Economic development of low income country

10Economic Development of China and India

ECONOMIC DEVELOPMENT OF CHINA AND INDIA

(Student Name)

(Lecturer)

Economic Development of China and India

Introduction

The economic growth of a country has long been regarded from the perception of productive capacity. However, it is critical to note that a stronger economy would assist in improving the purchasing power of the people, which in turn catalyzes the overall social advancement. Since the early 80s, China has been experiencing tremendous economic success, which partly relates to the population that stands at 1.34 billion. Besides, China is no longer underdeveloped country as most studies associated it with the poverty due its closed-door policy. For more than three decades since the inception on the country’s economic reforms in 1978, China is currently one of the fastest growing economies in the world as well as the largest economies among the developing countries. With the study undertaken by the CNN Money, China is the second largest economy in the world with a GDP of US$7.8 trillion which lifted the lives of over 400 million populaces in China out of poverty. Therefore, the aim of this paper is to provide literature and statistics explaining the factors causing the tremendous growth rates of the country, sustainability sources, and the differences between China and India.

China’s Economic Reforms and Development

Since the early 1950s, China focused on launching various political movements that aim to speed industrialization and economic modernization with unsatisfactory results. Consequently, with the aftermath of Cultural Revolution, most Chinese leaders began the adoption of economic development strategy with an aim of transforming into the market-based from the country’s central plan of 1978. Such decision proved to be the major contributor of China’s rapid growth. The key factor for the countries consistent high growth rate was due to the high capital accumulation rate associated with the advancement in technological structure (Liu, Zhang, & Zhang, 2010, 154). The country’s high rate of capital accumulation contributed in the provision of strong force for rapid economic growth, which also make the China’s 40% GDP. Moreover, the country initiated the open-door policy that attracted the foreign capital inflow allowing the country’s Foreign Direct Investment (FDI) to accumulate capital as well as increasing employment. The country’s FDI spread across the country at the end of 1990s. the country’s investor friendly policy, assisting in increasing China’s FDI through the leaps and bounds that attracted US$60.6 billion in 2004. The United States and United Kingdom being ahead of China as each the countries registered approximately US$96 billion and US$78 billion respectively (Li & Hu,  2011, 119). From 1978 to 2003, the country has been receiving many foreign investments worth US$500 billion, which made more than one-quarter of China’s output manufactured. Consequently, the Chinese economy is becoming more exposed to the world compared to the previous economies.

When the People’s Republic of China was founded in 1949, most of the people in China lived in rural areas accounting to 80%-90% of the whole population. Moreover, most of them lived in poverty. Therefore, most Chinese leaders chose a new economic development strategy, which majorly focused on the industry oriented development strategy that aimed to eliminate poverty. Most of the developing successfully accomplished their political independence through having the industries as their basic development paths. China tried the introduction of similar strategy in the anticipation of emulating the countries with success (Lu, 2013, 114). However, the realized results were unsatisfactory majorly because70% of the total labour force concentrated in the low-value-added agricultural sector. With the dawn of economic reforms in 1978, China managed to improve its industrial structure through upgrading from agricultural sector to high value-added production sector through allocation of the country’s labour force in an efficient manner (Wang, 2003, 187). This factor has significantly ensured the rapid growth of China’s Economy while earning the aptly coined status commonly referred to as “the factory of the world” with the low-cost manufacturing base in China contributing to such position.

The economic growth of China strongly relates to the technological innovation making a strong relationship between the economic and technology. With increasing level of technological advancement, it becomes easy to enjoy the rapid growth of the economy. In the Business Week Economist, Michael Mandel states that economic new technologies and associated applications always drive economic growth in all places. Therefore, innovation in technology is critical for economic growth rate. There are two ways of realizing such factors: self-investment through undertaking research and development (R&D) and imitation or purchasing the advanced technologies from the developed countries (Lozeau, 2001, 7). However, the history has been able to prove that success chances for R&D within the new technologies are small and often require substantial investment. Japan and other four Asian Little Dragons such as Taiwan, South Korea, Singapore, and Hong Kong undertook a similar path in the early in 1960s. However, China the concept of “advantage of backwardness” within China’s technological innovation through importing the advanced technology from the developed countries with an aim of boosting its economic growth rate. Such a wise move assisted in giving the desired outcome with the limited resources that the country had back then in achieving higher economic growth. Several studies show that independent research cost triples the cost of buying the patents. Additionally, there are commercial values within purchasing of patented technologies.

One of the tools that China deployed to ensure the achievement of strong economic success stemmed from the devaluation of the country’s currency, Renminbi (RMB). The country’s value of RMB to dollar dropped from 1.7:1 in 1978 to 8.28:1 in 2000 after the establishment of various strategies by the Chinese government to guarantee devaluation of China’s currency. Such activities resulted in a surge of the country’s export demand associated with the pricing advantage from the devaluation of RMB and consequently ensuring the provision of a strong boost to the country’s already rapid growth in the GDP (Yueh, 2011, 120). Integration of these factors with the low cost base, China became the next frontier of growth for most multinational corporations associated with the vast opportunity associated with country’s population. Through becoming a member of the World Trade Organization (WTO) in 2001, China is proving its efforts of being the game-changer about economic growth. Such membership ended the long isolationist approach and ensured the growth of its economic linkages with other parts of the world

Timeframe

Activity

1978 — 2008

Increment in GDP from US$214.2 billion to US$4327 billion; there was increment in GDP per capita from US$228 to US$3292 according to the United Nations Statistics Division

China achieved the high annual growth rate of a GDP 9.9% surpassing the world’s average rate of 3.3%.

1978 – 2009

China experienced increment in the sum of exports and imports from US$9.8 billion to US$ 1202 billion and US$ 10.9 billion to US$ 1006 billion respectively

With such results, China is currently the second-largest economy globally. The economic study undertaken by the Organization for Economic Co-operation and Development in 2005 showed if China continues with its economic trend, the by 2025, China is likely to become the economy in the world.

Analysis of China’s Human Development Index (HDI)

HDI summarizes the measures for assessing the long-term progress with important dimensions of human development: a long and healthy life, decent standard of living, and accessibility to knowledge. Life expectancy measures a long healthy life; years of education among the adults measure the knowledge level, which is the total numbers taken while schooling; and the Gross National Incomes (GNI) measures, the standard of living (Eckstein, 2010, 237). The HDI of China was 0.727 in 2014 putting it in the high human development category, which positions it at 90 out of 188 countries and territories. However, between 1980 and 2014, the country’s HDI value rose from 0.430 to 0.727 reflecting an increment of 69.2 per cent or an average increment of 1.56 annually. The GNI per capita is expressed in constant 2011 international dollars that is converted using the purchasing power parity (PPP) rates.

Life expectancy at birth

Expected years of schooling

Mean years of schooling

GNI per capita (2011 PPP$)

HDI value

Source: UNDP2015

Relationship between Population and Economic Development

Population growth has several effects on the economic expansion and performance of China. China has a population of about 1.32 billion. Thomas R. Malthus (1766 – 1834) carried much of the economic effects on population growth out. According to the Malthusian theory, there are two ideas associated with the population-economic relationship. Firstly, the factors leading to the increasing populations are the existence of some factors of products including the land, which is available in fixed supply. Such idea suggests the decreasing returns to scale for all the others. Secondly, the theory states that there is a positive effect of the standard of living on the economic growth rates. Since the 1980, the country has been struggling to maintain its economic growth rate averagely at 8% is remarkable according to the western standards (Maurer-Fazio, 2011, 17). Despite such developments, the country still faces numerous economic challenges associated with economic growth.

China’s ever-increasing population plays a significant role in ensuring the stability of the economy as it offers stable markets for the locally manufactured products and a large pool of readily available workforce. Besides, the labor forcefulness is even likely to get larger as the country is urbanizing and becoming an industrialized state. With high population, consumption level also continues to grow which reflects the increasing demand for the produced products. The availability of such market and increased population creates even greater prospects for those willing to start business opportunities. The domestic demand for the goods and service is also growing and creating numerous opportunities for production and investment. With the low inequality of the country at a growth rate of 2% per head and 40% of the country’s population living in poverty, the China is a position of halving its poverty rate in ten years.

Conclusion

The paper focused on the analysis of China and India’s economic development, factors influencing the performance, and established the comparison on economic performance in 19sos. For years, China has been struggling to stabilize its economic state. Since 1980, the country has been experiencing economic growth due to the reforms introduced in 1979. Moreover, several policies also contributed to the growth of the economy including the implementation of the market-based economy, the currency devaluation, the open-door policy, and successful application to join the World Trade Organization. However, the sustainability factors include maintenance of high savings and investment rates. Strengthening of the state’s financial systems and improvement of the demographic factors that contributed to utilization of the advantages associated with increased populations.

References

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