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China or India: Which Economy Will Win?

One interesting difference between the two economies is the contrast between their dominant export sectors. Whereas China’s chief export is manufactured goods that primarily utilize low to medium-skilled labor, India’s main export is medium-skilled English-language service outsourcing. Comparatively, China’s employees have a less visible incentive to improve themselves en masse. There may simply be lower requirements to obtain productive employment in China, which could be a boon in the long-run for India.

Urban centers in both China and India are poised to grow substantially. “According to the State Council, as many as 400m people could move to cities over the next two decades” (Dyer, 2010). There will be “development of high-end manufacturing and other sunrise industries that will require a vast pool of semiskilled and skilled labor [in India]. This migration will create an increasingly urban India that is expected to attract more than 200 million rural inhabitants to urban centers by 2025” (Nobrega, 2008).

As millions move into the cities, China and India will have to deal with large increases in property values, and encourage the construction of low-income housing. “According to Knight Frank, average prices for new homes in the year [2009] to November rose by 68% in Shanghai, 66% in Beijing and 51% in Shenzhen. The China Daily noted this week that in terms of house prices as a proportion of incomes, China is now the most expensive place in the world” (Dyer, 2010). For China, this has so far not been a significant problem as “Incomes have risen faster than house prices and homeowner debt levels are low” (Dyer, 2010).

This assumes growth continues as projected, however, and numerous things could complicate this assumption, including civil unrest in China (What America Must Do, 2005) or the appreciation of the Chinese currency, the yuan. According to BusinessWeek, India’s continued growth may well depend upon peace and difficult bureaucratic reforms: “India’s public finances are a mess – budget deficits at the federal and state level are near 10%of gross domestic product – and its historical rivalry with neighboring Pakistan could escalate into a military conflict that could stall growth” (What America Must Do, 2005).

In the long run, some believe China may have to wean itself off the ancient form of the state, as democracy has been proven to provide better returns. “Authoritarian regimes often yield impressive short-term economic results…[and] can harness significant economic and political resources to create impressive industrial and economic feats…in the longer term, this type of socioeconomic model has typically led to economic and social distortions” (Nobrega, 2008). “If China’s growth slows and its unemployment rises, it could face political unrest from both those who lose their jobs and the hundreds of millions of peasants still in the countryside” (What America Must Do, 2005).

These peasants may have a valid reason to be disenchanted. For many, their land is often being taken out from under them with no recourse given. “The Chinese government’s official figures state that more than 200,000 hectares of rural land are taken from rural residents every year with little or no compensation…The result is not unexpected, with over 87,000 mass incidents (or riots) reported in 2005, a 50% increase from 2003” (Nobrega, 2008). If China is to maintain its growth lead over India in the long term, reforms will have to emerge that will increase aggregate demand for education and decrease or eliminate uncompensated land seizures. India on the other hand, will have to decrease corruption of government officials and streamline bureaucratic processes.

Works Cited

Dyer, G. (2010, February 10). The Soap Opera of China’s Housing Boom. Financial Times , p. 9.

Nobrega, W. (2008, July 22). Why India Will Beat China. BusinessWeek .

What America Must Do to Compete with China and India. (2005, August 22). BusinessWeek , p. 144.

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About Barry Saturday

The author is a Lexington, Ky-based financial advisor and formerly taught high school social studies for Fayette County Public Schools. Along with a M.A. in Education, his educational background consists of a B.A. in Foreign Languages and International Economics and an M.A. in Diplomacy with a concentration in Global Commerce. In 2012, he finished a two-month stint student teaching in Xi'an, China, and recently (2018) ran for City Council in Lexington, KY (District 4: Tates Creek / Nicholasville Rd area). Today's news outlets profit most from incendiary, surface-level appeals to emotion, which is poisoning much of our political discourse nationwide. Barry created this site in order to learn more about our world and share that knowledge with others. He hopes this site, aimed at an educated audience, will provide objective information for those seeking greater clarity and understanding than is often available in the current news environment. If you like what you see, feel free to comment and share with your network.

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