The Economic Rise of China and India

Vittorio Valli

• Editore: Accademia University Press
• Anno: 2017
• ISBN:
  9788899200374
• Argomento: Social Sciences
• Categoria: Global Development Studies

The last decades have witnessed the spectacular rise of two great Asian economies: China and India.China has moved first. Since 1978 sweeping economic reforms have radically transformed the country. China has grown at a historically unprecedented high rate of growth and has conquered an important share of the world market and a relevant position in foreign direct investment. The book analyses the main determinants and the weaknesses of China's process of very rapid growth. Great attention is given to structural changes, to the importance of the insertion in the third wave of the fordist model of growth and in the globalization process, to the deepening of income inequalities, to the rising social, environmental and demographic problems.India has begun its process of rapid growth almost fifteen years later than China. Though very high, its average rate of growth has been lower than that in China. In its period of rapid growth India has introduced weighty reforms, liberalizing external trade and investment and reducing the regulations in the internal market. Though important and accompanied by sizable structural changes, India's period of rapid growth has not solved the deepest social problems in the country. It has created a modernized larger middle class, but limited in size with respect to total population. The crucial divide between the informal and the formal economy and the different castes, ethnic groups, languages, religions, has limited the inclusiveness of the growth process.The final chapter of the book is devoted to a brief, but revealing comparative analysis of China's and India's economies in their periods of rapid growth.

1. Changes in world economy

1.1. Introduction

The 19th century had been the century of the major European countries, with their vast and powerful, but intrinsically fragile, colonial empires. The 20th century has seen the economic rise of the two super powers, the United States and the Soviet Union, which, after the second world-war, have dominated the international scene until the end of the 1980s. In the meanwhile, in a few decades of the post second world war period, all the European colonial empires had completely collapsed, as a consequence of independence movements, insurrections or wars.

Since the 1990s, there has been the dissolution of the Soviet Union and the economic supremacy of the United States, to some extent contrasted by the European Union, Russian Federation, Japan and Brazil, part of the Islamic world and, above all, the emerging Asian economies.

From the 1950s onwards, in Asia there was the impetuous economic ascent of Japan, then of the four Asian tigers (South Korea, Taiwan, Singapore and Hong Kong) and later on of some South Eastern Asian countries, such as Indonesia, Thailand, Malaysia, Vietnam, and a few oil-rich Middle East countries. All these countries have entered a phase of rapid economic growth, reducing in different degrees the initial wide economic gap with respect to the US and the major Western European economies.

Finally, also China, from 1978 onwards, and India, from 1992 onwards, have begun their phase of very rapid economic growth and of partial catching up.

In this book we will concentrate the attention on the two Asian economic giants, China and India, whose economic, political and military weight is rapidly increasing, deeply altering the equilibriums in the world economy.

In a second volume, near to completion, I will focus on the other three major Asian economies: Japan, South Korea and Indonesia.

In both volumes there will be an extensive use of some basic concepts: a) relative economic ascent and relative economic decline; b) Alexander Gerschenkron’s economic backwardness; c) the fordist model of growth, which is a modified version of the macro-economic aspects of Antonio Gramsci’s fordism; d) economic and financial globalization.

1.2. Relative economic ascent and relative economic decline

In order to analyse the main transformations of the world economy and the economic rise of a large part of Eastern and South Eastern Asia it is useful to introduce the concepts of relative economic ascent and of relative economic decline. To do so we will use very controversial indicators such as Gross Domestic Product (GDP) and per capita GDP. A long debate has shown the great limits and major weaknesses of these indicators1. However, they have the advantage to be synthetic measures, so that they permit to give a general idea of main economic trends, while for a more thorough analysis it is necessary to use a complex set of indicators, as we will extensively do in the volume.

In order to compare the economic performance of different countries it is also necessary to avoid using indicators such as GDP or per capita GDP on the basis of official rates of exchanges. Rates of exchange are in fact very volatile, and mainly depend on short-run balance of payments movements and currency policies, loosely reflecting the effective purchasing power of the different currencies in each country. It is, for example, highly misleading to compare the level in US dollars of per capita GDP of the United States and China’s per capita GDP expressed in US dollars on the basis of the rate of change Yuan / dollar. It would be much better to use the comparison on the basis of Purchasing Power Parities (PPPs), rather than the official rates of change. We have different ways to calculate PPPs and different sources2. In the volume we will mainly use Maddison’s and Conference Board-CGDC estimates based on the GK method until 1950 and the EKS method from 1950 up to now.

There is a relative economic ascent if, in a prolonged period (a couple of decades or longer), the rate of growth of an economy, measured by the average rate of change of real per capita GDP, is higher than the rate of growth of the world economy, and a relative economic decline if the rate of growth of an economy is lower than the rate of growth of the world economy.

As table 1.1 shows, in the years 1870-1950 there had been a rapid relative economic ascent of the United States. In fact, US per capita gross domestic product had increased much faster than in Western Europe and in the world economy, although the United States had passed through the devastating years of two world war and of the great depression.

Actually, in the whole 1870-1915 period, there has been the rise and then the consolidation of the United States as the largest world economy. Those years have also witnessed the deep relative economic decline of most East and South Asian countries, weakened and humiliated by colonial rulers or unequal treaties.

In the 1950-1973 years there has been a partial catching up of Japan and the four Asian tigers, the Soviet Union and a part of Western and Eastern Europe. While China’s and Indonesia’s economies had grown more or less in line with the world economy, India had worsened her relative position.

Table 1.1. Real GDP per capita in selected countries or areas: 1870-2013 (annual average rates of change on GGDC PPPs data)

Countries or Areas	1870-1913	1913-1950	1950-1973	1973-1978	1978-2013
USA	1.8	1.6	2.5	2.0	1.6
Japan	1.5	0.9	8.1	2.0	1.7
Germany	1.6	0.2	5.3	2.2	1.6
France	1.5	1.1	4.0	2.0	1.2
Italy	1.3	0.9	5.0	2,5	1.2
United Kingdom	1.0	0.9	2.5	1.3	1.8
Russia- USSR (a)	1.0	1.8	3.4	2.7	0.9
China	0.1	- 0.6	2.8	3.1	7.4
India	0.5	- 0.2	1.5	2.5	4.0
Indonesia	0.8	- 0.2	2.7	2.0	3.4
South Korea (b)		- 0.4	5.4	7.5	5.2
World	1.3	0...

Indice dei contenuti

• Preface
• 1. Changes in world economy
• 2. China
• 3. India
• 4. A Comparison
• Conclusions
• Appendix
• References