Transforming China and India:
Challenges and Opportunities
Chris Milner
(GEP, School of Economics,
University of Nottingham)
Entry into the Global Economy
• Before the 1990’s both China and India had
highly protected and inward-looking economies
– China’s (India’s) tariffs on imports averaged over 40%
(90%) in 1992 and were complemented by an array of
non-tariff barriers (licences, quotas & state trading
restrictions)
• Extent and speed of liberalisation and opening
up of these two giants has been dramatic
– in particular for China
TARIFF RATES IN 2004
40.0%
36.9%
Source: World Bank, World Development Indicators
35.0%
30.0%
28.1%
29.0%
28.0%
27.8%
25.3%
25.0%
20.0%
15.0%
10.0%
9.6%
9.6%
9.5%
6.2%
6.0%
5.8%
5.0%
0.0%
Simple mean
Weighted mean
All
Simple mean
Weighted mean
Primary
China
India
Simple mean
Weighted mean
Manufactures
China
India
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
MERCHANDISE EXPORTS OVER GDP
(per cent)
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
INDICES OF OPENNESS 2004
(per cent of GDP)
South Korea
Germany
FDI
inward
stock
China
UK
Total
trade
India
Japan
US
0
10
20
30
40
50
60
70
80
Comparative Growth Performance
• Common features
– control of population growth
– role of trade liberalisation and export growth
– growth clusters/uneven growth
• Distinctive features
– greater role of domestic savings and investment in China
– greater role of FDI in technology-upgrading and export
development in China
– greater role of internal migration in China
– greater role of manufacturing (services) sector in China (India)
• China has substantially outperformed India
GROWTH OF GDP IN INDIA AND CHINA
(5-year moving averages per cent)
Source: EIU
14.0
12.0
10.0
8.0
6.0
4.0
2.0
China
India
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
0.0
STRUCTURE OF GDP, 2004 (per cent)
120%
100%
80%
41%
52%
60%
40%
46%
27%
20%
21%
13%
0%
China
India
Agriculture
Industry
Services
China and India in the Global
Economy
• Between 1990 and 2004 China and India’s exports grew
considerably more rapidly than world exports
– China is forecast to be world’s largest exporter by 2010
– of particular interest because much of the exporting is to the
OECD countries
– evidence of rapid technological upgrading in production and
product terms
• China and India already represent major markets, but have
enormous further potential (given population size and scope for
income growth)
– the share of imports in GDP has grown rapidly
– as yet, most of the imports are in raw materials, capital goods
and intermediate goods
ASIA'S SHARES IN WORLD EXPORTS OF MERCHANDISE
(per cent)
30.0
25.0
20.0
15.0
2.5
10.0
6.0
6.7
7.5
6.4
6.4
5.9
2003
2004
2005
1.2
1.0
5.0
9.9
1.3
8.0
6.4
3.5
0.0
1948
1953
1963
1973
Japan
China
1983
India
1993
Other Asia
Challenges to the British Economy
• Strong expectation that globalisation increases average incomes in
long-run, but that there may be some groups that lose and shortterm adjustment costs
– China, India and other emerging economies are increasing pace of
adjustment required
– particular concerns about employment and relative wage effects
• Types of adjustment issues:
– direct competition from imports to firms and workers, especially those
involved in labour-intensive manufacturing and services
– outsourcing of activities in import-competing and export-oriented
activities in both manufacturing and services
– direct export competition in these markets from upgrading domestic
firms and in third markets from new exporters
Opportunities for the British
Economy
• Direct exports of goods (associated with rise in production, incomes
and technological-intensity) and services
• Outward FDI opportunities in manufactures and services
– platform for host markets and exporting
– outsourcing to increase cost competitiveness
• Inward FDI opportunities
– outlet for trade surpluses?
– platform for EU market?
– ‘tariff-jumping’ motives?
Comparative Data on China and India
China
India
GNI per capita
(current US $)
1740
720
Population
1304.5
1094.6
2.3 trillion
793 billion
Sec. school
enrolment(%)
72.5
53.5
Tertiary
enrolment(%)
19.1
11.8
(millions)
GNI
(current US $)
Note: 2005 data, except for education data which is for 2004
Challenges to Sustainability of
Development in China and India
• Common issues
– inequality and social tensions
– price distortions and infrastructure congestion (e.g.
environmental)
– structural issues (regional imbalances, state-owned enterprises)
– low productivity in agriculture
– degree of bureaucracy and regulation
• Country-specific issues
– fiscal deficit, low savings and absolute poverty in India
– democratic challenge, weak banking sector and macro
imbalances in China
GNP per head
Life Expectancy
Male Adult literacy
Female Adult literacy
WELFARE
Units
2004 $s PPP
2004
2002
2002
Under 5 mortality rate 2004, per 1,000
1995-2004
Under 5 malnutrition
2001 (China)
Poverty Ratio (per
1999-2000
cent below $1 a day
(India)
at PPP)
India
China
$5,890 $3,120
63
71
73%
95%
87%
48%
85
31
14.2% 44.9%
16.6% 34.7%
Source: World Bank, World Development Indicators 2006 , UNDP, Human
Development Report 2006, WTO, Recent Trade Developments 2006
Conclusions
• China and India are increasing pace of
globalisation
• China in particular is rapidly catching-up
technologically
• Potential major adjustment challenges in OECD
markets
• Enormous potential for exporting, FDI and
outsourcing
• But some structural imbalances in China and
India which may affect sustainability of current
pace of development