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Updated: December 22, 2009 13:20 IST

India, China: a comparative study

C. T. KURIEN
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As the title implies and the sub-title suggests, the book is a comparative study of Asia’s two big and rising countries. The accent is on their economic performance since China opened up to the rest of the world in the late 1970s and India increased its exposure in the early 1990s.

China’s opening up happened in 1979 when Deng Xiaoping initiated the economic reform process. For the first five years it moved very cautiously. For instance, foreign capital was allowed only in four special economic zones and the emphasis was on promoting exports. But from 1984, and more so from 1992, foreign capital started playing a major role in China’s economic performance. Average foreign direct investment (FDI) inflow rose from $3.9 billion in 1985-92 to $37.8 billion in 1993-2000 and to $59.0 billion in 2001-06. The stock of FDI reached almost 30 per cent of the GDP in 2004, but declined to 24 per cent in 2007. China used the flow of foreign capital to give a big boost to its domestic investment which averaged a steady 37 per cent of the GDP from 1980 to 2004.

Twin strategy

Through trade also the Chinese economy showed a rapid integration with the rest of the world. Here China adopted the twin strategy of directing its exports to the United States and Europe while depending on its Asian neighbours for the bulk of its imports. Though China had a practically closed economy till the end of the 1970s, by 2007 it emerged as the world’s second largest exporter — a remarkable achievement indeed.

The exports initially consisted of unskilled-labour intensive manufactures (furniture, toys, garments, and so on), which China used to announce its presence to the rest of the world. But soon it was also exporting processed, finished hi-tech items such as electronic products. For the latter, it depended on imports of high-tech components from the rest of Asia.

China has used FDI and its manufacturing strategy to restructure its internal economic set up also. FDI-driven units have been substantially in the private sector, with its role clearly defined by the government. This arrangement made it possible for the authorities to devote attention to the large number of state-owned enterprises (SOEs) which account for the bulk of employment. A new strategy for SOE reform called “grasping the big and letting go the small” was launched. It involved developing the strong and competitive enterprises into cross-regional big firms and letting the smaller ones face the market forces. Rationalising the manufacturing sector has been the internal strategy of China’s growth.

‘Jobless growth’

The crucial difference between the Chinese and Indian patterns of growth is seen here. It is well known that China has had a more impressive growth rate sustained over a much longer period than India or any other country at any other time. But a mere numerical comparison does not tell the true story. The big difference between their growth performances lies in the composition, rather than the quantum of growth. While China has concentrated on labour-absorbing industrial growth, India’s growth has come largely from the increasing contribution of the services sector — its share almost touching 70 per cent in the incremental growth of the five years between 2002-03 and 2006-07. (The claim that Indian growth has not been particularly energy-intensive is not therefore very surprising.) Indian growth has not been employment-intensive either. In fact, it is often mentioned as a typical case of ‘jobless growth.’ One way to capture the difference between the Chinese and Indian growth performances is to look at some actual production figures. In the early years of the present decade, China produced 418 million tonnes of foodgrains, 163 million tonnes of steel and 650 million tonnes of cement. The corresponding figures for India are 210 mt, 29 mt, and 109 mt respectively.

Another significant difference relates to the attention paid to the social sectors or human resource development. China is way ahead of India in terms of literacy, higher education, and health services, for instance.

Insights

The book provides a great deal of valuable information and insights. But when it comes to the question of “catching up,” the answer is simply in aggregate terms: “Can India come ahead with it [China] in terms of GDP: To do that in 2025, India will need to grow at 11.6 per cent, and to do that…in 2050, India must grow at 8.9 per cent every year.” Surely, India must evolve a pattern of growth that will deal with its problems and for that it can take lessons from many countries, including China. But why must India be obsessed about catching up with China or any other country? That question has not been posed at all.

CHASING THE DRAGON — Will India Catch up with China?: Mohan Guruswamy and Zorawar Daulet Singh; Pub. by Dorling Kindersley (India) Pvt. Ltd; Pearson Education, 7th Floor, Knowledge Boulevard, 4-8(A) Sector 62, Noida-201309. Rs. 650.

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