economic super powers assignment sample

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Economic Super Powers

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Economic Super Powers

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Table of Contents

INTRODUCTION ............................................................................................................................................2

CHINA AND INDIA HAVE FOLLOWED RADICALLY DIFFERENT APPROACHES TO ECONOMIC

DEVELOPMENT.............................................................................................................................................2

A COMPARATIVE ANALYSIS OF ECONOMIC DEVELOPMENT OF CHINA AND INDIA ...............................4

PORTER’S DIAMOND MODEL’S IMPACT ON INDIA AND CHINA...............................................................8

REFERENCES..............................................................................................................................................11

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INTRODUCTION

The economic landscape of the world is changing rapidly. The nations which were once

categorized as developing are now swiftly emerging with eminent powers and are posing a threat

to the already existing superpowers of the world. A superpower is a nation which has both the

capacity and the capability of projecting its dictating influence and power on any place all across

the planet. Another definition suggests that a nation having a leading position in the global

system in addition to the ability to dominate is a superpower (Bosworth and Collins, 2007).

Currently, USA, Germany, Japan, European Union and China have the credentials to be called

economic superpowers. Coming to India, statistics tell that it has also developed quite a sturdy

infrastructure for supporting its private corporations. The capital markets have been operating

with higher transparency and efficiency. It was recently forecasted by the US Intelligence

Agency that by 2030, India will be an economic powerhouse and will spring up just like China

and will keep on fostering its power position over Pakistan. Presently, India has the twelfth

largest GDP in the world (Chaze, 2007).

With respect to this subject matter, it has been identified that currently, India and China

are the two superpowers in the Asian continent. Therefore, in the current paper, policies of the

two nations, their structures and the international trade scenario have been highlighted (Allen,

Qian and Qian, 2005). In addition to this, a comparison has been facilitated between the

economic gains as well as the business environment of the two nations. Furthermore, the

different sources which illustrate the development of these nations in the present era and the

prospective impacts they can have on the international marketplace have also been presented.

Both China and India are progressing towards a radical change in different aspects such as

population, business refinements, investments and economic reforms (Chobanyan and

Emblemsvåg, 2005).

CHINA AND INDIA HAVE FOLLOWED RADICALLY DIFFERENT APPROACHES TO

ECONOMIC DEVELOPMENT

The above statement that different approaches to economic development have been

espoused by China and India is agreed upon by the researcher. The claims of the researcher

pertaining to this statement have been substantiated in the following paragraphs (Das, 2007).

Rapid developments have been experienced by both the countries which have led to noteworthy






and remarkable accomplishments, especially in context of poverty reduction. The two countries

also have similar issues related to swift growth like broadening gap between rural and urban

incomes and environmental degradation. With increase in incomes, structural changes become a

necessity (Dayaram and Pick, 2006). The demand as well as consumption patterns of the

consumer shift, reforms are required in the agricultural and food industries and consequently,

this impact extends to commerce and trade. India and China have witnessed remarkable growth

in agriculture. India had the famous Green Revolution which improved the grim position of

Indian people and accelerated industrial growth. For China also industrial development took

place round about the same time. Nonetheless, the preconditions as well as the driving forces

behind this emancipation in the two countries were highly disparate (Foster, 2011).

In China, augmentation in the economic growth embarked with a rise in the GDP because

of agriculture during the period of 1979-1984. Increased saving rates were triggered as a result of

rising incomes and national consumption with savings sufficiently being transferred into non-

agricultural sector through physical capital investments (Free, 2010). From mid 1980s onwards,

the mushrooming of township and village enterprises stimulated the growth of the non-

agriculture sector. Collectivization plus its related self-sufficiency of the society was an

imperative prerequisite for the growth of these TVEs. This distinctive instrumental and radical

emancipation of China was a major element that contributed to the steady decline of poverty.

Supported by the TVEs growth, the average annual growth of GDP since 1980s has touched 10%

per annum (Harrison, 2000). Income of non-agriculture households has far surpassed the income

from agricultural sector in many regions of China. During the 1990s, a number of reforms

resulted in trade and market liberalization, fiscal and financial expansion, devaluation of the

exchange rates, creation of special economic zones to draw more FDIs and reformation of the

state owned corporations. 2004 was the year in which US was overthrown by China as the

biggest receiver of FDI in the world. For many years it has been the leading beneficiary of FDI

among the developing countries (Hsieh and Klenow, 2009).

In addition to this, the reform in Chinese agriculture started in the year 1978. Though

collectivizing agriculture is not a very sound policy for agricultural and rural development, there

were some strategies under this which entailed education, health, development of rural

infrastructure and agricultural technology which led to the establishment of accelerated

agricultural growth (Huabacek, Guan and Barua, 2007). Furthermore, as measured by the per






encountered by India is the uneven land distribution as there is large proportion of the population

which is landless. As a result of this, the rural poverty decreased because the laborers kept on

shifting out of agriculture. In addition to this, there are also major regional differences within

India like states, districts, cities and town (Pachauri and Jiang, n.d).

National food security was achieved by India and several positive developments related

to the period of Green Revolution were also there. Per capita availability of food has increased in

the nation. The Indian agricultural sector became more secure from the effects and chances of

draught (). There was a greater commercialization and diversification in the cropping patterns

from food grains to high yield crops even for small and marginal farmers. There was also a

growth in the livestock and the fisheries industry as well as changes in the consumption pattern.

Therefore, from the entire discussion, it can be stated that both China and India adopted diverse

approaches for their economic development (Pucher and et.al., 2007).

A COMPARATIVE ANALYSIS OF ECONOMIC DEVELOPMENT OF CHINA AND INDIA

A number of studies on India and China primarily focus on making a comparison

between issues related to poverty reduction, economic growth, inequality, political structures,

trade, policies for institutional reforms and foreign direct investments of these two nations

(Rodrick, 2006).

The most significant reason behind the success of infrastructure in the two countries was

the speedy growth of economy and realization of the significance of infrastructural development

in attaining this goal. China has been treading on the path of rapidly developing nations and

creates impressive infrastructures at a high pace. The communist economy has brought

improvements in its growth and alleviated poverty in the past twenty years and together with the

development of infrastructure stemming from its export-led strategy. India the second biggest

economy in the Asian continent has been quite reluctant in following the procedure of the Asian

infrastructural model in being ahead of demand. Its development strategy concentrates on

redistribution of wealth instead of growth (Smolarski, Wilner and Yang, 2011).

Though, economic liberation took off almost at the same time in both India and China i.e.

in the early 1970s and 1980s, today China has $2.2 trillion economy which is far above than that

of India. The growth rate of China since 1990 has been 10% which is among the highest in

contemporary history. China is also presenting a big challenge in terms of imports and exports






which in combination account for around three fourths of its economy, a share which

considerably exceeds the new economies (China's Development: Assessing The Implications,

2003.).

In case of India, however, improvements have been made in the recent years, yet its

international trade is quite low when compared against that of China because of its high tariff

rates. In the 1980s, China was in the category of the most deprived countries in the world and

had a population of more than 634 million people. Even today the country covers more than 60%

of the total world population. Till 1990, the poverty rate of the communist nation has mitigated

to almost 33% and in 2003 it was just 13.4%. Alleviation in rate of poverty was mainly due to

the high growth rate of the trade and its openness. The growth attained by India and reduction in

its poverty rate is also good but not as remarkable as that of China. This rate dropped from

54.4% in the 1980s to 42.1% in 1990s and 30.7% in 2003. However, still the number of poor

people in India is more than 325 million (Farrell and et.al., 2004).

The starting developmental model had a very negating impact on the wholesome

development of the country. This model mainly focused on independency and replacement

which were the two most critical factors that led to openness of trade.

Policy can be made with the use of different models and planning is the first essential

requirement to frame a policy. India and China both agrees to the above statement. Both the

countries are required to manage their growth and development aspects so that it would be quite

easy for them to overcome with the issues and challenges. The 12th five year plan may be

showing their visions and goals (Shinohara, 2013). When the growth and development strategies

are related to economic and political prospective, it cannot be adjusted in any other terms. The

ratio of growth rate of both the countries is increasing but the ratio of China has been increasing

currently in comparison to India. This growth rate indicates the development in various sections

like as, the living standard of people has been increased, health and education is improving and

various programs related to poverty alleviation have been started. Various conditions have been

mentioned in the reform process (Stefano, 2006). China has started a reform process in 1978

which is related to health and education of its country’s population as this was the main sector

where growth was required.







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India: Aiming for Faster and More Inclusive Growth

infrastructure and used up large quantities of its foreign reserves for building the industries and

employing skilled people. The FDI brought up in China by 2003 was around $53 million which

is said to be 8.2% of the total world FDI (Free, 2010).

On the contrary, India attained its procedure of economic development and

transformation, ten years after China. The country was initially getting acknowledged for its

knowledge based industries like software, information technology and pharmaceuticals.

Nonetheless, both China and India have a myriad of issues. For instance, the infrastructure for

electricity, water and roads is very poor in India. These are the basic necessities for an effective

economic development. China on the other hand has huge debt in form of bank loans. The way

in which these two economies are developing and the consequent issues being faced by them

sparks off a debate that whether or not these countries will surface as the world leaders. In India,

individual entrepreneurs have tasted considerable success due to almost no trade constraints. In

China on the contrary, an individual entrepreneur has certain limitations. Various plausible

models in effective market of China exist as compared to that in Indian markets. It is a widely

acceptable fact that growth of China is far more superior and faster than that of India (Liming,

2009).

According to report of World Bank the commercial system and regulations are very much

diverse and the average time required to start up a business in India is 71 days, whereas, in China

a business corporation only require 48 days to be established and start the process of trading.

After making a comparison of both the nations it has been observed that India is leading ahead of

China in the area of Information technology and China has a competitive advantage in the sector

of consumer electronics. India has got a motion in the automobile sector due to availability of

ample amount of labor and less cost involved in engineering; on the other hand china has been

pushed down due to several government legislations (Mahtaney, 2007).

However, many of the researchers have an opinion that in China an authoritative system

will develop an factor for economic liability in the potential events. A shift has been found in

Indian market where in buyers are moving towards increased and enhanced products along with

reduction in poverty level of country. Whereas, in China presently the disposable income is

ultimately rising with a rise in living standard of local community. Presently, India is in better






position as compared to China in the demographical sector as the percentage of people with

average age of 65 years are over is less in India (Nagraj, 2005).

The population of China is 20% higher than India and China is world’s largest customer

of base metal and has achieved a significant position in the energy and agricultural goods. China

have more share of goods except in the area of gold, tea, silver, diamond and sugar and it uses

natural resources for approximately 20 times more than India. Consumption of energy is nearly

five times more than India and it has been found that in India consumption of gold is highest at

global level that accounts for nearly 23% of entire world demand for gold. However, India is

perceived as the third biggest consumer of diamond after Japan and USA (Rodrick, 2006).

Both China and India have the competence and ability to develop and grow in their own

unique ways for a time span of 10 years. The main reasons which can result in slowdown of the

growth of these economies are international economy, structural bottlenecks and cyclical

policies.

PORTER’S DIAMOND MODEL’S IMPACT ON INDIA AND CHINA

For identifying various competitive factors, Porter’s diamond model is employed. This section

deals with some of the competitive factors.

Factor Condition: it includes human resources, physical resources, infrastructure and capital

resources, and knowledge resources of the country as they are the best factor in achieving

competitive advantages. China has plenty of human resource and the country is also rich in

capital resource and natural resources. In case of India, it has abundant human capital but it lacks

in other resources (Porter's diamond model for Indian software industry, 2011).

Demand Condition: it is one of the main factors that provide competitive advantage to any

nation. In order to become globally competitive, the demand in the domestic market for a

particular product must be more. This will provide ample of opportunities to the local players. In

case of China, many large scale projects are implemented every year such as heavy truck

industry, it provides significant advantage to the country (Stefano, 2006).

Related and supported activities: Industries such as logistics, transportation and IT acts as the

related and supporting industry for China. They support its business environment and helps in






economic growth. In case of India, industries such as iron and steel and IT provide competitive

advantage.







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REFERENCES

Books, Journals and Articles

Allen, F., Qian, J. and Qian, M., 2005. Law, finance, and economic growth in China. Journal of Financial Economics. 77(1).pp.57-116.

Bosworth, B. and Collins, S.M., 2007. Accounting for Growth: Comparing China and India. Journal of Economic Perspectives, American Economic Association. 22(1). Pp.45-66.

Chaze, A., 2007. India: An Investor'S Guide To The Next Economic Superpower . John Wiley & Sons.

Chobanyan, A. and Emblemsvåg, J., 2005. Drucker on government, politics, economics and society. foresight. 7 (5).

Das, D.K., 2007. China and India: A Tale of Two Economies. Routledge.

Dayaram, K. and Pick, D., 2006. Globalisation, reflexive modernisation, and development: the case of India. Society and Business Review. 1(2).

Foster, M. J., 2011. Distribution of FDI across China – common policies but differing impacts by region. Journal of Chinese Economic and Foreign Trade Studies. 4(2).

Free, R.C., 2010. 21st Century Economics: A Reference Handbook. Sage.

Harrison, M., 2000. The Economics Of World War II: Six Great Powers In International Comparison. Cambridge University Press.

Hazzell, P., and Fan. S., 2001. Returns to Public Investments in the Less-Favored Areas of India and China. 83(5). pp.1217-1222.

Hsieh, C.T. and Klenow, P.J., 2009. Misallocation and Manufacturing TFP in China and India. The Quarterly Journal of Economics. 124(4). pp.1403-1448.

Huabacek, K., Guan, D. and Barua, A., 2007. Changing lifestyles and consumption patterns in developing countries: A scenario analysis for China and India. Futures. 39(9).pp.1084- 1096.

Kurz, H.D. and et. al. 2011. The Dissemination of Economic Ideas. Edward Elgar Publishing.

Liming, H., 2009. Financing rural renewable energy: A comparison between China and India. Renewable and Sustainable Energy Reviews. 13(5). pp. 1096-1103.

Mahtaney, P., 2007. India, China and Globalization: The Emerging Superpowers and the Future of Economic Development. Palgrave Macmillan.

Messener, D., and Humphrey J., 2006. China and India as Emerging Global Governance Actors: Challenges for Developing and Developed Countries. 40 IDS Bulletin. 37(1). pp. 107- 114.






Nagraj, R., 2005. Industrial Growth in China and India: A Preliminary Comparison. Economic and Political Weekly. 40(21). pp. 2163-2171.

Nayyar, D., 2006. Economic Growth in Independent India: Lumbering Elephant or Running Tiger? Economic and Political Weekly. 41(15). pp. 1451-1458.

Pachauri, S., and Jiang, L., n.d. The household energy transition in India and China. Energy Policy. 36(11). pp.4022-4035.

Pucher, J. and et.al., 2007. Urban Transport Trends and Policies in China and India: Impacts of Rapid Economic Growth. Transport Reviews: A Transnational Transdisciplinary Journal. 27(4).

Rodrick, D., 2006. What's So Special about China's Exports. China & World Economy. 14(5).pp.1-19.

Smolarski, J., Wilner, N. and Yang, W., 2011. The use of financial information by private equity funds in evaluating new investments. Review of Accounting and Finance. 10 (1).

Online References

China's Development: Assessing The Implications. 2003. [Online]. Available through:

<http://cpds.apana.org.au/Teams/Articles/china_as_economic_engine.htm>. on 11 May 2013].

[Accessed

Farrell, D. and et.al., 2004. China and India: The race to growth. [pdf]. Available through: <http://www.uoit.ca/sas/News/race_to_growth.pdf>. [Accessed on 11 May 2013].

Porter's diamond model for Indian software industry. 2011. [online]. Available through: <http://kanyaka-strategy.blogspot.in/2011/09/porters-diamond-model-for-indian.html>.

th

[Accessed on 10 May 2013].

Shinohara, N., 2013. Global Economic Prospects and the Implications for India. [Online].

Available through: <http://www.imf.org/external/np/speeches/2013/050113.htm>.

[Accessed on 11 May 2013].

Stefano, T.F., 2006. Economic Superpowers of the 21st Century. [Online]. Available through: <http://www.ecommercetimes.com/story/48342.html>. [Accessed on 11 May 2013].

Yasheng, H. and Khanna, T., 2013. Can India Overtake China. [Online]. Available through: <http://www.chinanowmag.com/business.htm>. [Accessed on 11 May 2013].





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