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Four phases of economic change 2


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Four phases of economic change 2

  1. 1. CHINA<br />The Peoples Republic Of China is the worlds second largest economy after United States of America.<br />It has been the worlds fastest growing major economies with consistent growth rates of 5%-15% over the past 30 years. <br />China is also the largest exporter and second largest importer of goods in the world.<br />
  2. 2. China and India<br />These economies are often treated as broadly similar in terms of growth potential and other features.<br />But there are crucial differences between the two economies which render such similarities very superficial .<br />Institutional conditions<br />While a vast majority of China’s growth comes from state-owned companies, India’s economic miracle can be largely attributed to its private sector story.<br />India was “mixed economy” as compared to china’s command economy.<br />The financial sector<br />India’s financial sector was typical of the “mixed economy” without comprehensive government control over the financial system; financial liberalisation since early 1990s meant further loss of control over financial allocations by the state.<br />China’s financial system still under the control of the state, despite recent liberalisation. Four public sector banks handle the bulk of the transactions in the economy, and can regulate the volume of credit to manage the economic cycle, and direct credit to priority sectors.<br />
  3. 3. Gross Domestic Product<br />
  4. 4. Foreign direct investment<br />
  5. 5. FDI and its affect on China<br />In the case of china most prominent impact was perhaps expanding china’s manufacturing exports. Foreign invested enterprises not only augment China’s export but also upgrades its export structure. By its very nature FDI brings into an economy resources like management know how, skilled labour access to established brand names and international production networks. It also enhanced capital formation, increasing industrial output, and adding tax revenue.<br />The same FDI policy may affect national welfare in the long run. The management know how provided by these MNC’s may inhibit developing local sources of these scarce skills due to foreign dominance in Chinese markets. MNC’s may suppress domestic firms and drive out local competitors through their technology. Powerful MNC’s may gain control over Chinese assets and jobs such that they could exert influences on political and economics decisions at all levels in china. In the long run, it may reduce china’s foreign exchange earnings.<br />
  6. 6.
  7. 7. Exportsand Imports<br />
  8. 8. Exports: Not China’s Engine of Growth<br /> Skeptics about China’s growth prospects most frequently question the sustainability of its export performance. In recent years, its exports and trade surplus have ballooned, leading to the common assumption that its growth is export-led and that limited global markets will curtail its expansion sooner rather than later. But this assumption is not supported by the data on the sources of Chinese growth, which are overwhelmingly domestic.In fact, a detailed study of each of China’s five macroeconomic booms and slowdowns since 1978 reveals that domestic shifts in investment and consumption have been responsible for China’s growth. Even in recent years, the contributions to growth from the country’s trade surplus have had secondary importance.<br />
  9. 9. Causes of growth and Trade patterns<br />
  10. 10. Continued...<br />
  11. 11. Four phases of economic change<br />First, in the 1980s, China distributed land and animals to farmers, set up the shell of a modern economic management system, and created small privileged coastal zones to nurture global commerce and finance. The decade ended in protest and violence at Tiananmen Square, as <br />market-driven price inflation helped farmers but hurt urban residents by reducing the purchasing power of their subsidized incomes.<br />Second, in the 1990s, strengthened profit incentives and modern management reforms energized an increasingly privatized corporate system. Business cost concerns in the face of newly market-based wages led to tens of millions of urban worker layoffs from overstaffed enterprises. Controlled food prices helped <br />make these reforms politically possible but increased rural poverty. Urban layoffs and rural hardship led to widespread social unrest, which the government met with a new system of urban social safety nets, inadequate rural compensation efforts, well-funded police interventions, and the arrest of ringleaders, violent protesters, and some corrupt officials.<br />
  12. 12. Third, from 2001 through 2007, with basic market institutions in place, China’s surging domestic investment and consumption and its entry into the World Trade Organization (WTO) stimulated average growth to more than 10 percent. Urban job growth and rural tax reforms finally began alleviating hardships inherited from the previous period. But this rapid growth also intensified pollution. As rural and urban incomes rose rapidly throughout the country, popular and political attention turned to social and environmental concerns.<br />China’s fourth reform phase began in 2008. Its newly formed government, with junior leadership appointments meant to last for the <br />next fifteen years, has restructured its ministries. and agencies to address the latest concerns. Its new “scientific development” strategy—based on government and academic studies—has dethroned growth of gross domestic product (GDP) as its overriding policy goal. Instead, <br />it promotes a more promising combination of economic growth and other important goals, especially environmental protection and social welfare.<br />
  13. 13. China’s Development Strategy: An Old Paradigm Revived<br />China’s heavily managed reforms are in some respects at odds with Adam Smith’s free market paradigm of economic success rooted in two principles, that less government is best and that policy makers should rely on the market’s “invisible hand.” Instead, Chinese theorists—like their nineteenth-century Japanese predecessors—root their strategy in the work of Friedrich List, a less well-known classical economist. <br />List insisted that policy must make the state an integral player in development. Such strategies include selective protectionism and <br />promoting champion industries. This indeed worked for China’s economy!<br />
  14. 14. Long arm of the state<br />Government’s role in Industry<br />From 1999 to 2009 the state’s share of industrial output by value fell from 49% to 27%, according to a recent report by Unirule Institute of Economics, an independent think-tank in Beijing. In 1999 government-controlled firms owned 67% of industrial capital; a decade later their share had fallen to 41%. <br />
  15. 15. Comparison of India’s and China’s Indicators <br />
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  17. 17. Contribution of various sectors<br />
  18. 18.
  19. 19. Manufacturing, value added<br />
  20. 20. Population<br />
  21. 21. China’s Demography: A Brewing Storm<br />Here is what the population pyramid for China looked like in 1970 before the one child policy was adopted as compared to projected pyramid in 2050.<br />
  22. 22. The one child policy has had unintended consequences; the sex ratio among children at birth has changed from 108 boys for every 100 girls in 1980 to 120 boys for every 100 girls today resulting in 20 to 30 million excess males.  <br />As well, the single child families will have to rely on their sole child to provide for their parents as they age.  This will place a social and economic burden on the next generation as fewer of them will be required to fund the growing pension, health care and social welfare benefits of an increasingly aging population. <br /> The number of elderly Chinese aged 65 and older stood at 144 million in 2007 and is expected to rise to 391 million by 2035 when seniors will comprise 25 percent of the total population.  <br /> China is on the cusp of experiencing a decline in new entrants into its labour force. China's demographic changes will have a marked impact on China and also world's economy.  Most nations in the world have regarded China as the world's manufacturer; should a shortage of labour occur, it will definitely impact the price of labour resulting in an impact on prices of goods around the world.<br />
  23. 23. Age dependency ratio<br />
  24. 24. Birth rate and Death rate<br />
  25. 25. Mortalityrate<br />
  26. 26. Life expectancy at birth<br />
  27. 27. How Big Is China Now, and How Big Could It Become?<br />Conservative estimates are that China will overtake the United States as the largest economy in the world in thirty years’ time. However, in 2007 China’s commercially relevant GDP was barely more than $3 trillion, com- pared with $14 trillion for the United States. Hence, today, China’s commercial GDP is less than one-fourth of America’s.<br />Despite this low starting point, if China’s expansion is anywhere near as fast as the earlier expansion of other East Asian modernizers at a comparable stage of development, the power of growth rates means that China’s economy will be larger than America’s by mid century.<br />A Chinese economy more than double the size of America’s will almost certainly give China global commercial and institutional leadership. In commerce, China will take the lead in shaping trade and investment patterns. Fluctuations in its domestic demand will send ripples around the world, including in the United States. Its monetary policies will affect liquidity and interest rates everywhere. Thus, China’s financial clout will spill into every conceivable dimension of international relations.<br />
  28. 28. Conclusion<br />In a nutshell, both China and India have to gel-up to emerge as two giants that will firmly buttress the world’s economy in the coming century by preparing themselves for a second wave of growth in aftermath of the global financial crisis, says a report on China-India Comparison – An examination of 2011 Direction and Developments.<br />
  29. 29. Macau (a special administrative region of China) has the world's lowest fertility rate at 0.91 children per woman.<br />China started their family planning policy in 1970, India in 1952In 2001 our birth rate was nearly 3 times more than China. 27 births per 1000 as against 8.8 for China! India is adding 18 million people per year, against 9 million per year in China. Total addition to population is a function of total births minus total deaths.<br />n Education, 99.1% of Chinese children attend school for 9 years, this ensures a high level of literacy. In India, literacy is 50 to 60%While IIT's, IIM's are important, the country's real growth will come because of primary and secondary education and vocational and educational training in all districts of the country. India can rise and shine in exports, agriculture, literacy and other areas with better governance.<br />