A comparative analysis of China and India:
Table of Contents
Introduction. 2
Country profile: China and India. 3
GDP components. 5
Gross domestic product 6
Future forecasts, recommendations and Conclusion. 12
References. 14
The United Arab Emirates (UAE) and India:
Introduction
Economies all the over the world aim to provide their citizens with the “best living standards”. The “standards of living” give an indication of the extent to which people have “access to goods and services that makes their lives easier, healthier, and safer and more enjoyable (Bernanke & Frank 2001, p.435). However the standards of living globally are diverse from one country to another. Country’s that are categorized as developed have high standards of living while emerging countries face many challenges related to provision of education, food and healthcare. Although the developed countries among them United States, United Kingdom, Australia, Japan and Canada cannot be said to be to free from poverty or having people with homelessness; the people residing in this countries have a better standard of living in comparison to the rest of the world.
Therefore, the objective of this paper is to evaluate the economies of China and India by evaluating their economies’ performance in the last thirty years. The aim is to evaluate each country’s Gross Domestic Product (GDP) by looking at their similarities and differences.
Secondly, each component of GDP is assessed to determine which has the biggest impact on each country’s economic performance.
Country profile: China and India
China and India with a combined population of 2.7 billion which is close to double the global population are also the leading emerging countries. The two economies have grown tremendously over the past thirty years to the extent that they have a defining impact on the global economic scale. Further, the income levels of the two countries have been growing at a high proportion in contrast to most developing countries over the same period while they continue to slow in developed countries like Japan (Bade & Parkin 2012).
According to the International Monetary Fund (2016), China’s current GDP is estimated to be $11.18 billion in 2015 compared with $312.62 million in 1985. It’s GDP per capita has also risen tremendously over the past thirty years to $8,140 from $295, in 1985. This is an affirmation of the great strides China has made in its economic performance. The country’s unemployment rate currently is currently at 4.05% with an inflation rate of 1.44%.
Most of the China’s GDP’S growth is attributed to the services industry which contributes to 50.2% of its GDP while the industrial sector offers 40.9% and the agricultural sector 8.9% (Central Intelligence Agency 2016). Among the leading products propelling China’s GDP growth include “iron, steel, aluminium, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products (including footwear, toys, and electronics); food processing; transportation equipment, including automobiles, locomotives, ships, aircraft; telecommunications equipment, commercial space launch vehicles, satellites” (Central Intelligence Agency 2016)
In contrast, the economy of India has a current GDP of $2.07 billion compared with $237.62 million in 1985. Its GDP per capita increased to $1,603 in 2015 compared with 324 in 1985 (International Monetary Fund 2016). The services industry is also the leading provider to the country’s GDP with a contribution of 45%. “Textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticals are the major products which have helped boost Indi’s GDP performance”(Central Intelligence Agency 2016).
Overall, the information indicates that China’s economy is both larger and has growth more compared with India over the last thirty years. This is highlighted by China’s GDP growth of 3,475.9% compared with 538.9% for India over the period.
GDP components
Countries have the principal objective of ensuring that their citizens attain the highest possible standards of living that include good healthcare, education, and security. In order for this to be realized, the economy needs to generate enough resources that can be utilized and shared fairly to improve each individual’s standard of living. Hence, the objective is to ensure an increase in the economy’s GDP each year.
However, an economy’s GDP is an aggregate measure that is composed of smaller components. It’s the performance this components of variables that will determine whether the economy grows of stalls. In order to access the GDP, it’s disaggregated into its various components or variables namely. “Consumption expenditure, Investment, Government expenditure on goods and services and Net exports of goods and services” (Bade & Parkin 2012, p.369)
These variables together with the GDP are represented form of an equation as:
Gross domestic product
“Gross domestic product (GDP), is defined as a measure of the quantity of goods and services produced by an economy” (Bernanke & Frank 2001, p. 461). According to the International Monetary Fund (2016), World Economic Outlook Database, October 2016, China’s had a nominal GDP of $11.18 billion compared with $2.07 billion in India. This is an indication that China’s economy’s about fives larger in relative to India’s economy.
As measured in real terms, China has real GDP per of $8.8 billion with $2.37 billion for India (World Bank Data 2016).
Figure 1: China and India Real GDP
Figure 1 above indicates that prior to 1990; both China and India’s economy grew at a relatively similar rate albeit China’s performance was better. However, the period after 1990 has seen the Chinese economy’s growth rate increase at a greater pace compared to India as shown in table 1 below.
Table 1: China and India GDP growth
Source: World Bank Data (2016)
Table 1 above shows that China’s economy expanded by 14.28% in 1991 and 13.92% in 1992 compared with 5.48% for India and 4.75% in 1992.
China (Percentage)
India (Percentage)
1990-1999
10.01
5.77
2000-2009
10.30
6.78
2010-2015
8.29
7.33
Table 2: China and India GDP 10 year average GDP growth
Source: World Bank Data (2016)
As table 2 above shows, China’s economy grew at a higher proportion of 10.01% between 1990 and 1999 and by 10.30% between 2000 and 2009 compared with growth rates of 5.77% and 6.78% respectively in India. However, the past decade has seen the economic growth of both countries even out with China’s economy expanding at an average of 8.29% while India’s economy rose by 7.33% (World Bank Data 2016).
One of the major reasons why China’s economy has grown at this high rate is due to the increase in its “labour productivity” attributed to the improvement in its human capital over the past thirty years. The improvement in human capital that has seen a rise in labour productivity has led to an increase in China’s comparative advantage in the production of goods and services (Bade & Parkin 2012). In turn, this means that goods produced in China are cheaper compared to goods produced in other regions in the world. This comparative advantage has also increased the number of foreign companies setting their production bases in China resulting in the creation of jobs for the locals thereby increasing the consumption component of GDP.
Table 3: GDP Composition
China
India
Consumption expenditure
38%
59.6%
Government expenditure
13.6%
10.6%
Investment expenditure
45%
32.4%
Exports
21.7%
20%
Imports
(18.3%)
(22.5%)
Net exports
3.4%
-2.5%
Source: Central Intelligence Agency (2016)
Secondly, a key factor leading to China’s growth has been its increased focus on exports that has led to an in an in its net exports over the past decade. As table three above indicates, China’s net exports were 3.4% compared with -2.5% which is an indication that China’s GDP has greater influence from exports (Central Intelligence Agency 2016).
Table 4: Net exports
Source: World Bank Data (2016)
As table 4 above indicates, China’s net exports increased -$1.53 billion in 1985 to $38.55 billion in 2015. This is an indication that exports grew more compared with imports resulting in higher net exports and this has had a contributing factor to the economy’s GDP. China’s export market has been the “United States where it exports over 18% of its total exports while Hong Kong comes second at 14.6%, Japan at 6% and south Korea at 4.5%” (Central Intelligence Agency 2016)
The issue of new technologies is another factor that has enabled both China and India grown. Both economies have been able to put more funds in research and development resulting in new and cheaper technologies that have increased productivity (Bernanke & Frank 2001).
Finally, the political environment of China has over the years has been changing its focus into a more “free market economy” from communism and this has enabled it reap the fruits of globalization (Bernanke & Frank 2001).
Another suggested factor that is suggested for the strong GDP rise for both economies is the high population of both economies. According to the International Monetary Fund (2016), China’s has a population of 1.37 billion while India’s population is 1.29 billion giving the two economies a combined population of 2.66 billion. This combined with the high number of jobs being offshored to India and more so China has led to an increase in investment expenditure. As table 3 shows, consumption expenditure in India is 59.6% and 38% in China.
Government expenditure also plays a major role through each economy’s “expansionary fiscal policies”. Government spending in China in 2015 was 13.6% compared with 10.6% in India (Central Intelligence Agency 2016). Data from the World Bank (2016) indicates that China’s expenditure in 2014 was $1.41 trillion in comparison with 44.18 billion, thirty years ago. In India’s case, the level of government expenditure has been able to increase to $223.32 billion in 2014 from 27.17 billion in 1985. These two instances indicate an increase in government expenditure has led to an increase in both economies’ GDP.
Future forecasts, recommendations and Conclusion
In the past four years, China’s economy has shown signs of slowing down as given by the drop in its GDP growth to 6.9% in 2015 compared with 7.75% in 2012, 7.68% in 2013 and 7.27% in 2014. In contrast, India’s economy has shown an upward trend, increasing to 7.57% in 2015 compared with 7.24% in 2014 and 6.64% in 2013.
According to the International Monetary Fund (2016), forecasts on the hand indicate that China’s GDP will expand to $11.39 billion in 2016 and $16.46 billion in 2012. This shows that China’s economy is like to continue its slow growth in the short term but will gain momentum in the medium term.
India’s GDP on the other hand is forecast to increase to $2.25 billion in 2016 and $3.30 billion in 2020 (International Monetary Fund 2016). The strong growth of India’s economy is attributed to the cheap energy while the level of real income has been increasing. “With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth” (International Monetary Fund 2016, p.19).
For China’s economy to recover to its growth, the main recommendation is to carry a number of reforms both structural and its markets and ensure that there is clear information regarding its foreign exchange market. The private sector needs to be given greater role that will reduce the levels of inefficiency (International Monetary Fund 2016).
The key recommendations that help boost India’s future growth include a contraction of its monetary policy to lower the level of inflation which can help the country cut the level of its interest rates. This will help boost liquidity for business and therefore invigorate the industrial and services sector. The economy also needs to continue pushing for further reforms in its revenue as well pushing down the level of subsidies offered. “Fiscal consolidation should continue, underpinned by revenue reforms and further reductions in subsidies. Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector” (International Monetary Fund 2016, p.34)
In conclusion, China’s economy shows higher growth prospects in the long-term compared with India. However, in the last four years, India’s economy has shown greater signs of growth compared with China.
References
Bade, R, Parkin, M. (2013). Essential foundations of Economics. Boston: Pearson.
Bernanke, B, Frank R. (2001). Principles of Economics. New York: McGraw-Hill Irwin.
Central intelligence agency. (2015).The world Factbook: India. [Online].Available from
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
[Accessed: April 23, 2015)
Central intelligence agency. (2016).The world Factbook: China. [Online].Available from
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed:
December 9, 2016].
Central intelligence agency. (2016).The world Factbook: India. [Online].Available from
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html [Accessed:
December 9, 2016].
International Monetary Fund. (2016). World Economic Outlook April 2016. : Too Slow
For too long. [Online]. Available from
http://www.imf.org/external/pubs/ft/weo/2016/01/pdf/text.pdf [Accessed: December 9 2016].
IMF. (2016). World Economic Outlook Database, October 2016 Date: [online].Available
From
http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=1980&ey=2021&scsm=1&ssd=1&sort=country&ds=.&br=1&c=924%2C534&s=NGDPD%2CNGDPDPC%2CNID_NGDP%2CPCPIPCH%2CLUR%2CLP&grp=0&a=&pr.x=70&pr.y=9 [Accessed: December 9, 2016].
World Bank Data. (2016). China: World Bank Data. [Online]. Available from
http://data.worldbank.org/country/china [Accessed: December 9, 2016].
World Bank Data. (2016). India: World Bank Data. [Online]. Available from
http://data.worldbank.org/country/india [Accessed: December 9, 2016].
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