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What took China ahead of India and what keeps it ahead
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In 1980, the economies of China and India were almost the same in terms of gross domestic product (GDP). India's GDP per capita was, in fact, slightly higher than that of its much larger eastern neighbour. Then, the Chinese economy grew at an average rate of 10 per cent between 1980 and 2010, leaving India far behind. In fact, Chinese manufacturing sector is presently eight times the size of India's.
There are many reasons for China's rapid pace of growth. These include business-friendly environment created by the setting up of Special Economic Zones and business-friendly labour policies.
The biggest advantage, in his opinion, that China had in the early 1980s was human capital.
In 1982, the literacy rate in China was 64.4 per cent, compared to India's 37. The average years of schooling in China was far higher than that in India then. In every measure, China was far better than India.
In terms of healthcare - be it infant mortality, life expectancy - China had a far healthier population, he said. Then there is gender gap. China has traditionally been a society that had encouraged gender equality. India, even today, fares badly on that parameter.
Recent studies have ranked China at No.61 in terms of gender equality as against India's 113 among 134 nations. In another attribute - economic empowerment of women - China is holds the No.50 spot, compared to India's 131 today. Labour force participation by women in China is 74 per cent, while it is just 34 per cent in India. In women's education, China is at No.85, against India's 121.
If a strong human capital is the reason that catalysed China's rapid growth, there are a few less attributed reasons for the sustainability of the growth.
Jay Anand, Professor of Strategy at Ohio State University, gave two interesting reasons involving strategy for it. He said that multinational companies approached China and India very differently. They saw India as a large market for their products, while China was seen as a manufacturing base for supply to the rest of the world, he said. This, he added, also explains the large difference in foreign direct investment (FDI) flow into the two countries.
Anand also said that China's approach to acquiring technological expertise was very different. Through policy, it not only insisted that foreign companies share the technology with local partners but efforts were also made to ensure that this knowledge was absorbed by local engineers efficiently. The compensation package was designed in such a manner that the engineer who had acquired technical skills from a foreign company got better emoluments if he moved to a local company and shared his knowledge.
Akbar Zaheer, Professor in Strategic Management, University of Minnesota, shared a few other reasons, political stability being one. He said that the Chinese were paranoid about political instability, especially after the collapse of the erstwhile Soviet Union. "They have a great sense of importance for political stability," he said.
Also, the decision-making in China is very localised. Zaheer quoted a businessman saying it took four and half years in India to start a business, three years in USA and just 18 months in China because decision-making is very local and fast. He also said that bureaucrats in China were incentivised in a manner that fuels growth. "Both the countries are corrupt but these are the reasons why China has grown much after than India," he said.
Velamuri is of the view that China's strengths are petering out and weaknesses are beginning to appear. "China will have to address the issue of democracy at some point in time in the future," he said. Also, the ageing population is blunting the demographic dividend. The single child policy has meant that the country has 400 million less children. Labour shortage is already fuelling hike in labour costs, he added.
India is in a better shape now to reap the advantage as its demographic dividend is intact and the quality of higher education is far better than in China. Also, some private sector innovations in healthcare in select areas such as ophthalmology have ensured that India is far ahead of China.
"India has to learn from China and invest in human capital for generating and sustaining higher rate of economic growth," Velamuri said.
In 1982, the literacy rate in China was 64.4 per cent, compared to India's 37. The average years of schooling in China was far higher than that in India then. In every measure, China was far better than India.
In terms of healthcare - be it infant mortality, life expectancy - China had a far healthier population, he said. Then there is gender gap. China has traditionally been a society that had encouraged gender equality. India, even today, fares badly on that parameter.
Recent studies have ranked China at No.61 in terms of gender equality as against India's 113 among 134 nations. In another attribute - economic empowerment of women - China is holds the No.50 spot, compared to India's 131 today. Labour force participation by women in China is 74 per cent, while it is just 34 per cent in India. In women's education, China is at No.85, against India's 121.
If a strong human capital is the reason that catalysed China's rapid growth, there are a few less attributed reasons for the sustainability of the growth.
Jay Anand, Professor of Strategy at Ohio State University, gave two interesting reasons involving strategy for it. He said that multinational companies approached China and India very differently. They saw India as a large market for their products, while China was seen as a manufacturing base for supply to the rest of the world, he said. This, he added, also explains the large difference in foreign direct investment (FDI) flow into the two countries.
Anand also said that China's approach to acquiring technological expertise was very different. Through policy, it not only insisted that foreign companies share the technology with local partners but efforts were also made to ensure that this knowledge was absorbed by local engineers efficiently. The compensation package was designed in such a manner that the engineer who had acquired technical skills from a foreign company got better emoluments if he moved to a local company and shared his knowledge.
Akbar Zaheer, Professor in Strategic Management, University of Minnesota, shared a few other reasons, political stability being one. He said that the Chinese were paranoid about political instability, especially after the collapse of the erstwhile Soviet Union. "They have a great sense of importance for political stability," he said.
Also, the decision-making in China is very localised. Zaheer quoted a businessman saying it took four and half years in India to start a business, three years in USA and just 18 months in China because decision-making is very local and fast. He also said that bureaucrats in China were incentivised in a manner that fuels growth. "Both the countries are corrupt but these are the reasons why China has grown much after than India," he said.
Velamuri is of the view that China's strengths are petering out and weaknesses are beginning to appear. "China will have to address the issue of democracy at some point in time in the future," he said. Also, the ageing population is blunting the demographic dividend. The single child policy has meant that the country has 400 million less children. Labour shortage is already fuelling hike in labour costs, he added.
India is in a better shape now to reap the advantage as its demographic dividend is intact and the quality of higher education is far better than in China. Also, some private sector innovations in healthcare in select areas such as ophthalmology have ensured that India is far ahead of China.
"India has to learn from China and invest in human capital for generating and sustaining higher rate of economic growth," Velamuri said.
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STAT
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China
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India
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HISTORY
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|---|---|---|---|
| Budget >Revenues | $1.86 trillion Ranked 3rd. 11 times more than India | $172.10 billion Ranked 23th. | |
| Debt > Government debt > Public debt, share of GDP | 31.7 CIA Ranked 110th. | 49.6 CIA Ranked 64th. 56% more than China | |
| Overview | Since the late 1970s China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion. In recent years, China has renewed its support for state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing allowed resumption of a gradual appreciation. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2012 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average. The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. Economic development has progressed further in coastal provinces than in the interior, and by 2011 more than 250 million migrant workers and their dependents had relocated to urban areas to find work. One consequence of population control policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the North - is another long-term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2010-11, China faced high inflation resulting largely from its credit-fueled stimulus program. Some tightening measures appear to have controlled inflation, but GDP growth consequently slowed to under 8% for 2012. An economic slowdown in Europe contributed to China's, and is expected to further drag Chinese growth in 2013. Debt overhang from the stimulus program, particularly among local governments, and a property price bubble challenge policy makers currently. The government's 12th Five-Year Plan, adopted in March 2011, emphasizes continued economic reforms and the need to increase domestic consumption in order to make the economy less dependent on exports in the future. However, China has made only marginal progress toward these rebalancing goals. | India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization measures, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and have served to accelerate the country's growth, which averaged under 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for nearly two-thirds of India's output, with less than one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services, business outsourcing services, and software workers. In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms. However, India's economic growth began slowing in 2011 because of a slowdown in government spending and a decline in investment, caused by investor pessimism about the government's commitment to further economic reforms and about the global situation. High international crude prices have exacerbated the government's fuel subsidy expenditures, contributing to a higher fiscal deficit and a worsening current account deficit. In late 2012, the Indian Government announced additional reforms and deficit reduction measures to reverse India's slowdown, including allowing higher levels of foreign participation in direct investment in the economy. The outlook for India's medium-term growth is positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India has many long-term challenges that it has yet to fully address, including poverty, corruption, violence and discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration. | |
| Exports | $1.97 trillion Ranked 1st. 7 times more than India | $301.90 billion Ranked 19th. | |
| Fiscal year | calendar year | 1 | |
| GDP | $8.36 trillion Ranked 3rd. 5 times more than India | $1.84 trillion Ranked 11th. | |
| GDP > Composition by sector >Industry | 46.6% Ranked 20th. 3 times more than India | 18% Ranked 169th. | |
| GDP > Per capita | $7,368.68 per capita Ranked 51st. 3 times more than India | $2,625.09 per capita Ranked 130th. | |
| GDP > Per capita >PPP | $9,100.00 Ranked 92nd. 2 times more than India | $3,800.00 Ranked 132nd. | |
| GDP > Purchasing power parity | $12.26 trillion Ranked 2nd. 3 times more than India | $4.72 trillion Ranked 3rd. | |
| GDP per capita | $6,188.19 Ranked 82nd. 4 times more than India | $1,489.24 Ranked 135th. | |
| Gross National Income | $1.13 trillion Ranked 6th. 2 times more than India | $477.00 billion Ranked 12th. | |
| Population below poverty line | 13.4% Ranked 7th. | 29.8% Ranked 19th. 2 times more than China | |
| Public debt | 31.7% of GDP Ranked 111th. | 51.7% of GDP Ranked 61st. 63% more than China | |
| Unemployment rate | 6.5% Ranked 67th. | 8.5% Ranked 46th. 31% more than China | |
| GDP > Real growth rate | 7.7% Ranked 22nd. 2 times more than India | 3.2% Ranked 96th. | |
| Tourist arrivals | 53.05 million Ranked 5th. 10 times more than India | 5.37 million Ranked 37th. | |
| Inflation rate >Consumer prices | 2.6% Ranked 137th. | 9.7% Ranked 25th. 4 times more than China | |
| Human Development Index | 0.755 Ranked 84th. 25% more than India | 0.602 Ranked 127th. | |
| Exports per capita | $1,459.25 Ranked 92nd. 6 times more than India | $244.12 Ranked 148th. | |
| Exports >Commodities | electrical and other machinery, including data processing equipment, apparel, radio telephone handsets, textiles, integrated circuits | petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel | |
| Inequality > GINI index | 41.53 Ranked 20th. 13% more than India | 36.8 Ranked 26th. | |
| Debt > External | $728.90 billion Ranked 18th. 92% more than India | $378.90 billion Ranked 27th. | |
| Debt > External >Per capita | $274.62 per capita Ranked 106th. 88% more than India | $146.39 per capita Ranked 121st. | |
| GDP > Composition by sector >Services | 43.7% Ranked 145th. | 65% Ranked 4th. 49% more than China |
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http://country-facts.findthedata.com/compare/12-122/China-vs-India
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