Economies of Southern and Eastern Asia
SS7E8 The student will analyze different economic systems.
c. Compare and contrast the economic systems in China, India, Japan and North Korea.
CHINA
In late 1978 the Chinese leadership began moving the economy from a sluggish, inefficient, Soviet-style centrally planned economy to a more market-oriented system. Whereas the system operates within a political framework of strict Communist control, the economic influence of non-state organizations and individual citizens has been steadily increasing. The authorities switched to a system of household and village responsibility in agriculture in place of the old collectivization increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing, and opened the economy to increased foreign trade and investment. The result has been a quadrupling of GDP since 1978. Measured on a purchasing power parity (PPP) basis, China in 2003 stood as the second-largest economy in the world after the US, although in per capita terms the country is still poor. Agriculture and industry have posted major gains especially in coastal areas near Hong Kong, opposite Taiwan, and in Shanghai, where foreign investment has helped spur output of both domestic and export goods. The leadership, however, often has experienced - as a result of its hybrid system - the worst results of socialism (bureaucracy and lassitude) and of capitalism (growing income disparities and rising unemployment). China thus has periodically backtracked, retightening central controls at intervals. The government has struggled to (a) sustain adequate jobs growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; (b) reduce corruption and other economic crimes; and (c) keep afloat the large state-owned enterprises, many of which had been shielded from competition by subsidies and had been losing the ability to pay full wages and pensions. From 80 to 120 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time, low-paying jobs. Popular resistance, changes in central policy and loss of authority by rural cadres have weakened China's population control program, which is essential to maintaining long-term growth in living standards. Another
Long-term threat to growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north. China continues to lose arable land because of erosion and economic development. Beijing says it will intensify efforts to stimulate growth through spending on infrastructure - such as water supply and power grids - and poverty relief and through rural tax reform. Accession to the World Trade Organization helps strengthen its ability to maintain strong growth rates but at the same time puts additional pressure on the hybrid system of strong political controls and growing market influences. China has benefited from a huge expansion in computer internet use. Foreign investment remains a strong element in China's remarkable economic growth. Growing shortages of electric power and raw materials may hold back the expansion of industrial output. In summary:
(1) What to produce?
· 40 % of the Chinese economy is still based in state-run industries
· 60% of the economy is based on the private sector in where producers and consumers make production decisions
(2) How to produce?
· The many inefficiencies found in the state-run industries, particularly in the area of agriculture, limit China’s growth.
· In the private market, the speed of economic growth has caused Chinese officials to have increasing difficulty monitoring consumer safety and environmental pollution.
(3) For whom to produce?
· China requires food production to meet self-sufficiency level for the nation and only the surplus may be exported. In reality, there is not enough proper storage of food to meet the self-sufficiency requirement.
· China exports a large amount of manufactured goods.
· However, the expanding middle class in China is seen as a growth market for both Chinese and foreign companies.
Place on the continuum: China is slightly on the market side of center on the continuum.
Population: 1,367,485,388 (July 2015 est.)
GDP:$11.38 trillion
GDP Per Capita:$14,300 (2015 est.)
Population below Poverty Line: 10.0%
Household Income:1.6%
Inflation Rate:4.70%
Labor Force:804 million
Labor Force by Occupation:agriculture: 33.6% industry: 30.3% services: 36.1%
Unemployment Rate:4.2% (2015 est.)
Fiscal Year:calendar year
Budget:$2.426 trillion
Industries:iron and steel, coal, machine building, armaments, textiles and apparel, petroleum, cement, chemical fertilizers, footwear, toys, food processing, automobiles, consumer electronics, telecommunications
Industrial Production Growth Rate:12.9%
Agriculture Products:rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, fish
NORTH KOREA
North Korea, one of the world's most centrally planned and isolated economies, faces desperate economic conditions. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and spare parts shortages. Industrial and power output have declined in parallel. The nation has suffered its tenth year of food shortages because of a lack of arable land, collective farming, weather-related problems, and chronic shortages of fertilizer and fuel. Massive international food aid deliveries have allowed the regime to escape mass starvation since 1995-96, but the population remains the victim of prolonged malnutrition and deteriorating living conditions. Large-scale military spending eats up resources needed for investment and civilian consumption. In 2003, heightened political tensions with key donor countries and general donor fatigue threatened the flow of desperately needed food aid and fuel aid as well. Black market prices continued to rise following the increase in official prices and wages in the summer of 2002, leaving some vulnerable groups, such as the elderly and unemployed, less able to buy goods. The regime, however, relaxed restrictions on farmers' market activities in spring 2003, leading to an expansion of market activity. In Summary:
(1) What to produce?
· Although there have been some small market reforms recently, the majority of legal economic activities are centrally controlled by the government.
· Due to natural disaster and inefficient government-run industries, North Korea is a major recipient of food and basic service aid from Non-Governmental Organizations (NGO) and foreign nations. The U.S. provides the people of North Korea with a large amount of aid.
· Like in many highly centralized economies, there is a large underground economy that runs on a more market based system.
(2) How to produce?
· Production decisions and methods are primarily determined by the government.
(3) For whom to produce?
· Approximately one fourth of all domestic output is devoted to maintaining the military. This severely limits the amount of goods and services that make it to the rest of the people of North Korea.
· North Korea produces natural resources and manufactured goods for export.
Place on the continuum: North Korea would be much more to the command side of the continuum than any of the other nations discussed. One of the most command economies in the world today.
Population: 24,983,205 (July 2015 est.)
GDP:$40 billion (2013 est.)
GDP Per Capita:$1,800 (2013 est.)
Population below Poverty Line: %
Household Income:%
Inflation Rate:0.00%
Labor Force:14 million
Labor Force by Occupation:agricultural 36%; nonagricultural 64%
Unemployment Rate:0%
Fiscal Year:calendar year
Budget:$3.2 billion
Industries:military products; machine building, electric power, chemicals; mining (coal, iron ore, magnesite, graphite, copper, zinc, lead, and precious metals), metallurgy; textiles, food processing; tourism
Industrial Production Growth Rate:%
Agriculture Products:rice, corn, potatoes, soybeans, pulses; cattle, pigs, pork, eggs
INDIA
India's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. Government controls have been reduced on foreign trade and investment, and privatization of domestic output has proceeded slowly. The economy has posted an excellent average growth rate of 6% since 1990, reducing poverty by about 10 percentage points. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Despite strong growth, the World Bank and others worry about the continuing public-sector budget deficit, running at approximately 10% of GDP. In summary:
(1) What to produce?
· Since 1991, India has slowly allowed the markets to open up to private sector domestic and foreign businesses.
· The majority of the population relies on subsistence agriculture as a means of survival.
· There is a lot of bureaucracy and corruption involved in setting up and operating business.
(2) How to produce?
· India is increasing its oversight of intellectual and private property rights, but legal challenges are fraught with bureaucracy.
· India has an increasingly educated workforce particularly in areas of engineering and computer science.
· A complex, corrupt, and hefty tax system can sometimes make operating a business in India difficult.
(3) For whom to produce?
· Food production is largely for domestic consumers with many citizens producing food mainly for their own family consumption.
· The software and business process outsourcing industries are rapidly expanding export markets for private Indian companies.
Place on the continuum: India would be more to the market side of the continuum than China.
Population: 1,251,695,584 (July 2015 est.)
GDP:$8.027 trillion (2015 est.)
GDP Per Capita:$6,300 (2015 est.)
Population below Poverty Line: 29.8% (2010 est.)
Household Income:3.6%
Inflation Rate:5.90%
Labor Force:502.1 million (2015 est.)
Labor Force by Occupation:agriculture: 49% industry: 20% services: 31%
Unemployment Rate:7%
Fiscal Year:1 April - 31 March
Budget:$236 billion
Industries:textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software
Industrial Production Growth Rate:10.0%
Agriculture Products:rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo, sheep, goats, poultry; fish
JAPAN
Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically-powerful economy in the world after the US and third-largest economy after the US and China. One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding. Industry, the most important sector of the economy, is heavily dependent on imported raw materials and fuels. The much smaller agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self-sufficient in rice, Japan must import about 50% of its requirements of other grain and fodder crops. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth have met with little success and were further hampered in 2000-2003 by the slowing of the US, European, and Asian economies. Japan's huge government debt, which is approaching 150% of GDP, and the ageing of the population are two major long-run problems. Robotics constitutes a key long-term economic strength with Japan possessing 410,000 of the world's 720,000 ""working robots."" Internal conflict over the proper way to reform the ailing banking system continues.
In Summary:
(1) What to produce?
· Japan’s economy is primarily market driven with supply and demand determining what will be produced.
· The few industries that are highly government-controlled, such as agriculture, have much lower productivity rates than those industries controlled by market forces.
(2) How to produce?
· Private businesses determine their own production processes in most of the economy.
(3) For whom to produce?
· Japan’s population enjoys a high standard of living and creates a strong domestic market for goods and services.
· The efficiency of Japan’s production and its reputation for quality products/services has made it a major exporter.
· Place on the continuum: Out of all four countries in this element, Japan would be the closest to the market side of the continuum.
Population: 126,919,659 (July 2015 est.)
GDP:$4.127 trillion (2015 est.)
GDP Per Capita:$38,200 (2015 est.)
Population below Poverty Line: %
Household Income:4.8%
Inflation Rate:0.00%
Labor Force:64.32 million (2015 est.)
Labor Force by Occupation:agriculture: 2.9% industry: 26.2% services: 70.9% (February 2015 est.)
Unemployment Rate:3.3% (2015 est.)
Fiscal Year:1 April - 31 March
Budget:$1.439 trillion
Industries:among world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods
Industrial Production Growth Rate:1.3%
Agriculture Products:rice, sugar beets, vegetables, fruit, pork, poultry, dairy products, eggs, fish
Industries:textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software
Industrial Production Growth Rate:10.0%
Agriculture Products:rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo, sheep, goats, poultry; fish