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Comparison of the Indian and Chinese models of growth

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While the old continent is experiencing sluggish economic conditions and reconsidering the future of its model, Japan struggles to emerge from the crisis. Meanwhile, U.S. has stabilized their growth at 3-4% after sharp drop of 2001-2. These two emerging countries exhaust the economic record of hyperbole. China and India have seen the highest growth rates in the world in the last ten years, with respective averages over 9 and 6%.

Called as the "Asian, demographic, geographic, and now economic giants", the two countries each have more than one billion inhabitants. A young population and territories across a continent constitute the demographic factors. The increasing exploitation of resources does not cover the determinants of the growth, registered in the period. It largely surpasses the population growth and cannot be attributed in part to the increased use of quantitative factors such as production, labor and capital.

Such results raise the question whether it is a stable and sustainable growth that leads to the path of development, or if there is not a major risk of overheating and crisis. Therefore, it is advisable to identify the determinants. Can we now talk about an Indian or Chinese growth model? What are the factors that can be identified as the origin of such a development? Recently opened to international trade, the two countries have divergent paths.

What are the factors of growth and what do they tell us about their prospects? The countries we designate as the two "Asian giants" carry with them the possibility of a slowdown or even a real economic crisis, as it can fit into the path of development that is stabilized by taking advantage of endogenous growth factors, as it seems to follow that route in India.

The beginning of the tremendous growth in India and China has coincided with domestic liberalization of the economy and this led to the opening towards the outside world. However, the developments of the two countries were asymmetrical. Since 1970s, China has experienced a significant and steady growth. In 1976 Mao died, and Deng Xiaoping questioned the previous policy while initiating economic liberalization.

Notably, it establishes a system of mixed economy that leads to increase the characteristics of a market economy gradually and distinguishes the private sector from the public sector, which the state is withdrawing massively between 1995 and 2000. In addition, it authorized foreign direct investment and created 4 zones in 1979. The opening is then continued at constant rate: lower tariffs and elimination of duties on goods imported for assembly in the 90's; joined the WTO in 2001, within a transition period until 2006.

Since then, China has agreed to lower the import duties for agricultural and industrial products and foreign investment in services, telecommunications, banking, insurance and securities markets. These institutional factors have first increased and better use of quantitative factors of growth. China has led the discovery of vast natural resources and energy.

In addition, the workforce is growing steadily (2.6% per year) and accounts for nearly three quarters of the total population, 900 million people. Capital growth is assured by high investment rates, in addition to important national savings. In 2002, China became the largest recipient of foreign direct investment (440 billion between 1990 and 2002).

These factors have led to a profound change in economic structure and the productive apparatus, including the development of high industrial performance. While the share of employment and GDP in agriculture remains relatively high, a major transfer was made to the secondary sector and even towards the services sector.

Tags: India; China; models of growth; comparison of countries' growth

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