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 (%) / 2008-12
Population (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 (%) / 2008-12
Population (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?