China's mind-blowing growth in last 3 decades has surprised the whole world.
Today all the mega factories and companies establishing their manufacturing
plant in China, making it the world's leading economic superpower. China has the
world's fastest-growing major economy, with growth rates averaging 6% over 30
As of 2018, China's private sector accounted between 70% and 80% of the GDP; the
private sector is also responsible for 80% of urban employment and 90% of new
jobs as a result the unemployment rate of china is just 3.8%. China also has the
world's largest total banking sector assets of around $40 trillion (268.76
trillion CNY) with $27.39 trillion in total deposits. It has the world's
largest foreign-exchange reserves worth $3.1 trillion.
It has the world's second-highest number of billionaires with total wealth of
$996 billion. Of the world's 500 largest companies, 129 are head quartered in
China. As of 2017, 109 of the Fortune Global 500 companies are based in China .
China is the world's largest manufacturing economy and exporter of goods.It is
also the world's fastest-growing consumer market and second-largest importer of
goods. The Shanghai Stock Exchange and Shenzhen Stock Exchange are one of the
world's largest stock exchanges by market capitalization and trade volume. The
economic development of Shenzhen has caused the city to be referred to as the
world's next Silicon Valley.
A Quick Glance of Chines Economy
China which has Global output by value in 1990 was just 3% , became 25% in 2018
,and as of now :- China Manufactures world's 80% Air conditioners, 70% Mobile
phones, 74% Solar cells, 60% shoes, 50% Coal Production, 45% Ship Production,
50% Steel. (China is at first position in Apple exports to world market that is
of 50% , with 6% America is at second position, that's the gap).
With the Nominal GDP of $ 14.140 trillion (2nd Rank in world ) and PPP of $
27.307 trillion (1st rank) , china is the 2nd largest economy in the world. With
the exports valued at $ 2.5 trillion (est. 2018) , the Chinese economy surpassed
the US to become the world no. 1 exporter.
China produces 60% of the branded luxury goods on their land, thus, defying the
notion that it manufactures only cheap goods.
This is the same China which is poorer than most of the African and Asian
countries till 1975, then how it suddenly became the economic superpower, did
china founds El Dorado, or gets Elder wand and cast any spell, moreover how It
suppress India which is in stronger position till 1990, as the per capita income
of China was $318 while India's was $368 at that time.
How The Gap Grows
In 1950, both China and India were rebuilding their economies after a long
period of war and unrest. Both independent, one communist and the other
democratic. India was in much better shape, the largest economy in Asia
notwithstanding almost 200 years of colonial exploitation, with a relatively
sophisticated economic system. China was in the catching up game and went its
own way, plunging into the chaotic and destructive Cultural Revolution and the
Great Leap Forward which turned out a disaster for both its citizens and
economy. By 1978, after the death of Mao, it was an economy going nowhere with a
bloated population and great poverty.
The new leadership of Deng Xiaoping ( Architect of Modern China ) started the
(eliminating chaos and returning to normal) program which
brought the country back to order. In 1978 Xiaoping's opening-up-to-the-world
policies and the 1979 Equity Joint Venture Law. Together they have allowed
(among other things) foreign capital and Western companies to enter China,
transforming the domestic economic landscape entirely from one that is
traditional and obsolete to one that is dynamic and modern.
The communist China regime started freeing agriculture from state control - a
big-ticket reform in the country. It enforced one-child policy in order to
defuse the population bomb and so that the demographic dividend could be
utilized, then started investing in infrastructure and promoting its coastal
areas for investment.
In contrast, India, whose traditional rule of law provided for the open market -
that was chained in by the British colonial rulers to maximize their own
industrial progress - under Pandit Nehru adopted a socialist economic model
where wealth creation and big private enterprise were not encouraged. Indian
economy grew at around 3.5 per cent rate through the 1960s and 1970s while
population grew in excess of 2.5 per cent. The population growth rate was a
curious case as India was among the first few nations in the post-World War II
phase to roll out population control policy. However, the family planning
centres in India practically functioned as a family expansion facility due to
the very low penetration of medical facilities in remote areas and lack of
In 1987, GDP (Nominal) of both countries was almost equal. But in 2019, China's
GDP ($14.140 trillion) is 4.78 times greater than India($3.202 trillion). On PPP
basis, GDP of China($27.307 trillion) is 2.38x of India ($11.321 trillion).
China crossed $1 trillion mark in 1998 while India crossed 9 year later in 2007
at exchange rate basis.
Both countries has been neck-to-neck in GDP per capita terms. As per both
method, India was richer than China in 1990. Now in 2019, China is almost 4.61
times richer than India in nominal method and 2.30 times richer in PPP method.
Per capita rank of China and India is 72th and 145th, respectively in nominal.
Per capita rank of China and India is 75th and 126th, respectively, in PPP.
According to CIA Fackbook, sector wise GDP composition of India in 2017 are as
follows : Agriculture (15.4%), Industry (23%) and Services (61.5%). Sector wise
GDP composition of China in 2017 are : Agriculture (8.3%), Industry (39.5%) and
Services (52.2%). Our service sector has done outstanding job, it can be
considered as backbone of Indian Economy.
With the growth rate of approx 10% in last 3 decades, China lifted more than 800
million peoples from poverty (as per world Bank ).
Differences – India V. China
- Mass Production and Dumping
Chinese economic reform help them to scale up their production so massively
that their cost of production has comes down drastically. It has become home
to mass production that's why, China also known as Factory of the
world. Chinese companies observe the local market, import goods in bulk
almost identical to those that sell well on the spot but on much cheaper
price, leaving the local industry to struggle for its survival. This is how
the chicken industry in Zambia, bikini industry in Brazil and the
smart-phone industry in India were severely hit.
On the contrary, India has become the dumping ground for massively produced
Chinese goods. For instance, home ground smartphone market such as Micromax,
Lava and Intex once cornered nearly 54% of the Indian market share. The same
brands have 10% market share today. In the plea, Bansal - alongside chief
executives of other Indian smartphone vendors like Micromax and Karbonn
Mobiles - accused Chinese smartphone vendors of dumping low-cost smartphones
in India, making it tougher for the local businesses to survive. The
government should introduce an anti-dumping duty on such phones, the
CEOs suggested. Every child needs hand-holding by their parents, Bansal
said at the time.
- Competitive Pricing with Reverse Manufacturing
Chinese manufactures do not waste their energy and resources in innovation,
instead they copy the technology from advanced countries like USA, France
and start making their own products. It saves their cost and resources on
innovation, R&D, and IPR. As a result the final product have a much cheaper
price than original. For instance, iPhone X which cost around Rs 70k in
India, while GooPhone X, a Chinese clone of the same will cost Rs. 6500.
On the contrary, the Indian business community lacks in global exposure.
They still believe in traditional way of doing business .Now the things have
been changing in India as well, but it takes some time.
- Cost-Effective Labour
China has a competitive advantage due to cheap labour owing to a big
population. Its a Myth! Rather Chinese labour is highly productive. The
Chinese govt. in collaboration with industries worked on the skill
development of labour force. As a result, the output of Chinese labourers is
many times higher than that of India.
On the contrary, India which has the largest number of Youth in the world,
but only 2.3% of the workforce in India has undergone formal skill training
as per Periodic Labour Force Survey (PLFS) of 2018, although Indian govt has
taken many initiative for skill development like “Skill India program, PMKVY, but failed to implement it effectively due to mismanagement and
non-availability of Funds. As a result, the maximum labour force is either
unproductive or less productive.
- Experience and Expertise
“Karat karat abhyas te jadamati hot sujan, India has formulated this
principle and China applied this, and by the virtue of their continuous
labour, Chinese workforce are so skilled and experienced that china has
become the first choice for setting up a manufacturing unit for companies
around the globe.
On the contrary, India has just began to establishing manufacturing clusters
which will take time to produce skilled labourers, whereas it has reached
each household in China.
- Stability Of Government
Political stability is the prime reason behind china's emergence as a
popular destination for
manufacturing. China is considered more stable to a global partner in
comparison to India due to its political stability.
In India due to bureaucratic red- tapism, it takes more time and energy to
get clearance to start a business, which is why international investors are
reluctant to come to India.
An investment in knowledge pays the best interest, Education system is the
most important factor behind how china became economic superpower. They have
brought major education reforms in education by making it more global and
pragmatic, as a result 24 universities of china(mainland) is in top 500
universities of the world while in case of India its only 8 (Q S Top
universities Ranking 2020). Chinese eduction system also encourages
On the other hand, the Indian education system still looming around what is
known as the British legacy. 92% of government schools are yet to fully
implement the RTE Act. India is ranked at 115 out of 157 countries in female
literacy rate while China ranked 27. As a result overall, China literacy
rate for 2018 was 96.84% while India's was 74.37% ( UNESCO Institute for
- Industrial Network Clustering
China has established a vast network of industrial cluster and supply chain
cities for manufacturing products. Like
- Shanghai-chemicals, pharmaceutical, automobile,
electronic apparatus, financial
- Shenzhen-IT, semiconductors,communications, electronics information
- Beijing-IT, communications, electronics
- Guangzhou-Automobiles, electronic appliances,
textiles, apparel, toys, petrochemicals
On the other hand, India has also started industrial network clustering,
every state promoting themselves and convincing investors to invest in their
state. So, it will take some time to form that level of industrial ecosystem
which China have. Industrial network clustering helps in creating millions
of job thus ultimately boost the economy of any nation.
- World Class Infrastructure
China has developed world class infrastructure which is a pre-requisite for
developing a manufacturing hub. China's highways, roads, ports, Airports,
supply chains, infrastructure etc. in totality is more advanced than
India. According to Forbes, between 2011 and 2013, China consumed 6.6
gigatons of concrete - that's more than the U.S. used in the entire 20th
century, just imagine that level of development. Before starting a project,
China makes a vision for the next 20-25 years(long term vision) like Made in
China 2025, a plan to achieve 70 percent self-sufficiency in high-tech
industries by 2025, and by 2049(the 100th anniversary of the PRC)—it seeks a
dominant position in global markets.
On the other hand, India makes project by taking account into the next
elections. Here in India, appeasement is more than development and vision is
very short lived. For example, you can take account of Allahabad's city
roads which are totally renovated just before Kumbh 2019 and now scrapped
within a year. Another important point is, India did not invest adequately
in infrastructure, only 4.7% of GDP where the need was for 6.5%. China
over-invested, at 8.7%, while it needed only 6.5%. As a result India's
supply-chain costs are at 14% of GDP creating a highly cost-uncompetitive
economy while China is at 6% creating a competitive low cost economy.
- Government and Industry Partnership
Chinese government works in tandem with the corporate sector. Also, the
Chinese govt. is directly involved in expanding its economic activities in
foreign countries. Best example is China's The Belt and Road Initiative (BRI) a
global infrastructure development strategy adopted by the Chinese
government in 2013. Currently China has engaged 138 countries and 30
international organisations in the BRI Infrastructure projects include
ports, railways, highways, power stations, aviation and telecommunications.
Like Gwadar Port in Pakistan, the Hambantota Port in Sri Lanka etc. Through
project like these China also found the ways to boost its economy, Chinese
construction company that has fewer opportunity within their own country
shows huge boost from BRI contracts, 7 out of 10 biggest construction firms
in the world are now Chinese.
On the other hand, India's democracy has been a bottleneck in extending its
economic interests in foreign countries like we have seen the example of Gautam
Adani. However, India has also started infrastructure projects in partner
countries, like modernization of The Rift Valley Textiles factory in Kenya. Some
of the big-ticket projects completed recently in Africa include the construction
of the presidential office in Ghana, the National Assembly building in Gambia,
and the Kosti power plant in Sudan. But all these projects are relatively small
in comparison to China. Analysts say that India has a long way to go in catching
up with China vis a vis undertaking big ticket infrastructure projects.
The lessons for India are very clear either spend big or plunge deep. Former PM
Dr.Manmohan Singh's has truly said that “mere tinkering with economic policy
will not help revive India's ailing economy and a stronger medicine is
needed. Nobel Prize winning economist Abhijit Banerjee had also said policy
makers should “worry more about demand and advised that India needs to pump in
money into the economy, especially in the hands of the poor.
“India is a very attractive opportunity. But it is going to have to compete
against a global ecosystem…India provides a large market, a large labour and a
stable government and can be a very attractive place to locate much of the
manufacturing. But India needs to take measures to make itself more competitive
as well, said Nisha Biswal, president of the US-India Business Council (USIBC). All
these above comments pointing towards one common thing i.e., to do some major
reforms in economic policies.
Challenging China means unlearning many things and re-learning many new
things. India championed the romantic notion of rural villages, failing to
understand that rapid urbanisation was the future. Romance with village is good
but its not bad to have affair with urbanisation. As its really important for
India to invest in its cities, including in new cities. To promote rapid
urbanisation which could enable delivery of civic services to improve quality of
life, give freedom to cities and towns to govern themselves and create new jobs.
Incentivise and increase investment in labour-intensive industries to create
more jobs. Remove restrictive labour regulations to increase job-creation. Allow
firms to grow faster in all areas by de-reserving goods for MSME and making them
grow bigger. Reduce corporate taxes to 25% for all to increase internal
generation of resources and reduce capital intensity by reducing depreciation
rates. Incentivise job creation by special tax-breaks.
Increase investment in infrastructure to at least 6.5% of GDP, release
investment resources by divestment in state-owned mature infrastructure assets.
Improve productivity of ports, reduce power theft, improve speed on highways and
in railways and reduce the cost of doing business by removing unnecessary
regulations. Keep a level playing field between Indian business and FDI.
Allow investment in education by the private sector to improve skills and human
capital, grant full autonomy to the top 200 universities to increase innovation.
Encourage vocational education. Experts said that if the infrastructure
bottleneck and slow approval process is dealt with efficiency, India could
replace China over next few years.
China has many lessons for us. Chinese companies will dominate the world in
future. It is not an overstatement to say that India needs to learn a few tricks
of the trade from China as it is the only country with a 1.3-billion population
which started off in 1950 with similar economic and social structures, and
succeeded in dominating the world.