Differences and Similarities between Chinese and Indian Economies - Case Study Example

?Credit Crunch Differences and similarities between Chinese economy and Indian economy CHINA India GDP - realgrowth rate 7.8% (2012 est.) 9.2% (2011 est.) 10.4% (2010 est.) 5.4% (2012 est.) 6.8% (2011 est.) 10.1% (2010 est.) GDP - per capita (PPP) $9,100 (2012 est.) $8,500 (2011 est.) $7,800 (2010 est.) note: data are in 2012 US dollars $3,900 (2012 est.) $3,700 (2011 est.) $3,500 (2010 est.) note: data are in 2012 US dollars Population below poverty line 13.4% note: in 2011, China set a new poverty line at RMB 2300 (approximately US $363; this new standard is significantly higher than the line set in 2009, and as a result, 128 million Chinese are now considered below the poverty line (2011) 29.8% (2010 est.) Unemployment rate 6.4% (2012 est.) 6.5% (2011 est.) note: registered urban unemployment, which excludes private enterprises and migrants was 4.1% in 2010 9.9% (2012 est.) 9.8% (2011 est.) Budget revenues: $1.838 trillion expenditures: $2.031 trillion (2012 est.) revenues: $171.5 billion expenditures: $281 billion (2012 est.) Debt - external $710.7 billion (31 December 2012 est.) $656.3 billion (31 December 2011 est.) $299.2 billion (31 December 2012 est.) $287.5 billion (31 December 2011 est.) Investment (gross fixed) 45.9% of GDP (2012 est.) 30% of GDP (2012 est.) Public debt 38.5% of GDP (2011) 43.5% of GDP (2010) note: official data; data cover both central government debt and local government debt, which China's National Audit Office estimated at RMB 10.72 trillion (approximately US$1.66 trillion)in 2011; data exclude policy bank bonds, Ministry of Railway debt, China Asset Management Company debt, and non-performing loans 51.9% of GDP (2012 est.) 50.5% of GDP (2011 est.) note: data cover central government debt, and exclude debt instruments issued (or owned) by government entities other than the treasury; the data include treasury debt held by foreign entities; the data exclude debt issued by subnational entities, as well as intra-governmental debt; intra-governmental debt consists of treasury borrowings from surpluses in the social funds, such as for retirement, medical care, and unemployment; debt instruments for the social funds are not sold at public auctions Central bank discount rate $3.389 trillion (31 December 2011 est.) $4.763 trillion (31 December 2010) $5.008 trillion (31 December 2009 est.) $1.015 trillion (31 December 2011) $1.616 trillion (31 December 2010) $1.179 trillion (31 December 2009) Commercial bank prime lending rate 2.25% (31 December 2011 est.) 3.25% (31 December 2010 est.) 5.5% (31 December 2010 est.) 6% (31 December 2009 est.) note: the Indian central bank's policy rate - the repurchase rate - was 8% during December 2012 Stock of money 6% (31 December 2012 est.) 6.56% (31 December 2011 est.) 10.8% (31 December 2012 est.) 10.19% (31 December 2011 est.) Stock of quasi money $2.434 trillion (31 December 2008) $2.09 trillion (31 December 2007) $278.8 billion (31 December 2009) $239.8 billion (31 December 2008) Stock of domestic credit $4.523 trillion (31 December 2008) $3.437 trillion (31 December 2007) $853.4 billion (31 December 2009) $687.7 billion (31 December 2008) Stock of narrow money $12.59 trillion (31 December 2012 est.) $10.92 trillion (31 December 2011 est.) $1.402 trillion (31 December 2012 est.) $1.249 trillion (31 December 2011 est.) Stock of broad money $4.91 trillion (31 December 2012 est.) $4.6 trillion (31 December 2011 est.) $342.3 billion (31 December 2012 est.) $305.7 billion (31 December 2011 est.) Taxes and other revenues $15.58 trillion (31 December 2012 est.) $13.52 trillion (31 December 2011 est.) $1.451 trillion (31 December 2012 est.) $1.293 trillion (31 December 2011 est.) Budget surplus (+) or deficit (-) 22.3% of GDP (2012 est.) 8.8% of GDP (2012 est.) -2.3% of GDP (2012 est.) -5.6% of GDP (2012 est.) Table 1; comparison between Indian and Chinese economies, retrieved from http://www.indexmundi.com/factbook/compare/china.india/economy. China and India have some similar country economic profiles and to the same extent have some differences. This has an implication on the type of policies that the two countries enact in order to overcome the challenges that they face. Some of the economic issues that can be compared between the two countries include inflation, unemployment rates, the high levels of inequalities in the two countries, high national debt levels and the growth trajectories of the two countries. These economic factors are important because they determine the general economic climate in the countries, the relationship of the country with other nations and the type of policy that they will adopt in handling these issues. Inflation Inflation in China is caused by the tendency of the Chinese government to peg its currency, yen on the US dollar. This means that, the stronger the Chinese economy becomes, the US economy becomes weaker therefore making it difficult to keep the Yuan at stable and manageable levels hence making the China lose the benefits that would come with such a policy. In order to maintain Yuan against the dollar China buys US dollars from the open market and as the economy of united states gets weaker, China has to buy more dollars, which has led to it printing more money for the activity as the Us attempts quantitative easing. Printing more Yuan to buy dollars means that China is adopting an expansionary monetary policy, which is a replica of what is happening in US. On the other side, US has also been printing more dollars which get absorbed in to the Chinese economy when American buy good from China, this has the effect that while more dollars enter the Chinese economy, no Yuan leaves China therefore increasing liquidity in the market which leads to inflation. Recent inflation in India has been caused by a combination of several factors, these factors include deregulation of administered prices especially in the energy sector, which has led to upward push in prices of fuel, this has spilled over to other sectors. In the agricultural sector, supply side inflation caused by shortage of agricultural products has pushed the prices of agricultural goods up as demands exceed supply. Increase in indirect taxes in the 2012 budget has also led to increase in commodity prices, in addition increase in government spending through schemes such as NREGA have also contributed to rising inflation by increasing liquidity in the market (Srinivasan, 2006). The differences in the cause of inflation in the two countries are as a result of climatic conditions especially in India where the increase in price is as a result of adverse monsoon conditions, the policies that the governments have adopted where china pegs its Yuan on the dollar while Indian government has increased government spending. Unemployment Unemployment problems in the Chinese economy have been caused by the high population growth rates in the country and the disconnect of skills that students are learning in college and the skills that employers require. China is the country with the highest population size in the country with more than a sixth of the world population being Chinese, this means that the Chinese economy cannot sustain such a large number of the labour force. Due to lack of jobs at home, jobless Chinese have been moving to other countries to look for employment opportunities especially in Africa. The government, to curb the large population, has adopted a one child policy per family which requires each family to get at most one child, any family getting more than one child is charged for each extra kid that they get. Since Chinese economy is based on manufacturing and building, students who studied courses that are not relevant in these industries have a problem getting jobs. In India, unemployment is caused by almost similar factors as those in china. One of the main causes is an education system that does not equip students with the relevant skills necessary to be employed, in addition, the education system does not equip the students with the knowledge to employ themselves. Rapid population growth rate in the country has also contributed to the high unemployment level, as the developing economy does not have the capacity to accommodate all the people entering the job market. Inequality Despite China boasting of one of the largest economies in the world, a large population of its citizens live below less than a dollar a day. This is worsened by the increasing income disparity between the rich and the poor in the society with projections putting Gini coefficient at 0.447. This inequality has been caused by rural urban disparities where in the urban centres individuals are able to access better social amenities in addition to better wages. Economist Kenneth Rogoff cautioned about this problem, as it is a threat to social stability As at 2011, inequality levels in India stood at 39.9 per cent, this is attributable to the division of poor and rich states in India, which is dependent on the infrastructure available in those states. In addition, poor fiscal administration in the nation has also contributed to the problem of inequality in the nation. International debts Chinese government has increased its borrowing to reach 160 per cent of its GDP, this debt situation has reached a critical level with some government funded organisations declaring they are unable to meet their debt obligations. However, despite this challenge, the Chinese economy has remained vibrant; the idea of how China deals with debts is explained in the book ‘red capitalism’ by Carl Walter and Fraser Howie. India’s international debt has been rising in the recent past, according to 2012 figures, it stands at 390 US dollars. The greatest contributor to this debt is external commercial borrowing, which was intended to spur growth among Indian companies and to help them meet their import costs. References Srinivasan, T. N. (2006). China, India and the world economy. Economic and political weekly, 3716-3727. Read More