ion of emerging economies

8/6/2019 ion of Emerging Economies

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INTRODUCTION


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China and India. Rarely has theeconomic ascent of two still relatively

poor nations been watched with such amixture of awe, opportunism, andtrepidation. [They] possess the weightand dynamism to transform the 21st-century global economy.


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BASIS OF SUCCESS STORY OFCHINA The remarkable success of China's economic reformsfostering economic growth averaging nine percent peryear over the past fifteen years seems to defyconventional wisdom.

Economic reform has been successfully pursued withoutany political reform.

The role of Central Government

Finally, there has been little attempt to provide thecentral feature of private markets, a system of secureprivate property rights.

Nor has an attempt been made to develop a commerciallaw or an independent court system for adjudication.


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F EDERALISM CHINESE STYLE :

Political decentralizationMarket oriented approachOpen economy under communism.


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THE PARTY SYSTEMy Multi-party coop e ration and political

consultation und e r th e l e ad e rship of th e CPC is th e b asic political syst em in China .

y th e rulin g party: th e Co mm unist Party of China (CPC) > 70 m illion membe rs


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C H I N E S EC H I N E S E

H I S T O R YH I S T O R Y

I N AI N AN U T S H E L LN U T S H E L L


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The Mao Zedong era (1949-1979): Failed era of Communist that caused the starvation of millions ( in the Great Leap Forward ) .

Deng Xiaoping (1979-1997): Navigated China into a two systems socialist/capitalist economy

Jiang Zemin (1997-2003): Economic nationalism via mixed socialism ( partnership between business & government )


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DENG XIAOPI NG (1904-1997)

ARCHI TECT OF

C API T ALIS T

CHI N A

Turned Mao s cultural revolution, by opening the door for economic reform; improving trade relations with the West; providing for the return of Hong Kong &initiating the one nation, 2 systems philosophy


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CHI N A: A BU NDLE OF CONTRADI CTIO NS1 . Rapid, but uneven economic growth ( urban areas

ahead of rural areas, fast growth in intermediate goods, but slower growth in consumer goods, black markets alongside legal corporate activity ) .

2 . Mix of capitalism & socialism3 . Uncoordinated social changes : 1- baby families,

youthful western-style consumers.


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C HINAS ONE-C HILD P OLICY

To accelerate economic growth China decided to curb its population To accelerate economic growth China decided to curb its populationthrough the implementation of the Onethrough the implementation of the One- -Child Policy in 1979.Child Policy in 1979.

1980s govt. poster advertizing the One-Child Policy


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P H ASI NG I N C AP I T ALIS M GRADUALLY1 .P re- 1978: Centrally planned Communist- ( no

private ownership ) economy2 . 1978 -84: S ome free-market capitalism via

SEZs allowed along side centrally planned economy ( double-track economy )

3 . 1988 -1991: Gradual transition to a fuller market-driven, less centrally planned economy

4 . 1992 -1997: P rivately owned firms co-exist with state-owned companies5. 1998 -on : R apid expansion of private firms

but still significant number of state companies


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WH AT C AUS ED COMMUNIS TS TOBECOME C AP I T ALIS TS?


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1. Failure of the Communistcommand economy

2. Belief that the government canretain its dominance even in acapitalist economy

3. Population/poverty problems4. Hong Kongs magnetic economy


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ST ATE- SP ONSOR ED CHI NESE C AP I T ALIS MLike most Asian nations, China uses a healthy dose of

state-supported capitalism ( soft power ) where the government takes an active investment role in aiding Chinese corporations compete against foreign corporations in the Social Darwinist global marketplace.


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CHI NESE ECONOMI C ST ATS & R E ALI TI ESChina wants to q uadruple its GDP by 20206 th largest overall economy in world currently ($1 .4 T)Size of economy doubles every decade; exports double every 5 yearsChina will overtake the USA as world s largest overall economy & largest global trader around 2040

GDP has average 9% growth over past 2 5 years1 5 % annual foreign investment growth rate ($1B every week )


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Chinese private companies created 17.5Mpermanent jobs (plus 75M temp jobs in thestreet vendor economy) between 1995-2001

Urban incomes have increased at 14%annually rate since 1978Americas trade deficit with China is twice aslarge as with JapanChina passed up German in 2009 as theworlds largest exporter ($1.2T). It shouldsurpass Japan as the worlds 2 nd largesteconomy by 2011.


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1 . China s main political strategy under capitalistic reform is to remain a dominant, one party

government capable of controlling economic activity

2 . China wants to use the WTOas a global forum for its nationalistic pursuits


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LONG-TE RM CHI NESE FOR EI GN P OLI C Y

1 . Maintain economic & military superiority over Japan2 . Avoid economic

interdependency with the USA( to avoid Japan s dilemma of catering to U.S. foreign policy )

3 . Re-establish Taiwan as part of China


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CHI N A S GLOBAL P RO DUCT LI NE STRENGTH

1 . 70% of the world s toys2 . 60% of bicycles3 . 5 0% of shoes

4 . 33% of luggage5. Substantial global market share in

wooden furniture, textiles, apparel, &

televisions.


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MAJ R F REI N MPANIE

WHO OPERATE IN CHINA

1 . Motorola : Largest foreign manufacturing company in China with $ 5. 7B in sales (14% of total corporate revenues ) in 2002

2 . GM, Ford, Volkswagen, Toyota, Honda, Nissan, P eugeot, DaimlerChrysler have invested $20Bin China s plants

3 . French Carrefour is China s second largest retailer

4 . Honda sells its cars as luxury vehicles for executives rather than middle class transportation .


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P UTTI NG CHI N A S P RIVA TE SECTOR GROW TH I NTO P ERS P ECTIV E

1 . China is striving for 30 -5 0 of its private ( but state-subsidized ) companies to major global players by 2010 .

2 . So far China s biggest success stories have been in intermediate industries that don t make consumer products, but instead supply the world s manufacturers who do sell directly to consumers. This intermediate supply strategy is similar to Taiwan s traditional competitive approach ( supplying computer hardware to computer manufacturers around the world ) .

3 . China s big advantage in intermediate industries is its lowest labor costs in the world.


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HOW IS CHI N A I N VA DI NG AS E AN S TURF?


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1 .China is taking FDI away from smaller Asian & developing nations

2 .Cornering the market for labor-intensive manufacturing

3 .Flooding the West with the

cheapest products in the world4 . Stealing joint venture partners away from other developing

nations5. Recently passed Taiwan as the world s #1 producer of computer hardware


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CHI N A S MOTIV ES FOR ASIA N COO P ERATIO N

1 . To integrate itself economically with ASE AN nations & seek regional dominance

2 . To continue to escalate trade with Japan & S outheast Asia.

3 . To give Asia the upper hand in negotiating with the West


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INDIA


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REPUBLIC OF INDIA

A federal republic with a parliamentary systemof governmentcapital: New Delhi


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2 ND MOST POPULOUS NATION

Population: over one billionGrowing at 1.5% a year


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A FEDERAL SYSTEM

28 states and 6 centrally administered UnionTerritories


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F EDERAL SYSTEM

Relatively centralizedfederal government controls the most essentialgovernment functions

y

defensey foreign policyy taxationy public expendituresy economic (industrial) planning


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THE LEGISLATURE

Parliamentary system of governmenty the executive authority is responsible to the

Parliament


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INDIAN INDEPENDENCE - 1947

I ndia gained independence from Britishrule in 1947 under the leadership of M. K.Gandhi.

Non-violence and peaceful civildisobedience became hallmarks of I ndiasfreedom struggle.

I ndias Cultural Revolution:

- The freedom struggle involved an agendafor emancipation of women and lower castesthrough democratic empowerment. I ndiasdiverse ethnic and religious population

participated in and flourished during thefreedom struggle.


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R EPUBLIC OF INDIAIndia defines itself as a sovereign, socialist, secular,democratic republic that was officially constituted on Jan 26,

1950.

I ndias constitution guaranteed fundamental rights andrule of law.

Multiparty democracy with a parliamentary form of government. The Prime Minister is the elected head of thegovernment.

Special laws for the protection of ethnic, linguistic andreligious minorities were included in the constitution.


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THE ECONOMIC POLICY AFTERINDEPENDENCE

THE NEHRU PER I ODI ndias economic policy after independence wasinfluenced by the colonial experience and Fabiansocialistic approach

SAL I ENT FEATURES OF THE POL I CY ProtectionismEmphasis on import substitutionI ndustrializationI ntervention of government in laborand financial markets

Central planning Autarchic trade policy


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THE LISCENCE RAJLicense were required for starting new companies, for

producing new products or expanding productioncapacities .I ndustries like communications, steel and power were givenonly four or five licenses .

license owners made a huge business .

There was a large public sector and losses were incurred bystate - owned enterprises. Because of public sector monopoly there was poor

infrastructure investment . W ith the License Raj system, there was wide spreadcorruption .


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IMPACTS

from 1950s to 19 8 0s the economyof India stagnated around 3.5%and there was low annual growthrate

In case of License Raj, businesspeople bribed the government officialsfor entering into business and getting the

licenseplatform for corruptionRed tapism flourished

BHAGWATI described Indian growth before the reforms as having been stuck atdrastically low level during nearly three decades

of illiberal and autarkic policies


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RAJIV GHANDIS PERIOD

In late 8 0s government was led byRajiv Gandhi

Eased restrictions on capacity expansion

Removed price controlsReduced corporate taxesThese adjustments increased the rateof growth

Also accounted for fiscal deficitCollapse of India's major trading partner sovietunion further worsened the situation


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First Gulf warcaused a spike in oil pricesCaused a major balance of payment crisis for IndiaIndia found itself defaulting on loans

Asked for $1. 8 billion bailout from IMFIMF demanded reforms.


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ECONOMIC LIBERALIZATION IN INDIAIn 1991

India adopted economicreforms.

Current PM and economistManmohan Singh is the architect of I ndias economic reforms.

These economic liberalization policies reduced government

regulation of and investment in theeconomy, encouraged privatebusiness and invited foreigninvestment. Quotas and licenses weredismantled.

Manmohan Singh


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ECONOMIC GROWTH IN

LIBERALIZATION PERIOD

With the economic reform Indiaovercame the worst economic crisis inperiod of two years

The annual growth of 5. 8 % achieved bythe Indian economy in the years of reforms since 199 2 is encouraging

Foreign exchange reserves had risen to more than anadequate level of $15.07 billionExport growth rate of 2 0% is quite encouraging

An important indicator of gains from the reformsreflects

the attractiveness of India as an investment destinationRapid strides in selected industrial areas and knowledgeand skill intensive servicesOpened India's market to international competition


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INDIA TODAY

India fourth largest economy of the world

USA 20%

CHINA 10%

J APAN6%

INDIA 5%

Source: World Bank, IMF ,CIA( 2008 )


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NDIA E CONOMIC F ACT SHEET GDP- real growth rate:6.6% (2008)9% (2007)9.6% (2006)

GDP per capita (PPP Purchasing power parity)$2,800 (2008)$2,700 (2007)$2,500 (2006)note: data are in 2008 US dollars

GDP Composition by sector:agriculture: 17.2%industry: 29.1%services: 53.7% (2008)


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It is predicted that India's GDP will pass Japansin the next 15 yearsFavorable demographics coupled with rising income

levels are fueling Growth across many product segmentsand industries in IndiaOne result of India's new found prosperity has been

the swelling of India's Middle class to more than2 50 million

WHAT MORE?

54% of Indian population is under 2 5,india has

relatively young population focused more on spendingthan on savingIndias large pool of educated English speakingprofessionals has attracted US companies with thepromise of lower labor costs


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THE INDIAN PREMIER LEAGUE In the flush of its success, the

Indian Premier League (IPL) washailed as the face of the new,thrusting, ambitious India and itsswelling status.

" It is a global representation of India , " claimed the former IPL " commissioner " Lalit Modi, " and what

the modern-day India stands for and its successes. " Promoting the IPL was promoting India and what somewould like to see as the Indian economic

"

miracle"

. Thevirtues of the IPL were presented as the virtues of neoliberalIndia: the embodiment of the free market and the creativecapacities of an unleashed private sector.


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I NDIAN C INEMA IMPACT

M ore than 50% of The Indian TV industrys revenue isderived from film-based programs. The top three revenue

earners of all channels are film-based programs.

Film stars are used as protagonists for the growing industriesof animation, gaming, and new media comics

Live events and film award functions are revenue earnerssince the branded stars participate even though the quality of the event is often compromised.


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ELEPHANT VERSUS DRAGON


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MAPS

China 4 th largest & most populous country in the world with a population of 1.3 billion people.

I ndia 7 th largest & secondmost populous country in the

world with a population of 1.17 billion people.


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50 yrs ago, I ndia and China were among the poorest andeconomically most isolated countries in the world.

How did China and India emerge aseconomic giants?


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N OT SIMILAR ECONOMIES

These economies are often treated as broadlysimilar in terms of growth potential and otherfeatures.

But there are crucial differences between the twoeconomies which render such similarities verysuperficial .


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W HAT ARE INDIA & C HINA FAMOUS FOR TODAY?


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DEMOCRACY VS AUTORITARIAN REGIME

Despite its constraints, democracy has gifted theIndians with a sense of freedomTheir mind is free to think and create

Major reason of India being ahead of china inprocess, innovation and engineering. Also helped by its demographicsChina relies on mass production and imitationstrategies


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DEMOGRAPPHICS

Demographic factors favors India. about 54% of the population is under the age of 2 5Chinas one child policy accounts for its agingpopulation and expected labor shortages infuture.India can turn population growth trends to itsadvantage.This advantage of young population of India overchina is referred to as demographic dividend


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TRADE PATTERNS

China: Rapid export growth involvingaggressive increases on world marketshares, based on relocative capitalattracted by cheap labour and heavilysubsidised infrastructure.

India: Lower rate of export growth, withcheap labour due to low absolute wagesrather than public provision and poorinfrastructure development. So exportshave not yet become engine of growth,except in services.


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INFRASTRUCTURE AND FDI

As china is to manufacturing, I ndia is to services.china has plowed its huge reservoir-40% of GDP ininfrastructure.I t has been brilliant in attracting massive inflows of FD I as a means to acquire technology ,managerialexpertise and factories.Indias creaky infrastructure and FDIdeficiencies are the biggest impediments on its

road to successHowever India's strength lies somewhere else, anextraordinary stock of human capital.

ion of emerging economies

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