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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

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Transforming china and india challenges and opportunities

Transforming China and India: Challenges and Opportunities

Chris Milner

(GEP, School of Economics,

University of Nottingham)

Entry into the global economy
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

Comparative growth performance
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

China and india in the global economy
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

Challenges to the british economy
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 short-term 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
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

Note: 2005 data, except for education data which is for 2004

Challenges to sustainability of development in china and india
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

Conclusions India

  • 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