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The economic growth of China and India Essay


Introduction

All economic measures and structures of statistical comparison show that China’s economy has grown faster and is higher than that of India’s.

In the recent past, China’s economy has grown mainly because of expedient implementation of policies by the Chinese government. Then again, the fractured system of the Indian government has been the main reason why the Indian government has been unable to implement its policies at a faster rate.

This has therefore, led to the slow growth of the economy. However, the leadership of China is very effective in spearheading all sectors within its economy.

This has speeded up the growth of China. Since the adoption of market-oriented economies, these two countries have ushered strategies of development that are largely similar.

China has adopted measures with an objective of coming up with policies aimed at reforming the closed economy. For a long time, India has also been undertaking policies, which objective was to improve its economic performance. Macro-economic analysis of the two economies shows that they continued implementing of policies in order to stimulate their growth1.

Per capita income

Macroeconomic analyses of China and India show that the per capita income of the two countries was almost the same in the early 1900s. India was even ahead of the Chinese economy in terms of the income earnings.

However, the pace of growth of the two economies changed tremendously after the World War. Statistics from the World Bank shows that China’s GDP has been growing at a rate of 10% per year while the annual GDP of India has been growing at a rate of 8 % to 9 % per year.

However, China’s growth looks more sustainable with an increase of its fixed investments in overseas markets. This indicates that China’s GDP might even grow further if the economy continued to be open to the world market2.

In both countries, the macroeconomic data on investment and savings rates is subjected to digital errors. Although many analysts may argue that China’s economic growth has been overrated, it is evident that huge investment into its physical capital proves that the country has experienced more economic growth than India, its counterpart.

Although investment in physical capital alone is not enough to foretell the growth of the economy, it is evident that total productivity of China is higher than that of India.

However, the pace of economic growth of India became high with implementation of projects such as the economic stimulus programs. These programs have provided the steady growth in the economy of India predictable because they came with roadmaps and estimates of the effect they had on the economy3.

Foreign direct investment

Economic projections from the World Bank show that India’s economy has a potential for growth. Unlike China, India has very few investments in other nations from all over the world.

China, on the other hand, faces the risk of losing most of its investments. The new infrastructure invested in China and the increase in credit in India show that there is a bigger growth of credit in India than in China.

The banking system of India has adopted policies for providing its people with money, which they use in investment and real estate development.

The lending rates in India have fueled increase in prices of essential commodities and sparked an increase of inflation. This slows the performance of the economy over a period.

The flow of net income from direct investment of foreign countries in China is higher than the one that flows into India. China also has a better investment in environment than India.

This investment in environment is a creation of the government through implementation of policies. It has an efficient foreign policy characterized by policies of trade between its partners. In fact, China has efficient policies for trading with other countries, which enhances good environment for trade in goods and services.

China’s bilateral relations with other countries in Asia show its willingness to trade with countries that have raw materials for its industries.

This enhances the growth of industries in China. On the other hand, India has weak relations with other countries in Asia such as South Korea and Pakistan. This acts as an impediment to the growth of India in foreign markets4.

After the world wars, there was a great recession in Asian market and these saw many people losing employment in both India and China. Since then, China has adopted efficient methods of fighting against the recession while India has slow policymaking strategies, which have prevented the growth of the economy.

China adopted very efficient methods, which have seen the increase in its economic output. However, India did not put its sectors of production at risk but went ahead and implemented policies that have helped stimulate economic growth.

India’s hefty stimulus package has helped it increase its economic output, and it has helped India enhance the growth of GDP and per capita income.

The monetary policies, implemented by India, have helped it invest into areas that were more productive. This has increased the growth of the economy of the country5.

Exports and Imports

A comparison of the contribution of exports in both countries shows that China’s exports represent 35% of the GDP while those of India represent only 25%.

India also has a higher domestic consumption than China, and this shows that India has a slower growth than China. With huge imports from the United States and European countries, India’s economy is prone to slow growth rates.

However, China has protected itself from the losses brought about by the huge imports from other countries. This has led to the country investing in other nations. The country has also built huge capital investments in other countries to stimulate the growth of its economy.

The fiscal position of China is higher than that of India. In fact, India’s fiscal deficit is 3% while China has 25.5%. The huge fiscal deficit for China is because of its huge expenditures, which are due to the high costs of living and policies.

The two lead to an increase in taxes. Nevertheless, the government of India has relaxed, and it has failed to be more productive over time. Secondly, the fiscal policies in India do not address the banking and financial systems, and this has led to slow production. The Indian currency has also declined with time with the rupee having a huge fall over the US dollar6.

Poverty trends

One of the basic facts is that the poverty trends in both countries have significantly dropped over time. The household expenditure survey in both countries shows that there is a huge change in poverty estimates in India.

The price indices, which are a good indicator of poverty levels, also show that they have declined over time. The assumptions from the researchers show that there is a decline in the levels of poverty between the two countries.

The gap between the rich and the poor individuals in India has also declined over time. This has been stimulated by the economic stimulus projects and by the policies, which have led to a reduction in poverty levels in both countries. However, poverty estimates in China suggest that there has been a huge reduction of poverty7.

Due to growth of human capital in China, there has been a reduction in the regional disparities between the two nations. The income disparity in China is slower than that of India.

This is due to the projects whose objective is to develop many regions in China. Estimates also show that the income of an Indian worker is lower than that of a Chinese worker.

This makes it possible for the Chinese worker to produce more, which in turn leads to increased disposable income. On the other hand, the contribution of an Indian worker into the gross national production is lesser than that of a Chinese worker. The reason is that there are many unemployed people in India’s population as compared to China’s population.

International market share

With regard to globalization and integration of Industries, it is arguably evident that the Chinese economy continues to outpace all other countries in Asia. This is due to its innovations that have led to an increase in the nation’s Merchandise.

In fact, Chinese exports represent 5% of exports in the world market whereas India’s exports represent 0.8% of all exports in the world. It is thus evident that the share of China’s exports is phenomenal and that it represents an economy that contributes to labor-intensive trade.

Since the 1980s, the Chinese share of the world’s economy has grown widely, and thus China has contributed to huge growth of commodity markets in the world’s economy. The trend of Chinas growth is going to continue with the pace of capturing the market share if the government in India does not open itself to the international economy8.

Although manufacturing is the mainstay of India’s economy, it is evident that the Chinese economy has produced much as compared to its Indian counterpart.

However, a comparison into the prices of commodities in the Indian market shows that the Indian prices are lower than Chinese prices. Amazingly, Chinese manufacturing companies usually export their finished products into Indian markets.

In addition, the exchange rates are relatively the same and this means that China continues to be far much ahead of India. Moreover, China exports commercial services to India. The country has also enacted policies that aim at reduction of exports to other countries thus making it globally competitive9.

Information technology

With regard to information technology and software exports, India is a giant. This is because in every fiscal year, India jets 15-20 billion US dollars into its economy. The Chinese information technology and software exports lag behind because they are as good in English as their Indian counterparts.

China also lacks experts in management and has a curriculum that does not give a room for the development of the Chinese language, thus making the country lag behind other countries, like India.

Experts argue that in the future, China will catch up with India in the production of software and Information technology facilities. This is because the government of China has come up with policies that enable the country to invest in the Information technology sector.

Trade of commodities

India is also far much ahead of China in terms of pharmaceutical export. International bodies such as the United Nations usually rely on vaccines and other medicinal products from private companies in India.

Studies show that if India changes into a fast growing economy like other developed countries in the world, it will become a super power. This is because India has economic inputs such as abundance of natural resources, large human labor, and dynamic brainpower. These factors are vital for the spearheading of the growth of any economy.

In addition, the supply of pharmaceuticals plus the dynamic information technology will act as the catalysts for growth stimulation. They are therefore vital in the development of the Indian economy. It is thus evident that the process of implementation of policies in India needs a change in order to contribute to the growth of the national economy10.

China’s trade with developed nations has also increased tremendously with time. This has led to creation of surplus and foreign reserves.

It also helps to supplement for the foreign surplus and increase its account balances thus creating a substantial increase in the exchange reserves. This helps reducing the volatility of its imports from other countries and help in supplementing the reduced exports.

Estimates show that the foreign reserves of China amount to $92 billion. However, there is also an increase of India’s balance of payments. This is because the foreign reserves of India are also high but they cannot account for the increase in the exports from other countries, thus slowing the growth of the economy. This still makes China to be far much ahead in terms of trade of manufactured goods.

Trade of services

The trade of services in China is very high. It is due to the high productivity of work, which is literally forming part of China’s exports. In fact, Chinas exports its experts to other countries such as the United States.

On the other hand, the services traded are knowledge intensive and require the Chinese people to be more educated than their Indian counterparts.

This means that Indian workers are less productive, and thus they do not represent much productivity into the economy of the country. Secondly, India does not trade sophisticated goods and services, and this makes the country lag behind. However, per capita income in India is high due to the balance of the economy and the high returns of trade in goods.

The future of Indian economy can be successful if the economy grows in terms of production of services more than goods.

It is evident that the growing economies trade more in services than in goods. India should also improve its barriers to investments, which include the cultural barriers, slow implementation of policies ,and open its closed markets.

The government of India should also give its people the freedom to have international trade through implementation of policies. Affordable credit should also be availed to Indian investors if they are to contribute substantially to economic growth in their country. India should also open its narrowed gaps with international countries to increase its level of trade.

Conclusion

In conclusion, for many years economists and other parties have considered China and India as super powers due to their fast growing economies.

The two Asian nations have adopted strategies that favor internal and external markets thus creating a good environment for regional and international trade.

Through increase in their direct investments and the opening of their closed markets, these two countries have speeded their economic growth.

However, China’s growth in production of goods and services is phenomenal. In addition, China is still ahead of India in terms of increase in foreign reserves, huge direct investment in other countries and even increase in globalization of its industries.

The poverty rates in China are also minimal as compared to the rates of poverty in India. Moreover, China is far much ahead of India in terms of the fiscal position and the gross domestic product.

Nevertheless, India has a potential for growth due to its increasing market share and per capita income. However, the future looks predictable with China’s economy being more predictable than India’s economy.

Bibliography

Allen, Richard, and Tommasi Daniel. Managing public expenditure: A reference book for transition countries. Paris: OECD, 2001.

Bardhan Pranab. Awakening giants, feet of clay assessing the economic rise of China and India. Princeton, N.J.: Princeton University Press, 2010.

Chai, Joseph, and Kartik Roy. Economic reform in China and India: development experience in a comparative perspective. Cheltenham: Elgar, 2006.

Ekins, Paul. Trade, globalization and sustainability impact assessment: A critical look at methods and outcomes. London, UK: Earth scan, 2009.

Hall, Robert, and Marc Lieberman. Microeconomics: principles and applications. Mason, OH: Southwestern, Cengage Learning, 2010.

Harrison, Denis, and Szell Gyorgy. Social innovation, the social economy and world economic development: democracy and labour rights in an era of globalization. Frankfurt Main: Lang, 2009.

Jovanovich, Miroslav. International handbook on the economics of integration. Cheltenham: Edward Elgar, 2011.

Kaufman, Robert. A concise history of Chinese foreign policy. Lanham: Rowman & Littlefield, 2010.

Moschandreas, Maria. Business economics. London: Business Press, 2000.

Saada, Adel. Elasticity: Theory and Applications, Boston, J. Ross Publishing, 2009.

Footnotes

1 Bardhan Pranab. Awakening giants, feet of clay assessing the economic rise of China and India. Princeton, N.J.: Princeton University Press, 2010.

2 Robert Kaufman. A concise history of Chinese foreign policy. Lanham: Rowman & Littlefield, 2010.

3 Adel Saada. Elasticity: Theory and Applications, Boston, J. Ross Publishing, 2009.

4Richard Allen and Tommasi Daniel. Managing public expenditure: A reference book for transition countries. Paris: OECD, 2001.

5Denis Harrison and Szell Gyorgy. Social innovation, the social economy and world economic development: democracy and labour rights in an era of globalization. Frankfurt Main: Lang, 2009.

6 Miroslav Jovanovich. International handbook on the economics of integration. Cheltenham: Edward Elgar, 2011.

7 Paul Ekins. Trade, globalization and sustainability impact assessment: A critical look at methods and outcomes. London, UK: Earth scan, 2009.

8 Moschandreas, Maria. Business economics. London: Business Press, 2000.

9 Robert Hall and Marc Lieberman. Microeconomics: principles and applications. Mason, OH: Southwestern, Cengage Learning, 2010.

10 Joseph Chai and Kartik Roy. Economic reform in China and India: development experience in a comparative perspective. Cheltenham: Elgar, 2006.

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IvyPanda. (2019, April 2). The economic growth of China and India. Retrieved from https://ivypanda.com/essays/the-economic-growth-of-china-and-india/

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IvyPanda. "The economic growth of China and India." April 2, 2019. https://ivypanda.com/essays/the-economic-growth-of-china-and-india/.

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IvyPanda. 2019. "The economic growth of China and India." April 2, 2019. https://ivypanda.com/essays/the-economic-growth-of-china-and-india/.

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IvyPanda. (2019) 'The economic growth of China and India'. 2 April.

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