China had zero per capita GDP growth for 150 years till its Civil War in 1949. From there, the communist country grew 3 per cent till 1978. But, since that time there has been no looking back, as the dragon nation has grown at a whopping 8 per cent. Until 1978 China’s real per capita GDP was one-fortieth of the US.
Home to 20 per cent of the world’s population, China’s transition began with the opening up of its economy to the outside world in the 1980s, as it overtook Japan to be the world’s second largest economy in 2010.
What Changed In China Post 1978?
- Privatisation and Trade liberalisation – Opening up previously state dominated industries to non-state entrepreneurs and easing up price controls – Most important contributor to overall productivity growth
- Labour deepening – Introducing price and institutional reforms in the agricultural sector which generated positive incentive effects on farmer’s efforts and input choices resulting in 47% agricultural output growth during this period.
- Productivity growth – labour reallocation from agriculture to non-state industries with better per capita productivity
- Capital deepening – Market liberalisation provided farmers with strong incentives to adopt newer technologies, further reducing agriculture’s share of total employment and switching erstwhile farmers to nonagricultural sector
- SEZs were set up in various cities with attached tax incentives to attract foreign investors. Today, the economies of cities like Shenzhen have grown to rival the GDPs of entire countries.
- Focus on development of the Coastal region as a potential catalyst for the entire country’s modernization.
These efforts culminated in China joining the World Trade Organization in 2001 which eventually made this country world’s number one trading partner in terms of per cent share of global exports by 2009; producing labour intensive products such as textiles, toys, clothes, footwear and furniture for companies and ultimately consumers around the globe. The Chinese economy which had grown 50 per cent between 1980 to 1989, and 175% the following decade, now expanded by more than 400% in the decade after its accession to the WTO. There are 124 countries for which China is the largest trade partner vs. 56 countries for the U.S.
The Story Of India Since Liberalisation
Faced with rising inflation and a balance of payment crisis in mid-1991, India’s new government introduced a fairly comprehensive, orthodox policy reform package with currency devaluation as its centrepiece. After pursuing a closed, import-substitution model of trade and development for the previous 40 years, India changed direction and began opening the economy to trade and foreign investment. Yet there were signs that India wasn’t hitting its full potential. Average GDP growth of 6.2 per cent over 30 years …….
