CHINA Unbalanced

Why was China able to grow rapidly after 1978?

In 1978, Deng Xiaoping came to power (Peoples Republic of China) and he followed the
strategy of Export-led of Growth. A series of reforms began which aimed at growing
Chinas economy

Major Reforms: Town and Village

Household responsibility
enterprises: Promoted
system: Helped in boosting
production of labor-
fruit, meat and vegetables
One-Child Policy: Helped intensive products such as
production which could be
in curbing the population shirts, pant, sneakers etc.
sold in black market. Due to
growth which was growing for exporting. This
this incentives more than
at very fast pace. initiative boosted
doubled in next 6 years.
employment.

Price decontrol and currency unification:

Special Economic Zones: Specific zones
with cheap labor, adequate power and no
taxes helped attracting FDI. By 1997 FDI
was $250bn and by $900bn by 2010.
Due to these reforms Nominal GDP growth
averaged about 18%, with inflation
between 3% and 24 ans surplus was
recorded in merchandise trade and
current account.
 Ans.

What were the principal costs and benefits to China of accession to the WTO?
Cost Benefit
Imports grew by 24% annually Real GDP growth accelerated from 8-9%
China was subjected to several punitive level to 10-11% annually.
safeguards - Quotas imposed by WTO Exports grew - toys, textiles, footwear and
member countries etc. furniture
Agriculture subsidies were limited to 8.5% of FDI inflow increased
production cost Remittance inflows increased threefold
China had to relax over 7,000 tariffs, quotas Foreign Exchange reserves grew rapidly
and other trade barriers
On balance, was it a good thing for China? On balance, was China's WTO accession a good
thing for the United States? Was it a good thing for India?
WTO Accession was good for China, as it enjoyed one of the best decades in global
economic history. Its exports grew almost five folds and GDP grew almost four folds.

For United States: US investors earned a return
of 13.5% in China, compared with 9.7% in
worldwide. US enjoys lower tariffs compared to
Brazil or India. US firms faces competition from
Chinese firms . Huge supply of Chinese goods
may dampen the manufacturing sector produce
leading to unemployment.
For India: It opens up both opportunities as well
as threats to Indian industries. Since both share
same export market, China imposes competition
to Indian export. Chinese may dump cheap
goods in the Indian market threatening local
firms. On the positive side, Chinas huge market
provides a potential market for Indian goods.
 Will China overtake the US as the world's largest economy?
China is growing at a pace higher than USA. Based on IMF and World Bank data related to
2015, the GDP at exchange rate shows USA ahead of China. Although, it shows that China
has already overtaken USA in terms of Purchasing Power Parity.

Population Gross Domestic Product

(Exchange Rate) (PPP)

Country Million Annual $ Billion Country Growth Per Capita $ Billion Country
2015 Growth 2015 Rank 2015 Income $ 2015 Rank
(%) 2015
2010-2015
(%)

Forbes
US believes
321 that China will
0.75 overtake 1US in 2018
17,947 2.6 and 55,805 17,947 2
Bloomberg
China predicts0.52
1,367 it to be 2026.
10,982 Following
2 are the
6.9 reasons
7,990 19,392 1
which suggest China will overtake US:
China is already worlds largest trading country
Worlds highest GDP growth at 9.5% and labour productivity growth
at 8.5%
Rural to urban migration supporting growth with reduction in market
share of SOEs
High FDI resulting in better technologies coupled with investment in
infrastructure
 What are the principal threats to continued Chinese growth, and how should the
Chinese leadership respond?

Lack of energy and raw materials to keep pace with the

growing economy demand
Global Financial crises reduced growth from 25% to (-)1.65%.
Thousands of plants were closed and 130 Million lost jobs (as
case relates to 2010)
Increasing inequality and unemployment
Expensive medical and healthcare causing poor to suffer
Will India overtake Chinese Economy?
India would be 4th largest economy by 2025, overtaking France, UK and Germany.
Still India would be a poor country for a long period of time. $2 trillion market growing at 7%
India (7.6%) grew faster than China (6.9%) in 2015 and forecast is that it would continue in future too.
Half the population of India was younger than 25 in 2010. That will only change to half the population being
under 28 in 2030. So, India will remain a very young country for the next 20 years. These favourable
demographic statistics in India point to the potential of a large demographic dividend where the enormous
size of the young, working population could turbo-charge the prosperity of the country.
By 2020, The average Indian will be only 29 years old, compared to 37 of China and US, 45 of Western Europe
and 47 of Japan.
In 2030 India is projected to have an additional 213 million workers, almost equal to the total world shortfall.
Also, the present scenario and government shows impetus towards inclusive growth reducing inequality. This
 Why has Wen Jiabao adopted a new development strategy ? That is ,what are
the problems associated with Chinas rapid growth?

Problem Solution
Lack of energy and raw materials to keep pace Investing in countries live Sudan, Angola, Latin
with the growing economy demand American countries etc. resulting in dependence
on other countries for source of raw materials
Global Financial crises reduced growth rates of (i) Provide subsidies to promote private
export from 25% to (-)1.65%. Thousands of consumption
plants were closed and 130 Million lost jobs (as (ii) Focus on key growth industries like iron and
case relates to 2010) steel, equipment manufacturing, petrochemical,
automobile etc.
Increasing inequality and unemployment Lay down a plan such as progressive taxation,
sustaining rural areas and promoting financial
inclusion.
Expensive medical and healthcare causing poor
(i) Subsidise for impoverished people
to suffer (ii) Establish low cost primary health services
Wen Jiabao adopted a new development strategy because-
(iii) Reform and regulate pharmaceutical market
Independent innovation capability for China is not strong
Slow growth of agricultural production and farmers income
Banking and finance sectors latent risks are increasing
Rising inequality and unemployment
Lack of energy and raw materials to keep pace with the growing economy demand
Need of better structuring and solution to healthcare, education and housing
THANK YOU