Economy comparison of China and India

In the inevitable comparisons that economists and businesspeople make between Asia's two rising giants, China and India, China nearly always comes out on top. Both India and China rank among the front runners of global economy and are among the world's most diverse nations. Both the countries were among the most ancient civilizations and their economies are influenced by a number of social, political, economic and other factors. However, if we try to properly understand the various economic and market trends and features of the countries, we can make a comparison between Indian and Chinese economy. Going by the basic facts, the economy of China is more developed than that of India. While India is the 12th largest economy in terms of the exchange rates, China occupies the third position. Compared to the estimated $1.209 trillion GDP of India, China has an average GDP of around $7.8 trillion. In case of per capital GDP, India lags far behind China with just $1016 compared to $6,100 of the latter. To make a basic comparison of India and China Economy, we need to have an idea of the economic facts of the countries. Policy Reform China and India had similar development strategies prior to their breaking out of their deliberate insulation from the world economy and the ushering in of market-oriented economic reforms and liberalization. China began reforming its closed, centrally planned, non-market economy in 1978. India always had a large private sector and functioning markets which were subject to rigid state controls until the hesitant and piecemeal reforms of the 1980s. These became systemic and far broader after India experienced a severe macroeconomic crisis in 1991. The political environments under which reforms were initiated and implemented in the two countries and their consequences were very different. India continues to be an open, participatory, multiparty democracy, while China has an authoritarian, one party regime, though it is liberalizing. Macroeconomic Prospects Economic Growth The International Monetary Fund has projected the Indian economy will grow by 9.7 per cent in 2010 and 8.4 per cent in the next fiscal, driven by robust industrial production and macro-economic performance. However, neighbouring China is expected to grow at an even faster rate of 10.5 per cent in 2010 and and 9.6 per cent in 2011, driven by domestic demand, the IMF said in its latest World Economic Outlook report. Advanced economies, on the other hand, are projected to grow by just 2.7 per cent in 2010 and 2.2 per cent in 2011, the IMF report said, adding that global trade is forecast to expand by 4.8 per cent in 2010 and 4.2 per cent in 2011, with a temporary slowdown during the second half of 2010 and the first half of 2011. According to the World Economic Outlook report, growth in emerging Asia economies stands at about 9.5 per cent, with robust demand from China, India, and Indonesia benefiting other Asian economies. ScaleUnitsChinaIndiaBalance of TradeBillionUSD27.10-9.118Business Confidence135.90155.90ExportsBillionUSD135.9818.023Gross Domestic Product (GDP)BillionUSD4909.281296.09GDP Growth Rate%9.608.80GDP per capita (Constant Prices Since 2000)USD1965.00718.00ImportsBillionUSD108.8327.141Industrial Production%13.104.40Inflation Rate%4.409.82Unemployment Rate%4.208.00 Export and Import China Exports China exports were worth 136 Billion USD in October of 2010. Export growth has continued to be a major component supporting China's rapid economic growth. Exports of goods and services constitute 39.7% of its GDP. China major exports are: office machines & data processing equipment, telecommunications equipment, electrical machinery and apparel & clothing. China’s largest exports markets are European Union, United States, Hong Kong, Japan and South Korea. India Exports India exports were worth 18023.0 Millions USD in September of 2010. Exports amount to 22% of India’s GDP. Gems and jewelry constitute the single largest export item, accounting for 16 percent of exports. India is also leading exporter of textile goods, engineering goods, chemicals, leather manufactures and services. India’s main export partners are European Union, United States, United Arab Emirates and China. China Imports China imports were worth 109 Billion USD in October of 2010. China imports mainly commodities: iron and steel, oil and mineral fuels as well as machinery and equipment, plastics, optical and medical equipment and organic chemicals. China’s main imports partners are: Japan, European Union, South Korea, Taiwan and ASEAN countries. India Imports India imports were worth 27141.0 Millions USD in September of 2010. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main import partners are European Union, Saudi Arabia and United States. China Balance of Trade China reported a balance of trade surplus equivalent to 27.1 Billion USD in October of 2010. Export growth has continued to be a major component supporting China's rapid economic growth. Exports of goods and services constitute 39.7% of GDP. China major exports are: office machines & data processing equipment, telecommunications equipment, electrical machinery and apparel & clothing. China imports mainly commodities: iron and steel, oil and mineral fuels; machinery and equipment, plastics, optical and medical equipment and organic chemicals. Its main trading partners are: European Union, The United States, Japan, Hong Kong and South Korea. India Balance of Trade India reported a balance of trade deficit equivalent to 9118.0 Millions in September of 2010. India is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, The United States, China and UAE. Foreign direct investment; net (BoP; US dollar) in China The Foreign direct investment; net (BoP; US dollar) in China was reported at 94320092013.51 in 2008, according to the World Bank. Foreign direct investment is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows total net, that is, net FDI in the reporting economy from foreign sources less net FDI by the reporting economy to the rest of the world. Data are in current U.S. dollars. China's economy is the second largest in the world after that of the United States. During the past 30 years China's economy has changed from a centrally planned system that was largely closed to international trade to a more market-oriented that has a rapidly growing private sector. A major component supporting China's rapid economic growth has been exports growth. Foreign direct investment; net (BoP; US dollar) in India The Foreign direct investment; net (BoP; US dollar) in India was reported at 22807027033.51 in 2008, according to the World Bank. Data are in current U.S. dollars. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. China GDP Growth Rate India GDP Growth Rate Tax Regimes ChinaIndiaCorporate Income Tax: 24%Tax-Incentives for high-tech industries: 15%Tax Holidays for manufacturing industries:Initial two years of profitability: 0 percent taxNext three years of profitability: 50% of tax rate (This is assumed to be 12%)India’s tax system is being reformed as we write this. Following is the tax system for India’s “Special Economic Zones”:Corporate Income Tax: 15%First five years of profitability: 0% taxSecond five years of profitability: 50% tax (This is assumed to be 7.5 %.)Third five years of profitability: 50% of tax rate for any invested dividends that are invested back into India As can be seen, India has introduced a tax regime that is vastly more advantageous in the Special Economic Zones than China. Another benefit of India over China with respect to locating in the Special Economic Zones is that India does not discriminate between manufacturing and services and either can offer the above incentives, which is not the case in China. (Service companies are treated less favorably in China for incentives.) Agriculture Agriculture is another factor of economic comparison of India and China. It forms a major economic sector in both the countries. However, the agricultural sector of China is more developed than that of India. Unlike India, where farmers still use the traditional and old methods of cultivation, the agricultural techniques used in China are very much developed. This leads to better quality and high yield of crops which can be exported. Liberalization of the market In spite of being a Socialist country, China started towards the liberalization of its market economy much before India. This strengthened the economy to a great extent. On the other hand, India was very slow in embracing globalization and open market economies. While India's liberalization policies started in the 1990s, China welcomed foreign direct investment and private investment in the mid 1980s. This made a significant change in its economy and the GDP increased considerably. Difference in infrastructure and other aspects of economic growth Compared to India, China has a much well developed infrastructure. Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development, water management, health care facilities and services, communication, civic amenities and so on. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. Although India has become much developed than before, it is still plagued by problems such as poverty, unemployment, lack of civic amenities and so on. In fact unlike India, China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Efficiency of investment in China and India Taking a five year moving average, to smooth out purely short term fluctuations, China has had to utilize 3.7 percent of GDP in fixed investment for its economy to grow by 1 percent. To give detail, in the five years to 2008, the latest for which there is full data, China's GDP grew at an average annual 10.8 percent, and it invested an average of 40.7 percent of GDP – yielding a 3.7 percent of GDP in fixed investment correlation with 1 percent GDP growth. India's efficiency in the use of investment in terms of generating growth is almost exactly the same as China's. Over the same period India's economy grew an average 8.5 percent a year and its share of fixed investment in GDP was 31.0 percent – i.e. India also invested 3.7 percent of GDP to grow by 1 percent Conclusion The Chinese economy historically outpaces India's by just about every measure. China's fast-acting government implements new policies with blinding speed, making India's fractured political system appear sluggish and chaotic. Beijing's shiny new airport and wide freeways are models of modern development, contrasting sharply with the sagging infrastructure of New Delhi and Mumbai. And as the global economy emerges from the Great Recession, India once again seems to be playing second fiddle. Pundits around the world laud China's leadership for its well-devised economic policies during the crisis, which were so effective in restarting economic growth that they helped, lift the entire Asian region out of the downturn. ,[object Object]

Economy comparison of China and India

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