CHINESE ECONOMY SLOWDOWN VIS A VIS THE RECOVERY
OF THE INDIAN ECONOMY
On a global platform, China and India are often referred to as the two
“Asian Giants” because of the size and growth of their economies.
But if we compare the two economies over the last 40 years, their
growth has been significantly different.
China, one of the biggest existing Communist states of the world
started its economic reforms in 1978 under the leadership of Deng
Xiaoping. The economy opened up to foreign investments and
internal financial sector reforms. It saw substantial increase in
industrial production and exports.
Geographical location of China also played an important role in the
growth of the Chinese economy. Many of China’s neighbors-
developed economies like Japan, Taiwan and South Korea were then
facing rising labour cost and shortage of land. China had both in
abundance. With the opening up of China’s economy, thus, it saw an
inflow of investments coming from these countries, especially Japan.
China has had phenomenal growth in GDP of over 9% annually over
the last 30 years (1980 to 2015). In 2010 it became the second
largest economy in the world and in 2016 the largest world
economy. China’s share in world GDP has increased from 2.7% in
1980 to 15 % in 2015
Steep growth of the economy continued even through the Global
Financial crisis of 2008 and other global downturns, till Covid in 2019.
Post covid the international demand, market sentiments towards
China and their own internal factors have resulted in slowing down
of the growth rate in the Chinese economy.
India, on the other hand has seen a different growth story. India is
the world’s largest democratic country. It also boasts of one of the
youngest population with half its population under 30years of age.
Post-independence, India adopted a predominantly socialistic policy
between 1947 to 1991. The emphasis was on internal infrastructure
growth and the government controlled many aspects of the
economic activities of the country. High level of regulation was
exercised. Post 1991, a more liberalized economic policy was
adopted. Liberalization led to a change in the internal policy in the
Indian economy resulting in more freedom to private sector players.
Reforms were made in the financial sector, industrial sector, foreign
exchange markets, tax reforms, and investment and trade sectors.
Unlike China, India did not depend on export led growth alone.
Domestic household consumption has always been a key factor of its
economic growth. It accounts for around 60% of the Gross Domestic
Product (GDP) in India.
There has been a balance between domestic growth of
infrastructure, education and skill improvement. Emphasis on
domestic consumption and overall inclusive growth across segments
and regions has been there. This has been coupled with the growth
in its global competence and export strength.
India’s growth has been relatively slow, having increased from an
average of 3% in 1970s to 7% in 2012-17 ( as per World Bank data).
However, over the last five decades, from 1970, India's real GDP per
capita has increased fivefold. This has resulted in millions of people
been lifted out of poverty. Some of the other key development
indicators such as infant mortality and life expectancy have also
shown a steady improvement.
SECTORAL DIFFERENCE IN BOTH COUNTRIES- IMPORTANT SECTORS
WHICH WERE ENGINES OF GROWTH
China’s engine of growth has been its export oriented strategy. In
1980s, one of its biggest comparative advantage was its large
population and thus cheap labour. Numerous special zones in the
coastal provinces were set up to attract foreign direct investment
(FDI). From 1978 to the mid-2000s, the coastal areas had high FDIs
and created millions of jobs. China’s entry to the World Trade
Organization (WTO) further helped it in the process of global
integration. This gave rise to high level of factory jobs in these places.
Workers from interior regions migrated to these growth regions for
better-paid jobs. The total number of migrants increased by nearly
fivefold from merely 25 million in 1990 to 145 million in 2009 (CNBS,
2010; Meng).
India’s growth engine over the last two decades has been driven by
domestic infrastructure growth, growth in domestic manufacture
base, skill development and reduction in unemployment and growth
in education. Overall, a balanced approach has been adopted by the
Government. Resultant of which Manufacturing sector has seen a
steady growth of 9.9%(FY 2023-24) Unemployment has reduced from
14.3% in FY 21/22 to 9% in FY 23/24. Foreign exchange reserves is at
a all time high of USD 670.0 billion ( 2024 Aug).
Other reforms like Digital governance has reduced red tapism and
corruption in the Indian system. “ Make in India” drive and
Atmanirbhar Bharat has propelled the domestic growth and
consumption, which have become the main driving force of the
Indian economy.
GDP GROWTH RATE (2022-23)
China has seen double digit growth rates from 1980s till 2012. In
1983, the annual growth in GDP was 15.19%, at it peak. In 1992 and
2007 too the growth rate of China’s GDP was 14.20 %. It dipped to
8.26 % in 2015 and after pandemic is at a moderate 5.2%.
India on the other hand always had conservative growth ranging
between 4-8% annually. However, in 2023, the GDP growth rate has
been higher than China at 8.2%
The below table and graph explain the comparative growth of China
and India over the last forty years.
CHINA AND INDIA NOMINAL GDP
1980-2022 (USD BILLION)
YEAR INDIA CHINA
1980 189.44 303.00
1995 366.60 731.00
2007 949.12 2,754.15
2013 1,027.64 8,539.00
2016 2,651.47 12,265.00
2019 2,667.68 14,862.50
2022 3,534.74 19,911.50
GLOBAL ECONOMIC TRENDS AND COVID-19 PANDEMIC’s IMPACT ON
TRADE
India’s share of global exports has always been low. Even then it has
increased from 0.6% in the early 1990s to 1.7% in 2016 . China’s
share in global trade is a significant 10%. China is the single biggest
trade partner for many nations.
As per IMF, after the global economic crisis (2012-2019) the global
economic growth is at an average of 3.4%. Inspite of this the Indian
economy grew at a constant rate of 7- 7.4% during this period due to
its internal policy changes and emphasis on infrastructure growth
and financial sector growth. In 2022-23 India’s growth of 7.2% was
the second highest among the G20 nations. It was twice the average
of the emerging market economies of that year. India alone
contributed to 16% of the global growth in 2023
India’s Trade to GDP ratio has increased over the last few decades.
From a range of 13-15% in the early 1990s, it peaked at 55% in 2012-
13.Composition of India’s exports is very diverse. Some of the main
sectors are IT( Information Technology), Gems and Jewelry,
Engineering products, Textile, Handicrafts, Carpet industry and
Spices.
China’s main exports are electronics, chemicals, fuel, machinery and
equipment, clothes and footwear. It has substantial amount of
imports of raw material and semi-finished goods as it doesn’t have
its own resources.
Covid-19 pandemic had some drastic negative economic and social
impact globally. The merchandise trade fell by almost 27% in the
second quarter of 2020 alone.
There were loss of jobs to the extent of 305 million full time workers,
increasing the number of people below poverty by 40-60 million. In
line with this, China was largely impacted by loss of economic activity
and employment.
After the outbreak of COVID-19 in Dec 2019, the normal economic
growth of 6% seen in China dropped to 2.2% in 2020. In 2021 the
growth was 8.4% from a relatively low base of 2020. Again in the
year 2022 growth dropped to a 3% range. Thus showing that the high
9% of growth that China saw for almost three decades was sharply
affected by the pandemic.
Many global players closed their China factories causing loss of
employment in China’s export oriented set ups. A total of 102,000
foreign invested enterprises exited in 2020 and 109,000 exited in
2021.
Like all other nations, Indian economy was also impacted by the
COVID-19 pandemic. The growth of the economy has slowed down
due to shutdown of different productions channels. Reverse
migration of workforce and consequent shortage of labour, resulted
in further deceleration of economic growth. In the midst of all this,
however, the agriculture sector has shown resilience through the
crisis. Some of the major initiatives taken by Government of India to
support the economy- mainly in agriculture sector and MSME had
positive impact on insulating the overall economy.
Many fiscal measures, financial support and other monetary schemes
of the Government of India ensured that there were grass root level
support given to various sectors of the economy.
STRUCTURAL ISSUES –INFRASTRUCTURAL BOTTLENECKS,
POPULATION AND EMPLOYMENT
China's economy experienced a downturn in 2023 due to a
number of internal and external factors:
1. Debt to GDP: China's debt-to-GDP ratio has reached a
record high of 288% in 2023. Much of this debt was used
to purchase assets that no longer generate enough
income to repay it. Large amount of these are
governments debts. Such a high debt reduces the
investor’s confidence on the government and its ability to
repay the debt.
2. Real estate sector: The Chinese real estate sector has
been in turmoil. New home sale, a key economic indicator
has shown sharp decline. In Beijing, the prices have fallen
from 10-30% from peak prices, in December 2023. Real
estate firms saw a default of USD 125 billion from 2020 till
2023. This has also resulted in job losses and financial
instability in the overall economy.
3. Investment-led growth model: China's growth model has
mainly been based on investment (from overseas) and
export oriented growth. China’s investment to GDP ratio
has been 35-47$ between 2010-2019, as against an
average of 20% ratio in other developed economies. With
the freeze of these investments, a dead end in terms of
growth has been reached.
4. Weak consumption growth: Low focus has been paid to
the overall social, environmental and geographically
balanced growth in China. This has resulted in low
domestic consumption driven growth.
5. Deflationary pressure: The Chinese economy is facing
increasing deflationary pressure. This is due to the
mismatch between money supply and the demand for
money from households and businesses. Cut back in
spending and delayed purchases leads up to spiral effect
which is extremely bad for the economy.
Other challenges include an aging population and extremely
high dependence on a volatile global condition.
China is now recognising the importance of focusing on
domestic growth and policies of the Government towards
internal sustainable improvement and balanced growth.
CONCLUSION
In conclusion, we can say that a balance approach towards
growth is more sustainable in the long run. Focus on both
domestic demand and export growth is important. Only
emphasis on foreign investments and export led policy is not
sustainable.
China had a brilliant growth story for three to four decades, but
is now having to modify its internal policies to address the crisis
it now faces. As per economists of leading global bank, Bank of
America, China’s 2024 GDP growth is expected to be lower
than the government’s target of 5%. Citigroup also lowered
their projection to 4.7% following some key economic data
release.
As against this, over the next three years, India is expected to
become the third-largest economy in the world with a GDP of
USD 5.0 trillion. The journey of reforms is expected to continue
with focus on internal infrastructure development, grass-root
level growth and focus on health, education, small business
growth.
