'Comparative Economics Studies of China and India Essay\r'

'In 1950, main filth china and India was the 2 developing countries with largest resources in boundary of degrade and labor. At that time, they both had the comparable sparing structures and tier of development. However, with the exit mainly in polity-making constitutions, in which chinaware is Socialist Communist g everywherenment, date India subscribe to parliamentary democracy, and peculiar(prenominal) countries’ development insurance, it leads to the difference in the arrange of offshoot in industrial enterprise in particular countries.\r\nThe dissimilarities in political system method of accounting for the number of finale making process. It is the particular crusade mainland chinaware had its development constitution change in 1978, which undertake exportation-oriented insurance creating special scotch zones (SEZs), solving in being one of the fastest emergence countries in the past 30 years, while In the case of India, before 1991, the econom ic result is easily low, referring as â€Å"Hindu enumerate of festering”, reflects deadening growth in industrial enterprise.\r\nAfter 1991, India had its economic reclaim policies, Industrialization begin to grow once much, peculiarly with the support of SEZ Act in 2005. It is put away questioned whether India could fare mainland China in growth of industrialization referable to poor step of infrastructure and protesting in land scholarship. Introduction The development policy of China and India had it commencement point since India’s independency in 1947 and China’s liberation in 1950. These cardinal countries had nevertheless identical initial position in term of economic structures.\r\ngross home(prenominal) product per capita of China and India, exploitation prices at 1960, were estimated to be 65 US dollar and 62 US dollar respectively. Also, total labor functional in industry was 11 share in India, while it was only 7 percent in Chin a. Moreover, 9 percent of total output was generated in Large-scale manufacturing and utilities, similar to 6% in India. Likewise, both(prenominal) China and India economies characterized by mass rural poorness under feudal mode of protection in the country side. However, the quip of industrialization surrounded by two countries began to widen during 1970s.\r\nAs in 1980, at that place was a substantial disparity in percentage partake of GDP, only 21. 9 percent in India, equate to 48. 5% in China (Saith, 2008. ) Why was the gap broadened due to similar economic structures? This paper foc enforces on the reason behind the different rate of industrialization that leads to discrepancy in economic growth. The first separate analyzes about the discreteion of Chinese and India’s political system, autocratic socialist versus parliamentary democracy, and how it guess the last making process of two countries.\r\nNext separate examines various policies of apiece country, in cluding Import substitution policy of India during 1950-1990, China reform in 1979 with special economic zones (SEZs) and SEZ Act of India in 2005 and the success or mischance of those policies. The third Section discusses the policy of land acquisition of China and India that contribute to industrial district. Section 4 reviews quality of infrastructure of two countries that affect the industrialization accordingly. The Final section concludes the paper. Political Systems\r\n thither is a distinct political system between China and India. China or PRC is considered as a hit-socialist companionship, in which general secretary of commie fellowship is the president of PRC. This gives total power to communist party to rule over country, although there are minorities of octad former(a) political parties. Further more(prenominal), having economic reform in1978, it gave provincial leader powers to allocate resources in their province. Local economic performances among states evolv ed into the essential criterion to evaluate lower-level officials.\r\nThese economic performances include GDP growth, to steel let ond, the miles of road constructed (Li & adenosine monophosphate; adenylic acid; Zhou, 2004. ) It created contender among state official to compete for advanceal material in to spunkyer level, which increase efficiency in each states. Li and Zhou (2004) used selective information from 28 provincial units from 1979-1995, estimated with regressions, showing that annual growth rate of GDP has positive relationship with promotion (15 %. ) Moreover, with second-rate growth rate over 5 years, result in positive relationship more than double of the result of annual growth rate (33%. In contrast, India constitutes a parliamentary multi-party democracy which more than 40 political parties. It stomach be verbalise that Indian politics is dominated by duopoly of subject Congress party and BJP party. However, those small regional parties still possess some political power as no parties pick up votings enough for being unilateral government. After 1992, Indian politics ca-ca effect politics of caste factions. Candidates for legislative assembly seating room have been selected from local faction leaders who have local ote banks in specific caste and community. There is no party which can be one-sided dominance except being head of multi-party unification (Stern, 2000. ) Also, with numerous political parties, those parties choose to play vote bank politics. Sometimes they prefer non to subdue with their vote banks, although it is better in terms of guild (Inhovi, 2009. ) Moreover, the composition of state power of China and India which it was created during achieving emancipation or liberation is what make it difference between two political system.\r\nIn India, the independence military c antiophthalmic factoraign was supervised mainly by the people in the middle and upper castes. By this I mean, in the post-independence pe riod, people in middle and upper castes can retain their power, while protecting their benefits. As a result, the Indian institutional framework is taking as a constraint toward industrialization and economic growth (Saith, 2008) On the other hand; revolutionary communist party led by Mao Zedong has taken control over china in 1950. Those powers were in the hand of the poor peasant and workers.\r\nPrior Status-quo and political structures were overthrown during the revolutionary under socialism. Therefore, the Chinese could adjust their institutional framework so that it is suitable for development of the countries. With the unsimilarity in political system, it leads to the differentiation in the ratiocination making process. For China, which political system is one-party domination, the conclusion for policies can be make in the communist party as less transaction comprise of negotiation among political parties and no obstacle from institutional framework and status-quo.\r\nBut for India, having duopoly in politics with nuclear fusion of multi-party government, culture of patron-client relationship and vote banks system, such stopping point on policies takes longer time as high negotiation cost between political parties, and it creation power has conflict with their vote banks (Inhovi, 2009 . ) In addition, China had dual-track implementing system in decision making process, in which stir Planning Committee (SPC) make tradeant decision on policies. It also monitors and implements the policy, supporting by justly party structure, result in successful solutions in terms of growth and infrastructure development.\r\nWhile, India had separated institutions of decision making process and implementation on policies. strategic Plans were constructed by working groups, including representative of line ministries, adept experts and others. However, in reality, the implementation was deviated from the plan. In addition, past Indian development plans only poi nted out directions but not specific goals, making implementation process harder. The distinct model of decision making process would affect both developments policies and infrastructure of both countries that lead to difference growth of industrialization and economic performance (Kim& vitamin A;amp; Nangia, 2008. Development Policies In 1950s, India led by Nehru Gandhi launch first development plan, in which its butt was to promote industrialization which large coronation were made basic industries. It was known as Import substitute Policy (ISI). Self-reliance on industrial goods was their blush target. As a consequence, government placed dour protection against national industries with licenses, permits and quotas. Only manufactured goods that improve productivity of industrial goods were allowed to import.\r\nThe development of industrial sphere was portrayed by central planning which controlled tete-a-tete heavens through license and permits and massive investiture in public orbit, including specific industries exclusively speechless (McMillan& Naughton, 1992. ) Consequently, India industrialized that its industries mostly produce everything from tinned fruit to nuclear energy (Stern, 2000). However, the rate of industrialization is slow as in behalf of non-comparative degree service and high costs of producing goods. Still, average annual GDP growth in industrial sector in real term from 1951-1960 was 5. 7% (Reserved bank of India, 2011. ) At the same time, China had its development policy reasonably differentiate from India. China also had development policy centrally planned. However, it relied on the collectivization of agricultural sector, using surplus on development of producing raw materials, enthronement goods industries and larger-scale, capital intensive industry. All trade of China was controlled by extraneous trade corporations, which indeed have by ministry of Foreign trade. It regulated all imports and exports to s pecific three-figure guidelines.\r\nSimilar to India, China’s export and import is irrelevant to country’s comparative emolument (Branstetter& Lardy, 2006. ) Then, in 1970s, there’s a turning point in Chinese economy. China, led by Deng Xiaoping, had a several(prenominal) economic reforms in particular creating â€Å"special economic zones. ” These zones were enacted for which unlike firms receive discriminative levy and administrative treatment and given an unusually free hand in their operations (Branstetter& Lardy, 2006. ) By that time, there were 4 zones: Shenzen, Zhuhai, Xiamen and Shantou.\r\nThe prime objective of SEZs was to serve as a bridge to introducing conflicting capital, technology and fellowship and management know-how (Roychoudhury, 2010. ) These special economic zones had several advantages. First, each of the zones is extremely large in terms of geographic celestial orbit; for instance, 2000 square kilometers i n Shenzen. It creates cost advantage of economies of scale for industrial sector both inseparable and external, and low transportation cost among suppliers. Second, they locate in the coastal area, having ports and transport networks.\r\nAlso, these zones were established near major cities or countries; for fount, Shenzen neighbor Hongkong, and Xiamen borders Taiwan. It could attract foreign investment from nearby cities, boast industrialization in SEZs. Moreover, foreign industries received preferential tax in incarnate tax rate; the actual tax hitch is 11%, while domestic industry paying 23% in actual tax burden, although nowadays, the preferential tax had been lifted except fewer high-technology sector and small enterprises (Guo& Feng, 2007. SEZs helped foster speedy industrialization in China within its area; incentivize foreign investors using comparative advantage of sporty labor costs. Along with the assistance of import policy in 1987, which granted imports of raw materials, part and components for export production purpose tax-free, China industrial sector emerged as low-wage assembly services (Branstetter& Lardy, 2006. ) As a result, SEZs growth has been enormous, as an example of Shenzen, which average annual GDP growth rate from 1980-2005 was 27%, later referred as â€Å"Shenzen Speed” (Guo& Feng, 2007. Later on, China has gained benefit from importation technical knowledge contained in capital goods, parts and components; as a result, some of the industry has shifted from appeal and processing services to self-manufacturing (Branstetter& Lardy, 2006. ) By the end of 2005, there are five Shenzen brands with sale more than 10 one million million million Yuan. The actual use of foreign capital inShenzen has increased to $3. 3 billion in 2006, compare to $153. 7 million in 1979 (Guo& Feng, 2007. ) 7% of gross piece FDI flows in 2009 went in to China, increase significantly from 1% in 1980.\r \nIn 2008, China had its share of world GDP in PPP basis of more or less 12% compare to 2% in 1980. China’s real GDP has increased average over 10% annually (Roychoudhury, 2010. ) SEZs policy has be its own successful, accelerating industrialization and economic growth in China in the past 30 years. In contrast, coping with Hindu rate of growth for over 40 years, 3 percent per annum from 1947 to 1975 and 5 percent per annum from 1976-1991, India had its economic reform later in 1991, offset trade liberalization to oster industrialization and economic growth, including abolishing of industrial licensing, decreasing tariff protection, removing industries reserved for public sector and small-scale sector and liberalizing foreign direct investment. before trade liberalization, the import substitution policy proved to be inefficiency due to licensing policy, high cost of producing, rigidness of labor securities industry and non-incentive for efficiency improvement (Ahluwali a, 2002. ) Companies gainful no attention on management training, quality control and advertising because there is only few or no competitor due to licensing policy and tariff protection.\r\nAs in 1970s, Indian market for industrial goods soon exhausted as domestic market is small and low fight against other companies in the world market. GDP growth in industrial sector of India from 1971-1980 is only 4. 3% especially growth from 1970-1976 is only 3. 4%, compare to 5. 9% and 6. 2% for growth from 1951-1960 and 1961-1970 respectively (reserved Bank of India, 2011. ) As a consequent, industrial licensing has been nullified, replaced by new competition law to increase competitive env urgement in domestic and international market.\r\nMoreover, 15 industries in public sector that was reserved exclusively, such as iron and steel, air transport services, have been opened for nonpublic companies to invest. Also, some of productions reserved for small-scale sector have been removed as tho se productions have export potential. Moreover, import licensing against capital goods and intermediate goods were removed in 1993, and quantitative restrictions on imports of manufactured consumer goods were abolished in 2001. It increased competitiveness for domestic industry, forcing to compete with other companies in ball-shaped markets.\r\nIn addition, Average tariff rate has decreased from 72. 5% in 1991-1992 to 15 percent in 2004, which will increase competition in domestic markets. However, the average tariff was considered high, comparing to China (Ahluwalia, 2002. ) The growth in economy and industrialization in India in late 2000s also partly came from â€Å"Special sparing Zones” or SEZ. In 2005, Government of India has passed SEZ A, which it goals was to incentivize local and foreign investors and promote export. There are numerous benefits investiture under special economic zones..\r\nFirstly, the government provided debt instrument free import of goods for development, operation and maintenance of SEZ units. Secondly, income tax on export in the first 5 years is exempted, and 50% exempted in year sixth -10TH and 50% of the export ploughed back export profit for year 11TH-15TH. Third, SEZs units also exempted from central gross sales tax, service tax and minimum alternate tax. Moreover, SEZs units could take up from external commercial borrowing up to vitamin D million dollars in a year without adulthood restriction.\r\nIn addition, SEZs unit gain benefit from single window clearance for central and state approvals, which load transaction cost of dealing with governments (SEZ India website, 2011. ) The SEZs policy in India is quite similar to SEZs policy in China; however, there are some distinctions between two countries. First, SEZs units in China mostly produce industrial products or consider in industrial sector, while in India, it can be both industrial sector and service sector. IT/ITES/Electronic hardware technology parks accounted for 61. 3% of formal approvals of SEZs.\r\n'