The Recent Economic Development of the Economies of China and India - Case Study Example

Compare and Contrast the recent economic development of the economies of china and India, which country has the best prospect for economic growth in the future? Name: Institution: Compare and Contrast the recent economic development of the economies of china and India, which country has the best prospect for economic growth in the future? In the recent times, there are two main successes that stand out, China and India. These two nations are, through their sheer size, economic giants and as they are growing in the recent years, it is quite obvious that their continuous transformation will have significant effects, not just on them, but the entire global community. The effects are already showing, like the combination of the new market opportunities growing from the enhanced purchasing power and also greater competitiveness of these huge economies as the producers of various selected goods. In order to come up with effective policies, it is necessary to check the expected impact in order to come up with the policies and strategies that foresee the different changes, so as to efficiently capitalize on the new opportunities (Barro & Lee 2001, p.17). A lot has become documented about India and China of late. The two nations have experienced increased growth that has led to notable achievements, mainly in areas dealing with reduction of poverty. The two countries also share the same problems related to rapid growth like the increasing rural urban income gap and also environmental degradation. Increasing incomes generate impetus for the structural change in the agricultural field and food areas as the demand and the consumption patterns tend to shift. In addition, these impacts will move to commerce, trade and investment. Both the two nations, China and India have witnessed impressive growth in the field of agriculture, which is at the same time followed by the rapid growth in the industrial sector and a decline in the poverty levels. The essay is going to discuss the policy separately and also the institutional changes that lead to these changes. In addition, to compare and contrast both of the two countries in respect of the future growth, the impending impact that growth will have on the nations domestic economies and to some extent the impact of their growth to other Asia- Pacific nations (Bosworth & Collins 2003, p.89). It is evident that the growing incomes in these nations will still continue to develop pressure, for the nation’s structural reform of their own agricultural development and food areas to sustain the ever changing demand size and evolving consumers’ preferences and tastes. The changing incomes also provide trade opportunities with nations in the region and also other global countries (Kuijis & Wang 2006, p. 12). According to a United Nations study, Both China and India have a joint population of 2.3 billion people, nearly 37% of the global population. A $100 increase in the levels of per capita income of these two nations would result in around $230billion in extra demand for goods. The ever-increasing growth of these two over-populated countries will affect the balance and direction of trade significantly, the trading possibilities and a conducive level playing field for other small countries in the region. This calls for a timely check of the growth pattern in these developing countries, in order to come up with policies that will optimize gains and minimize the losses and marginalization (Woo 2004, p.8). Both India and China have enormous agricultural sectors. The experience of the Chinese shows the vital role agricultural development has played in the initial periods of reform. In India, for example, a country that is not as industrialized as China, agriculture plays an important role in its development. While GDP share in agriculture has been decreasing, this sector still forms an indispensable part of the job sector. Performance in the agricultural sector is hence of immense importance for future policies and strategies to achieve the Development Goals, mostly the crucial first goal of eradicating hunger and poverty, with the exact targets of halving between the years 1990 and 2015, the number of people living in high poverty and those suffering from extreme hunger, maintainable food security and general socio economic development (Singh 2012, p.4). As the two countries still have much of their population living in poverty, further poverty reduction in the two nations would significantly impact the overall number of the poor people in the region together with the change in the global view of these issues. The current development has an impacs for their domestic policy issues, mainly rural poverty and inequitable distribution of wealth, sustainability and natural resource management (Gordon & Gupta 2003, p. 20). China Overall economic growth An increase in the economic growth began with a steadily rise in the Gross Domestic Product (GDP) in agriculture in the early periods of reform. The rising incomes stimulated the domestic consumption and the high rates in saving with savings transferred correctly to the physical capital investments in the non agricultural sector. Growth in the non agricultural sector became stimulated by the growth of the township and the village enterprises (TVEs) (Hsueh 2000, p.34). Collectivization and also the associated self reliance of the commune also have an urgent forecast for the developments in the TVEs. The unique institutional development of the Chinese played vital parts in the reduction of extreme poverty. Assisted by the development of the TVEs, the average Chinese annual growth in the Gross Domestic Product has reached 10% yearly since 1980. Other non agricultural household income has over time come to exceed the income of agriculture in a number of regions in China (Maddison 2000,p.28. Reforms carried out during the 1990s opened an opportunity for the liberalization of trade and market, fiscal and financial development, the devaluation of the exchange rate, reform of the state owned enterprises and the expansion of the designed economic zones to attract and increase direct foreign investment. By 2004, China had by far overtaken the United States of America as leading global recipient of Foreign Direct Investment (Kuijis & Wang 2006, p. 12). Growth in the agricultural production and productivity Reforms in the Chinese agriculture started as early as in 1978. While the Agricultural collectivization is not soundly recognized as an efficient strategy for rural development and agriculture, there existed certain policies under the process like health, development of the rural infrastructure, education and agricultural technology that helped lay down the foundation for the subsequent growth in agriculture. Despite the famine periods, the country recorded high rates of growth in production that overshadowed the population growth (Knight & Shi 2000, p.93). Following the country’s adoption of the Household Responsibility System (HRS), agriculture increased at an amazing rate of 7 %. The incentives given like the rights of individual farmers to have the sole control of their land and income generated from their agricultural activities. The primarily decisive factor of this growth is labor intensive technological techniques employed. The use of the modern varieties and farm inputs like irrigation and chemical fertilizers have played a significant role (Maddison 2001, p.60). The agricultural growth has been at most points sustained by the rise in public investment in areas like the rural infrastructure and also research and technology. As agriculture continues to play a leading role in the Gross Domestic Product of China, rising incomes and urbanization have been among the leading forces for the drastic and significant changes in the patterns and level of food consumption. The sector of farming has diversified its production to meet the ever changing needs in the demand for food. Chinese efficient trade policies and reforms in the exchange rate have provided a substantial boost to the agricultural production for export (Bloom et al, 2006, p.25). India Prior to mid 1960s, India had continuously relied on imports and food aid to meet their high domestic requirements. Nevertheless, two years of constant, severe drought between 1965 and 1966 managed to convince the leadership that they could not rely on foreign imports for their food security. India also adopted vital policy reforms focused on the production of the cereal gains and consequently that was what has helped shape the country’s agricultural policy (Bosworth 2005, p. 3). In India just like in China, the agricultural economy becomes seen to be undergoing complete structural changes. Between the period of 1970 and 2003, the Gross Domestic Product in agriculture has declined from 43% to 22%. The agricultural growth was at 3.6% per annum during the early stages of Green Revolution period and it is this time that poverty reduced (Bosworth, Collins & Virmani 2007, p. 28). Comparison Between the two economies According to facts laid down, China’s economy is more developed than that of India. While India is the 11th biggest economy in terms of the various exchange rates, China takes the number two position passing Japan. In comparison to the estimated $1.3123 trillion Gross Domestic Product of India, China boasts an average GDP of close to $4909.28 billion. In terms of per capita GDP, India is way behind China with only $1124 compared to China’s $7518. (Runckel 2002, p. 24) In IT/BPO terms, India by far has the upper hand over China. India’s documented earnings from the BPO sector in 2010 alone were $49.7 billion, while China’s earnings were $35.76 billion. In the world’s top ten BPO list, seven India cities feature prominently while only a single city from China is on the list. Also, despite China being one of the Socialist countries, it started towards liberalization of its economy way ahead of India. This strengthened its economy a great deal (InternationalMonetaryFund 2006, p.12). On the contrary, India was way slower in embracing globalization and other open market economies. While the liberalization of India’s policies started in the early 1990s, China had by the mid 1980s welcomed Direct Foreign Investment and also private investment. This introduced a significant change in the country’s economy and its Gross Domestic Product increased considerably (Price 2011, p.25). In comparison to India, China has a remarkably well developed infrastructural system. A number of prime factors that have developed a vast difference between the two countries’ economies, thus include: labor development, manpower, water management, communication, healthcare services and facilities and also civic amenities. All these key aspects become clearly defined in China, a nation whose economy is turning into one of the best in the world. Although India has in the recent times grown and developed tremendously, it is still faced with problems such as unemployment, poverty, lack of civic amenities and many more. Unlike India, China has continued investing large amounts toward the development of manpower and strengthening of its infrastructure (Chow 2001, p. 42). Nevertheless, China is lagging behind India in tax incentives. Its capital market lags behind India’s capital market in terms of transparency and predictability. India’s stock market is highly transparent and predictable. India possesses Asia’s oldest stock exchange, The Bombay Stock Exchange. China is home to both Shanghai and Shenzhen stock exchange. As far as the issue of capitalization is concerned, Bombay Stock Exchange is smaller than Shanghai Stock Exchange. Shanghai Stock Exchange holds $1.7 trillion with about 849 listed companies while Bombay Stock Exchange trades to the tune of $1 trillion with close to 4833 listed companies. But in spite of the size that makes the two different, BSE operates on the principles of global guidelines and is highly stable because of the quality of the listed corporations. Chinese government is also a considerable stake holder in a number of government owned organizations, hence the firms listed have to operate according to the rules and regulations set by the government. India is, therefore, ahead of China in matters relating to financial transparency (Holz 2006, p. 87). It is argued that Indians posses powerful managerial skills. India is way ahead as long as managerial abilities are concerned. Indian firms are better and more efficiently managed than China’s firms. This is mainly due to the fact that the management reform training in China started 30 years ago but has not picked up as a serious matter of great interest to the citizens of the country. Another important reason for China not doing well in management is that a number of countries go to manufacture their products in China, reducing their export potential since these firms will be exporting to their mother countries. China is also not performing well in areas of mergers and acquisitions. On the contrary, India firms are constantly expanding on mergers and acquisitions (Fan & Zhang 2002, p.30). However, in the sector of manufacturing, China is way ahead of India. In terms of world rankings, China is the third largest nation in manufacturing just behind America and Japan. India is at a distant 12th and this highlights the fact that its success in expanding the nation’s service industry is yet to be seen in the sector of manufacturing (Zeng & Bigsten 2006, p.29). In conclusion, China has the best prospects of impressive economic growth in the future. A number of foreign firms have invested in the country and based on the fact that China is the leading investor in Africa, it will take time before India reaches that point. References Barro, R. J., & Lee, J.-W, 2001, International Data on Educational Attainment, Oxford Economic Papers, 53(3), 15-18. Bloom, D, 2006, Why Has China’s Economy Taken Off Faster Than India’s, Pan Asia Conference , 24-26. Bosworth, B, 2005, Economic Growth in Thailand: The Macroeconomic Context, World Bank, 1-6. Bosworth, B., & Collins, S. M, 2003, The Empirics of Growth: An Update, Brookings Papers on Economic Activity, 88-89. Bosworth, B., Collins, S. M., & Virmani, A, 2007, Sources of Growth in the Indian Economy, India Policy Forum 3, 1–50. Chow, G. C, 2001, The Capital Formation and Economic Growth in China, Quarterly Journal of Economics, August, 108(3), 42. 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