A Project Report

On
“india and china”
 Introduction
China and India seem to be the hot topics in the world economy today. In the international press,
there is almost an obsession with these two economies, and how their current growth presages
the coming "Asian century". It is not just that they both are countries with large populations
covering substantial and diverse geographical areas, but also with huge economic potential. Most
of all they are cited as the current "success stories"

Two economies in the developing world that have apparently benefited from globalization, with
relatively high and stable rates of growth for more than two decades and substantial
diversification.

In India too the obsession with China is now well-developed, mostly in the form of a longing
eastern gaze. The rapid economic growth and structural transformation in China are not just eyed
with envy; they are typically invoked to justify the economic policy of choice. Thus there are
those who argue that the recent Chinese economic success is because of liberalization and
openness to foreign trade and investment. By contrast, others point out that the early Communist
history of land reforms and egalitarian policies formed the essential basis upon which all
subsequent change has depended.

In the outside literature, these economies are often treated as broadly similar in terms of growth
potential and other features, and this even infects some Indian analyses. But in fact there are
crucial differences between the two economies which render such similarities very superficial,
and which mean that individual policies cannot be taken out of context of one country and
simply applied in the other to the same effect
 Economy of India

the 1980s, India followed socialist-inspired policies. The economy was shackled by extensive
regulation, protectionism, and public ownership, leading to pervasive corruption and slow
growth

•Since 1991, the nation has moved towards a market-based system.

•The policy change in 1991 came after an acute balance of payments crisis, and the emphasis
since then has been to use foreign trade and foreign investment as integral parts of India's
economy.

•With an average annual GDP growth rate of 5.8% for the past two decades, the economy is
among the fastest growing in the world.

•It has the world's second largest labour force, with 516.3 million people.

•In terms of output, the agricultural sector accounts for 28% of GDP; the service and industrial
sectors make up 54% and 18% respectively.

•A Goldman Sachs report predicts that "from 2007 to 2020, India’s GDP per capita will
quadruple," and that the Indian economy will surpass the United States by 2043

.•but India "will remain a low-income country for several decades, with per capita incomes well
below its other BRIC peers.
 Economy of china

From its founding in 1949 to late 1978, the People's Republic of China was a Soviet-style
centrally planned economy

.•Private businesses and capitalism were suppressed. To propel the country towards a modern,
industrialized communist society, Mao Zedong instituted the Great Leap Forward. (a major
economic failure and a great humanitarian disaster.)

•In 1978, Deng Xiaoping initiated the PRC's market-oriented reforms under one-party rule.

•Collectivization of the agriculture was dismantled and farmlands were privatized to increase
productivity.

•A wide variety of small-scale enterprises were allowed to flourish while the government relaxed
price controls and promoted foreign investment.

•Foreign trade was focused upon as a major vehicle of growth, which led to the creation of
Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in other Chinese
cities
 Comparison

We compare the recent economic performances of China and India using a simple growth
accounting framework that produces estimates of the contribution of labor, capital, education,
and total factor productivity for the three sectors of agriculture, industry, and services as well as
for the aggregate economy.

Our analysis incorporates recent data revisions in both countries and includes extensive
discussion of the underlying data series. The magnitude of output growth in China is roughly
double that of India at the aggregate level, and also higher in each of the three sectors.

In China the post-1993 acceleration was concentrated mostly in industry, which contributed
nearly 60 percent of China’s aggregate productivity growth. In contrast, 45 percent of the growth
in India came in services. Reallocation of workers from agriculture to industry and services has
contributed 1.2 percentage points to productivity growth in each country.
 India and China : GDP Growth

The GDP growth rate in China is dramatically high compared to the more moderate expansion in
India. The Chinese economy has grown at an average annual rate of 9.8 per cent for two and a
half decades, while India’s economy has grown at around 5-6 per cent per year over the same
period. Chinese growth has been relatively volatile around this trend, reflecting stop-go cycles of
state response to inflation through aggregate credit management.
 India and China : Gross Domestic Investment

This higher growth in China essentially occurs because of the much higher rate of investment in
China. The investment rate in China (investment as a share of GDP) has fluctuated between 35
and 44 per cent over the past 25 years, compared to 20 to 26 per cent in India. In fact, the
aggregate ICORs (incremental capital-output ratios) have been around the same in both
economies. Within this, there is the critical role of infrastructure investment, which has averaged
at 19 of GDP in China compared to 2 per cent in India over the 1990s.
 India and China : Export Of Goods

There is major difference in the trade policy and trade patterns of India and China. Chinese
export growth has been much more rapid, involving aggressive increases on world market
shares. This export growth has been based on relocative capital which has been attracted not
only by cheap labour but also by excellent and heavily subsidized infrastructure resulting from
the high rate of infrastructure investment. In addition, since the Chinese state has also been keen
on provision of basic goods in terms of housing, food and cheap transport facilities, this has
played an important role in reducing labour costs for employers. In India, the cheap labour has
been because of low absolute wages rather than public provision and underwriting of labour
costs, and infrastructure development has been minimal. So it is not surprising that it has not
really been an attractive location for export-oriented investment, its rate of export growth has
been much lower, and exports have not become an engine of growth.

There is another issue relating to trade policy. In China, the rapid export growth generated
employment which was a net addition to domestic employment, since until 2002 China had
undertaken much less trade liberalization than most other developing countries. This is why
manufacturing employment grew so rapidly in China, because it was not counterbalanced by any
loss of employment through the effects of displacement of domestic industry because of import
competition. This is unlike the case in India, where increases in export employment were
outweighed by employment losses especially in small enterprises because of import competition.
 India and China : Population
India and china are most populist countries in the world and the most population explosion
which was a matter of serious concern in both the countries is now transforming into one of their
strengths. Present population in India is approximately 1.1 billion and in china 1.315 billion
which is expected to rise to around 1.392 billion in china and to 1.592 billion in India in 2050
which might result in more slums and seriously create social economic and environmental
problems in India . Another concern is food security. the working age population in India is
expected to grow until 2045 and decline their after and in china it is expected to start declining
between 2020 and 2050.china’s population increase has been generally around 12-13 million
people but its strict family planning policy and one child policy. It has some how been able to
control the growth rate of population to some extent. China’s population will continue to growth
at a rate of 10 million per year and is expected to increase to 1.6 billion in the next century. the
government of china is also trying ton control the population thereby limiting the population
quantity and improving the quality.
 India and China : FDI inflows
Both China and India are throwing up competition for countries like Hong Kong (China), the
Republic of Korea, Singapore and Taiwan as the main sources of FDI in developing Asia. The
share of India and China in the total global FDI outflows has been increasing continuously.
While both accounted for 10 per cent of total FDI outflows in 2005 in the Asian region, it
increased to 25 per cent in 2007.

India has emerged as the second most-attractive location after China, ahead of the US and
Russia, for global foreign direct investment (FDI) in 2007. According to UNCTAD's world
investment report, China is the most preferred investment location, followed by India, the US,
the Russian Federation and Brazil, the report said.

No doubt India and china are countries of enormous importance and opportunity. Both face
distinctive challenges when it comes to attracting investment from abroad. to date, china has
succeeded in attracting a diverse range of FDI in an unprecedented fashion. though behind in
real number terms, India offer huge investment oppurtuinities.as economic barriers continues to
fall, the government must be ready to take the steps necessary to revitalize the economy, making
India a magnet for foreign investment, improving productivity and adopting new technologies. If
such a transparent action is initiated by the Indian government, no doubt, India will soon surpass
china.
 A comparison of employment in India and China
The resulting employment series for India shows a resilient labour market from the late 1990s
after a period in the mid-1990s when employment had been stagnant. Between 1998 and 2003,
employment is estimated to have grown by 17% after having been almost stable in the previous
five years. This growth in employment was associated with a marked increase in employment
outside of the agricultural sector – more than 70% of the increase in employment came in the
secondary and tertiary sectors of the economy. Most notable was the almost 50% increase in
employment in the secondary sector of the economy that appears to have been mainly
concentrated in small manufacturing plants in rural areas. Service sector employment, though
still larger than the industrial sector, increased much less rapidly. The pace of change in the
structure of employment has been slower than in China despite the strong restrictions on
movement of workers and the absence of landless labourers in the Chinese countryside. Indeed,
the speed of the decline in the share of agriculture in India was only half that observed in China
in the period 1978 to 2003.

Outside of agriculture, the traditional view that employment in India is less oriented to the
secondary (industrial) sector than in China is no longer true. The share of industrial employment
in non-agricultural employment in India has followed two markedly different trends. In the
period after the gradual opening of the economy to foreign trade and the ending of industrial
licensing, the share of employment in industry declined somewhat, but since the late 1990s there
has been an increase in the share of employment in that sector. By contrast in China, there has
been a steady decline in the share of employment in the secondary sector. This decline reflects
the ending of the bias towards industry inherent in the pre-1978 Chinese economy. Nationwide
employment data for China is published with a long lag, as it is drawn from annual sample
census that covers 0.1% of the population and so the most recent data is for 2004. In the period
since 1997,when labour market flexibility was introduced in China, employment in the
secondary sector has been stable, growing by only 2% whereas service sector employment has
grown by almost one quarter.
 India and China : Trade
Trade has been the integral part of the burgeoning bilateral economic relationship between the
two countries. Bilateral trade has grown by over 10 times since 2000-01 – from just US$ 2.33
billion in 2000-01, to US$ 25.68 billion in 2006-07.

India's exports to China, likewise, have grown nearly ten-fold – from US$ 831.3 million
(accounting for 1.87 per cent of total exports) in 2000-01, to US$ 8290.7 million (6.56 per cent
of total exports) in 2006-07. The growth continued in 2007-08, with exports to China touching
US$ 7868.6 million during April-January 2007–08 – as against US$ 6572.8 million in the same
period last fiscal. Significant exports from India to China include cotton, organic chemicals, iron,
steel and inorganic chemicals among others.

Simultaneously, India's imports from China have increased from US$ 1502.2 million
(accounting for 2.97 per cent of total imports) in 2000-01, to a whopping US$ 17399 million
(9.53 per cent of total imports) in 2006-07. Furthermore, during April-January 2007–08, imports
have increased by 60.1 per cent to US$ 22592.3 million against US$ 14108 million in the
corresponding period last fiscal. On the other hand, imports from China are highest in the
category of electrical machinery and equipment, organic chemicals, mineral fuels, oil and oil
products.

In fact, this surge in bilateral trade between the two countries has resulted in China displacing
US to become the number one trade partner of India. During April-January 2007–08, Indo-China
trade was US$ 30.46 billion against the Indo-US bilateral trade level of US$ 28.27 billion. This
is no mean achievement, considering the fact that, bilateral trade between India and China was
only about one-fourth of Indo-US trade in 2001-02.

With such rapid growth, the bilateral trade target of US$ 20 billion by 2008 was achieved well
ahead of time. Also, the next Indo-China bilateral trade target of US$ 60 billion by 2010 is likely
to easily achievable. Further, to cement the rapidly strengthening bilateral trade ties, both
countries are planning to sign a Free Trade Area agreement at the earliest.
 India and China : Mergers & Acquisitions
Both India and China have been moving aggressively to redraw the global landscape through
their mergers and acquisitions (M&A) deals. In fact, the year 2007 has been a record year for
both countries with respect to M&A activity.

According to Thompson Financial, the value of China outbound M&A touched US$ 24.2 billion
by December 19, 2007-up 60 per cent from 2006 and seven times that of 2004. Similarly, the
Indian outbound M&A deals increased by almost five times over 2006 to over US$ 35 billion.

Simultaneously, 2007 has also been a record year for inbound deals for both countries. While,
the value of China inbound deals reached US$ 22 billion, India's inbound M&A deals value
increased much faster to US$ 31.5 billion.

Consequently, this steady rise of the Indian and Chinese economy along with their businesses is
likely to transform the global business landscape. For example, according to a study by UK-
based Chartered Management Institute, India & China (along with Brazil and Russia) would
exert a greater influence on business markets and transform the business landscape by 2018.

Both India and China provide huge investment opportunities across a myriad of sectors. For
example, they are world's top two growing major economies, are set to be the among the top two
global wireless network markets (by April 2008), are among the top three realty markets, and
have the world's largest number of financially excluded households (opening huge opportunities
in the financial sector).

Consequently, these countries have been at the forefront in attracting global majors in a diverse
set of industries. In fact, according to a report by Price Waterhouse Coopers, India is likely to
become the third largest and China the largest economy by 2050. While the combined size of the
two countries is likely to have major influence on global economy, both the countries have also
their own respective natural advantages in a host of sectors. Certain factors that favour India
include:

• The flow of European cash into Indian firms surged more than four-fold in 2007,
surpassing EU investments into Chinese companies, as per estimates from the data
agency Euro stat.
• India has been ranked 25th in terms of economic transformation (Transformation Index
2008), way ahead of China's 85th position, by German Bertelsmann Foundation.
• Indian business leaders – in a survey by Korn/Ferry International – are found to be more
entrepreneurial than their Chinese counterparts, owing largely to their strong language
skills and association with a society that encourages entrepreneurship.
• In a survey by the US-based business magazine Fortune, Indian products were found to
be more preferred than Chinese products.
• India has fared better in providing social security like healthcare, education and child
welfare to its people, compared to China and Malaysia, as per a new index brought out
by the Asian Development Bank.
• India has overtaken the US and China to emerge as the largest developer location for Sun
Microsystems.
• IT spending in India is estimated to record the fastest growth rate in the world in 2008,
according to global research firm IDC.
• According to a survey by global consulting, technology and outsourcing services major
Capgemini, India is all set to threaten China's position as the world's backyard for
manufacturing in the next 3-5 years.
• In less than a decade, as per a study by the Barclays Wealth and Economists Intelligence
Unit, Indian millionaires will hold more than double the wealth of their Chinese
counterparts. 411,000 Indian households will be worth US$ 1.7 trillion in 2017. In
contrast, 409,000 Chinese millionaires will be worth US$ 795.4 billion.
• A report by Barclays Wealth, ‘Evolving Fortunes’, signals the rise of emerging markets
such as India, displacing more developed economies, with China, Brazil and Russia also
making it to the ranking of the world’s top 12 wealthiest countries.
• And, according to a recent Boston Consulting Group report, India has the second-largest
number of homegrown corporate champions holding their fort against the might of
multinational giants. The country was ranked second behind China among the ten rapidly
growing economies

.
 India and China : human development

Until recently, there was much more focus on "human development" in China, and public
provision of health and education. This included universal education until Class X, as well as
better public services to ensure nutrition, health and sanitation. However, in recent years, this
emphasis has been much reduced and there is greater privatization of such services in China,
which has also led to worsening conditions especially in particular areas. In India, the public
provision of all of these has been extremely inadequate throughout this period and has
deteriorated in per capita terms since the early 1990s.

In terms of inequality, in both economies, the recent pattern of growth has been inequalising. In
China, the spatial inequalities across regions have been the sharpest. In India, vertical
inequalities and the rural-urban divide have become much more marked. In China recently, as a
response to this, there have been some top-down measures to reduce inequality, for example
through changes in tax rates, greater public investment in western and interior regions, and
improved social security benefits. In India, it is political change that has forced greater attention
to redressing inequalities, though the process is still very incipient.
 India and China : poverty
China has been much more successful in this regard official data suggest that 4 per cent of the
population now lives under the poverty line, unofficial estimates suggest around 12 per cent. The
poverty ratio in India is much higher, between 26 per cent and 34 per cent according to the 1999-
2000 NSS data. The Chinese success in this regard can be related to several features: to begin
with, the basic issues in terms of asset redistribution and basic need provision were the focus of
the Communist state until the late 1970s. This also assisted in economic growth: because of the
more egalitarian system, there was a larger mass market for consumption goods, which has
allowed producers to take advantage of economies of scale.

Subsequently ,poverty reduction in China has been concentrated into two main phases: 1979-82
and 1994-96, which were both phases of higher crop prices and rising agricultural incomes. In
the first phase, institutional change in the form of allowing peasant production in diversified
crops played a great role in increasing productivity and allowing peasants to benefit from rising
prices. Also, since Chinese economic growth has been more employment generating, this has
also operated to reduce poverty.
 China ahead of India
Both India and China have also been major contributors to the global centre of economic gravity
moving towards Asia, and are expected to play a significant role in making the 21st century
largely about Asia. Naturally, when countries the size of China and India – together accounting
for 2.5 billion people – begin to unshackle their creative energies, the impact is bound to be
realized worldwide.

Though China and India enjoys many similarities, China has searched ahead of India in terms of
economic progress while India’s per capita income is $440, China stands at $990.In China,3% of
the population is below poverty line and in India it is 30-40%.China opened up its economy
before India and could therefore attract foreign investment which helped it to emerge as the
‘workshop of the world’
 Conclusion
Being the two non- identical twins of the east both India and China didn’t have any disparities
regarding poverty as it exists in both the countries. Though the cultural contact between them
has been in existence for decades, there have had very little political contact. There had been a
robust economic growth in both the countries, which brought about enormous differences
between them in terms of their governments, ,political, financial systems and population and
made them complete for western corporate attention and investments since mid 1990’s.Even the
roles played by the two governments in attracting and retaining foreign participants have been
diverse.

Trade and commerce are the main reasons for the coordinal a relation between these two
countries. There has been rapid growth and development in their economic corporation. Even the
growth of the Chinese economy has increased tremendously over the past two decades and
growth of the GDP is about 9.7% P.A. compare to the India’s rate of 5.7%.Chinaa has also been
ahead of India in terms of a export growth by attracting a huge scale of FDI.

Presently the major concern for china is its banking sector that is technically bankrupt whereas
India is worried about its fiscal deficit and its deregulation. Both face the challenge of high
HIV/AIDS infection rates that threatening to devastate their public health as well as derail their
economic growth.
 BIBLIOGRAPHY

• WWW.GOOGLE.COM

• WWW.YAHOO.COM