India and China: Are catch-up theories relevant? Essay

For more decades, Japan has been the dominant power in Asia. Since 1945, America with the help of its close ally, Japan has dominated Asia. The spectacular go on of mainland China during the agvirtuoso 2 decades has the potential to change this status quo. During the past 6-7 historic period, with impressive economic result, India also has emerged as a nation to enumerate with. USA and Japan see a stronger India as a instrument to limit Chinas freedom to maneuver in the region. In short, Asia is becoming an argonna for balance of power politics.After more than than a century of congeneric stagnation, the economies of India and China overhear been growing at unco high rates over the past 25 years. In 1820 the two countries contributed nigh half of the human races income starting from roughly pertain levels of per capita real income in 1870, India forged ahead of China until the outbreak of the graduation exercise World War. Though both experienced declines in their per capita incomes thereafter (China more so than India) by 1950, Indias per capita income was about 40% higher than that of China.During the aforementioned(prenominal) period, the industrialized West pulled away, India and China had a share of less than one-tenth of the conception income. It took roughly the next three decades for China to catch up with India. Since 1980, China has forged much farther ahead. China and India were the star performers in aggregate GDP festering in the 1980s and 1990s. Chinas average growth of 10. 6% per year during the 90s had slowed slightly since to 9. 4%. India on the other hand albeit much lower rate of 6% in the 90s has a slight improvement since to 6. 2% (see Exhibit 1).Today, India and China are in 154th and 121st positions in a listing of the 230-odd countries ranked by per capita GDP. further their share in world GDP is around 2% and 5% respectively thanks to their billion-plus populations . Two countries account for 37. 5 percent of world population and 6. 4 percent of the value of world output. India and China have sustainable growth rates 7% and 10% respectively whereas the true countries (USA, Japan, Germany, UK, France, Italy, Spain, and Canada) have only 2% even though they contribute nearly 66% of world GDP.Given the kind of dramatic growth relative to the rest of the world, it has become very fashionable to compare India and China and plunder in a bit of crystal ball gazing. The two countries with one third of the worlds population is not only rule the world statistics but also attracting the due attention of everyone like policymakers, industrial corporate, and economists alike. Understandably, there is a great deal of interest in skill about what has enabled China and India to grow so rapidly while many countries in Sub-Saharan Africa and Latin America have languished during the same period.Their growth already started showing its effect on global resources and if it continues as is expect for next two d ecades, it will have major implications on the world economy and hence for other countries. Chinas economic mends During his advance as Chinas premier, Mao Zedong had encouraged social movements such(prenominal) as the Great Leap Forward and the Cultural whirling which had had as their bases ideologies such as serving the people and maintaining the class struggle.However, two years after Maos death in 1976, Chinese leading were searching for a solution to serious economic problems produced by these movements which left(p) China in a state where agriculture is stagnant, industrial take was low, and the peoples living standards had not increased in twenty dollar bill years. Communist Party leaders saw economic reform as a way to regain their and their partys moral rectitude and prestige which was eroded by the traumatic experience of the Cultural Revolution (Shirk, 1993). The initial reforms were not that radical in nature.The central government retain the dominant power in ec onomic resource allocation and responsible local officials worked for the interest of the units under their control (Solinger, 1993). However, as time passed, near aspects of the old system were altered. In 1985, further reforms were introduced. The first part of Chinese economic reform refer implementing the household responsibility system in agriculture, by which farmers were able to retain surplus over individual plots of estate of the realm rather than farming for the collective. Some commodities were freed from government controls so their prices could respond to marketplace demand (Shirk, 1993).This allowed a great percentage of the populace to become involved in private enterprise and investment in family or base ventures. The conditions also allowed rural Chinese to leave the villages and become involved in industry in urban centers. The economy grew so quickly that rising prices occurred and the government had to reinstitute price controls. Chinas economy retains the se characteristics of potential for growthand inflationto this day. Another important aspect of Chinese economic reform was the decision of China to join the world economy.Deng Xiaoping and his allies hoped to affect this 1979 village in two ways by expanding foreign trade, and by promote foreign companies to invest in Chinese enterprises. The Open Policy, which designated limited areas in China as places with preferential conditions for foreign investment and bases for the development of exports (Nathan, 1990), was extremely productive in the areas where it was implemented. The implementation of the Open Policy was so successful that by 1988 the leaders of the CCP were encouraged to create a new architectural plan called the coastal development strategy. In this program, even more of the country was capable up to foreign investment-an area which, at the time, included nearly two hundred million people. Moreover, by involving more overseas investors, importing both ceiling a nd raw materials, and exporting Chinas cheap excess drive power, the new policy was one of export-led growth or export-oriented industrialization. It was explicitly modeled on the experiences of Taiwan and the other Asian small dragons (Nathan, 1990). China took another step in the late 1990s and early 2000s, by the closing of unprofitable state-owned factories and the development of social security systems.