INB 311
Asian Business Environment: India and China
Fall 2014
Dr. Lairson
August 26, 2014
Basics of China and India Economies
Basic Historical Dates
CHINA
Mongol Control (Yuan Dynasty)
1271-1368
Ming Dynasty
1368-1644
Qing Dynasty
1644-1912
Opium War – 1840-41
Sino-Japanese War 1894-95
War and Revolution
1912-1949
Communist Party – 1949 - present
Mao Zedong – 1949-1976
Deng Xiaoping – 1978-1997
INDIA
Mughal Empire – 1526-1707
East India Company Raj – 1757-1858
Indian Revolt – 1857
British Government Raj –1858-1947
Congress Party
Jawaharlal Nehru – 1947-1964
Indira Gandhi – 1966-1977; 1980-1984
Emerging Markets
Comparing China and India: Basic Data
NationPop.GDP GDP/PC GrowthGrowthExports
20121980-2012% GDP
India1.258b$1,824b $1,449 5.0%6.0%16%
China1.354b$8,363b $6,176 7.6%10.2%38%
Source: NYT,
%R&D %
literacyGDP 2012
India61%.85
China97%1.60
Compare contrasting GDP and population levels across India’s states with our interactive map and guide
Basic Economic Data
India
Annual data / 2012a / Historical averages (%) / 2008-12Population (m) / 1,220 / Population growth / 1.2
GDP (US$ bn; market exchange rate) / 1,839 / Real GDP growth / 5.6
GDP (US$ bn; purchasing power parity) / 4,710b / Real domestic demand growth / 5.9
GDP per head (US$; market exchange rate) / 1,508 / Inflation / 8.5
GDP per head (US$; purchasing power parity) / 3,861b / Current-account balance (% of GDP) / -3.2
Exchange rate (av) Rs:US$ / 53.4 / FDI inflows (% of GDP) / 2.3
a Actual. b Economist Intelligence Unit estimates.
China
Annual data / 2012a / Historical averages (%) / 2008-12Population (m) / 1,344.6 / Population growth / 0.5
GDP (US$ bn; market exchange rate) / 8,384.3b / Real GDP growth / 9.2
GDP (US$ bn; purchasing power parity) / 12,416.5 / Real domestic demand growth / 10.5
GDP per head (US$; market exchange rate) / 6,236 / Inflation / 3.3
GDP per head (US$; purchasing power parity) / 9,234 / Current-account balance (% of GDP) / 10.1
Exchange rate (av) Rmb:US$ / 6.31b / FDI inflows (% of GDP) / 4.5
a Economist Intelligence Unit estimates. b Actual.
Basic Background on the Chinese Economy
Mao Zedong and the Communist Command Economy
1) The revolutionary basis of CCP power
Landlords and land reform – basis of CCP power and success
1952-1957 Land reform instituted across China – break the power of landlords
Eliminate political resistance to industrial development
PLA as major power base – Chair of Military Commission is a major Party figure
Party commands the gun; the gun never commands the Party
Problems of ideology and professionalism
Communist government as the first modern state in China
Party discipline allows for effective rule throughout the nation
2) Choices on economic growth
Why was a system of “capitalist” peasants unacceptable to the CCP, both politically and economically?
The basic problem of rapid economic growth in an agricultural society
CAPITAL FORMATION
“Savings” for investment in industrialization must come from agriculture
Taxes are uncertain
Control production and prices
Government buys all produce at artificially low prices; sells to urban residents at a profit (but still low prices) and uses the surplus to invest in industry
Move to control agriculture in collective farms to meet these needs
3) Why a command economy?
Production targets – command production levels
Investment plus increase output
Focus on heavy industry; not labor-intensive industrialization
Input-output planning
Nomenklatura system
4) Crisis of Chinese Economy – 1958-1961
Good growth (4-5%) but not great growth
Mao’s Great Leap Forward: More grain and more steel
Economic catastrophe produces political split in CCP: Mao versus pragmatists
Political struggle continues in Cultural Revolution: 1966-1976
Mao’s pragmatic turn: Nixon and the US 1972
5) Deng Xiaoping and the radical reform of Chinese economy: 1978-1979
China moves incrementally but consistently to:
Join the global capitalist economy
Open to FDI in selected sites: SEZs in SE China
Create markets in the rural economy
Encourage small scale manufacturing in local government based firms – Township and Village Enterprises
Mobilize capital for infrastructure investment
India
“India is not well placed at all in international comparisons of living standards. Contrary to the increasingly used rhetoric which suggests that India is well on its way to becoming an economic ‘superpower’, this is far from the real picture, even in terms of per capita income. In fact, despite rapid economic expansion in recent years, India remains one of the poorest countries among those outside sub-Saharan Africa. According to the World Bank, only 15 countries outside sub-Saharan Africa had a ‘gross national income per capita’ lower than India’s in 2011.” Drèze, Jean; Sen, Amartya (2013-08-11). An Uncertain Glory: India and its Contradictions (pp. 47-48). Princeton University Press. Kindle Edition.
Table 3.1 and 3.2, and 3.5 and Table 3.8 (internal variation)
Social spending as a proportion of GDP is now higher in Brazil (about 25 per cent) than in any other Latin American country except Cuba (about 40 per cent), and about four times the corresponding ratio in India (a measly 6 per cent or so). (pp. 71-72).
How is this consistent with a concern for the poor in India?