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China and India in the Global Economy Coursework

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Updated: Apr 13th, 2022

The innovation implications

Globally, China and India are the two emerging world economies that are playing an increasingly important role in the world economy. Through a number of channels, their expansion has exposed a noticeable impact on the global economy with greater emphasis on trade.

According to the policy makers, the two nations have poised to play a key role in the debates over the recent past. Fundamentally, China’s enormous current account surplus and reservations of foreign assets have been deemed to contribute to global imbalances.

Secondly, the growth in other emerging economies coupled with China’s and India’s may have been a source of upward pressure in the past few years. In fact the exhilarating growth sin the economies were linked with the increases in prices of energy and other commodities.

Thirdly, the mounting concerns of risks linked with outsourcing manufacturing activities to China and reserving the services to India has hastened the rapid growth in the countries’ economic development.

Lastly, the progressive incorporation and integration of the two countries in the global economy has to a greater extent affected international capital cash flows. In the process increased purchases of US Treasury bonds in addition to increased merger and acquisitions moves in the US by Chinese and India companies (Cooper, 2006).

Consequently, the United States, having been considered a super-power of the world economies has started to feel the vibrations caused by the fast-emerging twin nations from the east.

For instance, over a decade and a half, China has in its capital, erected sky-scrapers in Manhattan, biggest industrial zones and research centers in other small cities. These achievements have been a result of the ability to mobilize capital and workers, thus managing to fight poverty.

A peek into the second globally emerging economy China presents the greatest participation in the global innovation chain. Comparing American and Chinese engineers shows that the Chinese counterparts combine skills using complex algorithms and multimedia technologies.

Additionally, innovation will be driven by a rising consumer class through cell-phone subscribers, passenger car markets and consumer preferences. The demands for the latest technologies and features by Chinese and Indian companies/consumers have been indicative of how American were decades before (Bosworth and Collins, 2007).

In contrast to the 21st –century global economic transformation meant for China and India, the United States’ 19th-century economy was challenged by the small workforce available and the little technological skills at the time. According to Rossi (2007), the two giants capitalize on the fact that they compliment each other’s strengths.

While India rises in design, services, software and precision industry, China maintains mass manufacturing of electronics and heavy industrial plants; posing a threat to the world tech industry if in case the two economies merged.

In the process of complimenting, most multinationals are having their goods built in China while the Indians are tasked with designing software and circuitry. In effect, the US corporate community is experiencing future shock especially when there is an Indian outsourcing deal or a Chinese corporate takeover bid.

In addition to the complementing activities, the two giants have large economic sizes, common long-term challenges, dynamic economic growth and large populations. Primarily, though they are ranked as large economies, India’s GDP at market prices is ranked at one-third that of China at USD 850 billion against USD 2.5 trillion.

These trends are predicted to remain unchanged over a number of decades to come. Secondly, the demographic trends cause a rift between the two; china’s “demographic dividends” period will end but not foreseeable for India. Thirdly, the increased economic growth had been lagging in India but has quickly narrowed the gap.

According to Jahangir, Dunaway and Prasad (2006) China and India will disrupt markets, workforces, companies and industries in preposterous ways in the coming decades. America’s commitment to the global trade system will be tested in the event shaking its confidence.

In retrospect the US ought to look for opportunities or brace itself to tackle the threat that is already cowing other economies. However, to be on the safer side, the US ought to have an open mind just like Europe was 10 decades ago.

The evolving balance of economic power shift

According to Cooper (2006) the strength wielded by the two emerging giants lies within the complimenting goods and services produced. In response to the increased technological abilities by the India and China, most multinationals are having their goods built in China while the software design and circuitry is done in India.

Consequently, the US corporate family is experiencing future shock especially when there is a Chinese corporate takeover bid or an Indian outsourcing deal. At this point, the US industries ought to reconsider the role in the trend already being set by the two giants.

An indicator of rivalry should be carefully scrutinized instead of taking the offensive; instead taking the opportunity or preparing to deal with the threat posed by the two economies.

On another level, the retaliation from the US skeptics and political stakeholders won’t phase out the Chinese and Indian strength to match forward. Instead, the US and other established powers will have to accommodate China and India.

As the 21st-century heavyweights, the giants will be known as investors, consumer markets, producers and users of energy and commodities; eventually asserting their interests the Middle East and Africa thus challenging US dominance in the Pacific.

Because the combined Indian and Chinese graduates in engineering and science annually total to about a half a million compared to the United States 60,000, there is a possibility that the balance of power in many technologies will shift from the West to the East (McKinsey Global Institute, 2005).

Despite the increased innovativeness and advantages that China and India enjoy, their position as the new superpowers is not guaranteed. Statistically, the two nations contribute to a mere 6 percent of the global GDP.

An increase in the GPD can be assumed through steady growth, cushioning millions from bouncing back to poverty, and providing jobs to the tens of millions applying for the workforce annually. Additionally, common challenges that hinder their position as the new superpowers include ecological degradation, financial crisis, smog and risks of social life.

Due to the increased pace in the economic development, china’s energy needs will be expected to continue to increase to fuel the growth. This is because there is a mismatch between the rate of increase in the economic development and the means through which the needs ought to be met.

The uncertainty in the effort to match the two is brought about by the slow rate of economic growth and the worldwide economic and energy-policy landscape.

The potential market opportunities for China and India

The market orientation for the Chinese and Indian economies initially begins with the members of the two countries. With the consumer driven by innovation and class, products like passenger cars, cell-phones and broadband connection would be demanded based on the quality available.

In order to succeed in China and India companies like Motorola ought to remain competitive by developing strategies for winning consumers, managing Research & Development and professional talent, recruiting and sourcing from factories.

Therefore the production of quality goods should be ensured in addition to the developed strategies of attracting and retaining customers.

A lot of difference exists between China and India’s foreign trade patterns. Use of cheap labor and domestic savings as input resources enabled the establishment of infrastructure therefore attracting large amounts of foreign direct investments.

To the foreign multinationals, China’s manufacturing industry provides a means through which the raw inputs can be converted to finished goods. As a supply base, China and India has been a supplier for the US and Europe

On analysis of the market position of the two giants, India’s strength is associated with sectors that are knowledge-based such as IT and pharmaceuticals and the private sector (Winters, Alan and Yusuf, 2007).

Investment opportunities within the two countries are available due to the increased foreign direct investments from foreigners and potential partners. Therefore the market for specific goods and services becomes viable in the context of both local citizens and international stakeholders.

Multinationals in the international arena are also allowed the opportunity to divest in a number of opportunities that are viably profitable to the investors.

Future competitive threats of China and India

In developed countries China and India are likely to face future competitive threats for the industries because of the competitive products and services. For instance, the specialization in IT solutions and improved financial markets would present room for other rival economies to improve their production abilities (Jahangir, Dunaway and Prasad, 2006).

In terms of foreign direct investments, China unlike India is better placed having attracted 10 times more. However, the inability to manage the investments channeled towards the countries causes the local investors to run out of opportunity to invest locally.

Lack of opportunities to invest locally prompts the willing individuals to divert their funds to alternative ventures both within and away from the country. In the long run the reduction local investments results in loss of foreign direct investments which negatively affects the economic development of a given economy.

According to McKinsey Global Institute (2005) uneven risk exposures originate from difference in foreign liabilities that out to generate foreign direct investments. Due to the fact that the FDI are a loner-term investment, exposure to volatility can be handled by managing international capital flows.

Unlike in the debt market, the equity market the limitation using capital controls curbs the activity of the foreign portfolio investors in China. On the other hand, debt markets are highly regulated as they are considered potentially volatile by the authorities.

In addition to the controls on the foreigners are challenged by controls that limit their purchase in the government and corporate bonds markets. However, the equity markets in both China and India are dominated by domestic investors due to the stern restrictions and controls on the foreign investors (Jahangir, Dunaway & Prasad, 2006).

The position of the two economies in the global scale has been deemed as the next superpowers, but this status has not been guaranteed as such. Both enjoy many advantages and benefits as a result of increased innovativeness, but the total contribution to the global GDP is lower than half that of Japan.

Therefore, their efforts should be geared towards preventing the rebounding of its citizens back into poverty; instead creating job opportunities for the tens of millions in the workforce applications annually.

References

Bosworth, B. and S. Collins., 2007. “Accounting for Growth: Comparing China and India”, NBER Working Paper, No. 12943.

Cooper, R., 2006. “How integrated are Chinese and Indian labour into the world economy?”.

Jahangir A., S. Dunaway & E. Prasad (Ed.), 2006. China and India: learning from each other. Reforms and policies for sustained growth, IMF, September 2006. Washington D.C. McKinsey & Company.

McKinsey Global Institute, 2005. The emerging global labor market. New York: Mimeo.

Rossi, V., 2007. ‘China and India – why should growth not be sustainable?’ Powerpoint presentation for Chatham House workshop ‘The Expansion of China and India: Impact and Consequences for Japan, UK and the World Economy’. London.

Winters, L. Alan & Yusuf, Shahid., 2007. Dancing with the Giants: China, India and the World Econom., World Bank and Institute of Policy Studies.

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