The economies of China and India have grown tremendously over the past few decades, making the two countries to emerge as giants in the global economy. The Chinese and Indian growth prospects are expected to vary as they encounter different internal conditions. Reportedly, China’s economy has slowed down with India’s growth remaining robust. Even though investment in infrastructure has persisted supporting overall investment in China, this stimulus has confirmed its level of unsustainability in the longer run. With regards to recently highlighted statistics, India’s GDP (Gross Domestic Product) growth rate has overtaken China’s. Correspondingly, India has grown at approximately 7.5% in 2018 as China maintains an estimated value of 6.5%. However, despite the rapid economic growth in India, it adds just a small fraction of China’s contribution to its annual GDP. Seemingly, this is owing to the fact that China’s economy is nearly four times bigger than India’s. In other words, even with the reported low growth rates in China, it has already placed its economy at a higher level, thus, India can only make insignificant changes to it. Moreover, for India to contribute as much as China to its GPD in 2019, it will have to grow by 40%. All in all, despite China’s higher GDP, India continues to enhance its economic growth rate as it aims to catch up with it. The paper intends to evaluate the differences and similarities between the economies of China and India today as well as examining their GDP per capita and the economic growth rates.
The Economy of India
The economic development patterns in China and India are quite different, triggering various strategies to deal with the two countries. The GDP growth rates have surged in India, particularly after liberalization in 1980, thus freeing the country from restrictive policies on licensing, production, and investment. Gandhi and Zhou (2014) identify that this explains India’s speed of economic transformation in the past thirty years. From 2003 to 2007, the country has displayed a GDP growth average of 8.6% (Panagariya, 2013). Gandhi and Zhou (2014) also suggest that India’s economic growth rates are expected to upsurge in the coming years if large scale structural alterations are enhanced and economic reforms as well as expansion are fostered to support growth. By 2018, the country’s exports have doubled within three years with software exports doubling within the last two years (Tomlinson, 2013). Even as analysts report high exports that could improve the country’s growth rate, the ratio of GDP to exports have remained low with increased foreign investment in comparison to China. India’s demography is likely to sustain high economic growth since its population is significantly lower than China’s, exhibiting an escalation in the rate of personal savings (Panagariya, 2013). However, some of the challenges that India’s economy faces include dependence on labor and capital-intensive manufacturing. Inflexibilities in the labor market also limit the ability of firms to respond to the changing needs of the workforce. Similarly, the country experiences many challenges with the power sector, making it difficult to catch up with China’s GDP growth. Unlike China, India has dealt with unfavorable policies from the government where they have been restricted from doing free trade. Tomlinson (2013) points out that this kind of politics has denied the country an opportunity to engage actively in improving the GDP.
The Economy of China
In comparison to India, China displays an extraordinary ability in both the manufacturing and trade sectors. In particular, China’s trade reads six times higher than India’s. Nevertheless, China’s level in the global economy today is 50% lower than what it had at independence in 1948 (Gandhi and Zhou, 2014). According to Shambaugh (2013), this implies that China has maintained a high GDP for many years. Even though India’s economy is experiencing substantial growth, its trade still lies below 1% of the global total, whereas China is the second largest in trade globally (Panagariya, 2013).
There are many reasons that contribute to China’s better position in trade compared to India. Firstly, China has a competitive environment which is more intense and favorable than India (Panagariya, 2013). With reduced tariffs in China, domestic firms experience competition in both foreign and local products. Furthermore, China has been run as a politically stable state with limited restrictions, particularly in trade. Furthermore, it invests three times more in infrastructure than India. China experiences major challenges in rebalancing its growth strategy. Currently, household consumption in China reports only 36% of GDP as India reports 50-60% (Gandhi and Zhou, 2014). For the sustenance of substantial economic development, India needs to emphasize more manufacturing as well as facilitating more flexible labor markets and liberalized trade environments.
All in all, there are many differences than similarities in the comparison of the economies of China and India. Even though the two countries have displayed remarkable results in the global economy, their economies vary significantly. Reportedly, the GDP per capita of China is greater than that of India owing to many reasons. China embarks highly on trade, thus appearing second in the whole world. Moreover, China’s trade reads six times higher than India’s. Nevertheless, China’s current position in the global economy is 50% lower than what it had at independence in 1948. Generally, this implies that China has maintained a higher GDP per capita for many years since independence. For India to contribute as much as China to its GPD in 2019, it will have to grow by 40%. However, India has also exhibited notable growth outcomes, mainly in education, workforce improvement, entrepreneurship, among others, thus increasing its economic growth rates in comparison to China. All in all, the essential factors that distinguish the two economies include demography, workforce engagement, capital intensity, and the level of literacy in the two countries. Despite China’s higher GDP, India continues to enhance its economic growth rate while aiming to catch up with it.
- Gandhi, V. P., & Zhou, Z. (2014). Food demand and the food security challenge with rapid economic growth in the emerging economies of India and China. Food Research International, 63, 108-124.
- Panagariya, A. (2013). India and China: trade and foreign investment. Economic reform in India: Challenges, prospects, and lessons, 96.
- Shambaugh, D. L. (2013). China goes global: The partial power (Vol. 111). Oxford: Oxford University Press.
- Tomlinson, B. R. (2013). The economy of modern India: From 1860 to the twenty-first century (Vol. 3). Cambridge University Press.