- brief summary of what happened in the last 20 years as far as China is concerned. China added about $2 trillion to the global GDP, it added 120 million people in new employment, and pulled around 300 million people out of poverty. These numbers have the usual margin of error, but regardless of that, these are very large numbers. To just give you a context of what these numbers mean, it is like adding a country the size of Portugal every year to the world economy, creating as many new jobs each year as Australia's total labor force, and eradicating poverty from Ethiopia, Nigeria, Tanzania, and Zambia combined. So the question is, can this expansion be sustained? I am going to touch upon three issues regarding that. One, what is driving recent growth? Are there any weaknesses in this growth process? And if there are, what needs to be done?
- A quick comparison, China in PPP terms is the second-largest economy in the world, India is the fourth largest, and the share of world GDP and PPP, China, one-seventh, India, one-sixteenth, and so on. The per capita income in PPP terms in China is about twice as much as India.
- From a longer-term perspective, this is very interesting, looking at Angus Maddison's work who is a brave economic historian who calculates PPP/GDP from year 0 on for every country in the world, but let's focus on China and India. In the first wave of globalization in the late-19th Century, India benefited and China did not. The Chinese economy grew very slowly between 1870 and 1913, whereas India's economy grew rapidly during that period. If you run the clock forward, in 1950 when India began planning for development and in China the communists had taken over, India had an advantage of 25 percent GDP per capita over China. The entire area Mao area until Deng Xioping and later was spent essentially in catching up with India. So all the divergence between India and China is post China's opening and not before. And of course, now China is far ahead...
- a significant proportion of the workforce, in India in the case of nearly two-thirds, is stuck in low-productivity, primary activities.
- If you look at in terms of industrial share in GDP, and the manufacturing share in GDP, in India it is very low and growing very slowly.
- China and India according to recent surveys are among the most optimistic people surveyed by Pew.
- India's financial system is far stronger than China's, but there my concern is the public sector owns 75 percent of the assets of the banking system.
- Within China , investment is 42 percent of GDP, private consumption is below 40 percent.
- The Chinese economic system may be dynamic only in the sense of producing good growth, but it is not a system that has commonly held up as a system that has very robust, effective institutions.
- Professor Kenneth Arrow at Stanford and his co-authors, including Partha Dasgupta, have precisely asked that question, is China's growth sustainable if you do a proper accounting of the environmental costs? Their answer is, given the current high rates of investment, assuming that they are correctly calculated, probably is, but India is a dicey question.
Related;
The Chinese Economy: Progress and Challenges - Ben S. Bernanke
Clueless in China
China and the Multilateral Trading System
Paulson in Beijing: Can't get no satisfaction
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