenous growth theory ,the domesticinvestments ratio in GDP terms is the main variablefor growth rate of nations.

China Domestic rate of invest 40% .it should bedecreased to 32-34% alleviate problems like incomedistribution, internal consumption, super growingindustrial export.


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Current deficiencies in China The definition of property rights

The partial segmentation of its labour market

Lacks a sufficient social security system

Underdeveloped banking system Very unbalanced growth from a geographical prospective

The setting up of SEZ has generated a temporary overstimulation of industrial production tilted to exports and

construction. The setting up of SEZ to encourage FDI has generated a

two speed economy and a significant distributionproblem.


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Current Deficiencies in IndiaAgriculture productivity is low.

Technical, social and institutional factors haveimpeded an adequate progression of agricultural andagro-industrial activities.

The current volume of tax revenues of union and statesis clearly insufficient to adequately improve the

volume and quality of the provided public services. The recent rate of Indian population growth.


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Advantages of China & India in

todays world Current high speed of economic progress.

As a consequences of past rapid population rises ,bothcountries will for long have ,ceteris paribus ,higher

growth rate of their labour force. Huge deposits oftransferable people attached to agricultural activitieswith nil marginal productivity will be additionalsupport.

The commercial success of China and India will befacilitated by the rapid growth rates of neighbouringcountries, some of them much more developed thanthe two asian giants.


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Perspectives & Difficulties in the

futureAs consequences of the current and expected growing

shift of western demand of manufacture products toasia ,low wages of industrial workers in asia, the

continuation of a rapid increase of Asian industrialexports to the west is ceteris paribus.

A massive creation of jobs is guaranteed in Asia

Main asian developing countries ,particularly chinaand india ,stress their levels of mutual economiccooperation.


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Strategies of the West Doing nothing

Would pursue the slowdown of the growth of importscoming from Asia, by lifting certain trade barriers.

Decidedly entering into a process of commercialrestriction , which at the end of the day would be moreprejudicial for the west.


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Reactions of china & India If economic or political initiative taken by the west

were considered as seriously damaging for the maindeveloping countries ,then under the leadership of

china and India a majority of developing countrieswould establish an alternative to the current UN.

A process of bifurcation of UN would occur.

China and India enhanced their current growinginvolvement in aid to poorest countries by establishingsignificant funds for the development financing ofLDC.

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China & India1