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Lessons For Prosperity:CHINA MOVES FASTER THAN INDIA, by Dr. Vinod Mehta,29 September 2005 Print E-mail

ECONOMIC HIGHLIGHTS                  

New Delhi, 29 September 2005

Lessons For Prosperity


By Dr. Vinod Mehta

A visit to Beijing and Shanghai gives a feeling as if one is in Singapore or Kuala Lumpur. One sees high rise buildings on both sides of the wide roads, glittering offices, posh hotels and good service culture. I was again in China after a gap of 16 years. And these years the skyline of both Beijing and Shanghai has totally changed.  So also the work culture. Construction activity is getting on a feverish pace. One gets the feeling why India is not moving at that pace?

It is common knowledge that both India and China started their journey along the path of economic development almost at the same time and from almost the same economic level, one under the democratic system of governance and the other under one party rule.  However, China took to economic reforms almost two decades earlier than India.  The reforms there are still being pursued vigorously. In China the Communist Party has become the catalyst for economic reforms, while in India there are political groups that are still opposing economic reforms.

Since the introduction of economic reforms more than twenty years ago, China has traversed a long way in its development.  Before the introduction of reforms, China had wiped out illiteracy and assured minimum level of social security, including health care to its citizens. India till date has not been able to eradicate illiteracy and assure a minimum level of social security to all its citizens. China has seen vibrant economic growth, over 9.4 per cent.  We are still struggling to reach 6 per cent growth rate.           

The industrial sector of China has been enjoying a very high growth rate since the introduction of economic reforms and the opening up of the Chinese economy.  According to the data made available by the State Statistical Bureau of China, the industrial sector has been registering an annual average growth rate of 12 per cent. Beijing attributes this remarkable growth to two factors.  First, the reform in the industrial sector was initiated by enlarging the decision-making powers of the enterprises and relaxing of controls on the functioning of industrial enterprises.  This was followed by privatization of the enterprises.

Secondly, the introduction of huge amounts of foreign capital and the opening up of the economy quickened the pace of China's industrialization. The FDI in the construction sector as well as in infrastructure is quite visible. One can see construction activity at a feverish pace in both Beijing and Shanghai.  To quote the Chinese sources, "The establishment of a large number of joint ventures and exclusively foreign funded enterprises has brought in capital, advanced equipment and modern management expertise, greatly enhancing the technological and management, level of China's industrial enterprises, enabling the production of China's manufactured goods to quickly catch up with or approach the world advanced level and increasing exports by several fold." 

During my stay in Beijing, a batch of state-owned companies “rolled out the red carpet for foreign investors by launching a share-stake promotion conference.” As many as 156 small and medium public enterprises with total assets of US $ 3.6 billion were opened to all investors, according to China Daily.

Beijing also claims that the gap between China and advanced countries in terms of the overall industrial technological and equipment level has narrowed by 10 to 15 years.  As against this, the reforms in the industrial sector in India have considerably slowed down over the years.  If we take the average annual growth rate of industrial sector it is hovering around less than per cent.  Still there are many constraints on the flow of foreign capital and technology in India. 

The public sector reforms and disinvestment in some of the public sector units are floundering.  The technology level of Indian industries is still very low.  Though, no studies have been made to find out the technological gap between India and other advanced countries.  One hunch should be that the technological level of Indian industry could be 30 to 40 years behind the advanced countries.

The agricultural sector of China has also witnessed a very robust growth in the past two decades.  It must be noted that unlike India where reforms in this sector are yet to be discussed, the rural reforms went hand in hand and with industrial reforms in China.  In the past 20 years, the average annual growth of agricultural production in China has hovered around 6.7 per cent.  Before the reforms the China was net importer of grain to meet its food requirements.  After the reforms the country has been continuously reaping good grain harvests with the output in 1996 topping 500 million tons.  It may be noticed that the landmass of China is bigger than that of India, but the arable land available to China is just half of India’s.

It is true that India is able to meet its food requirements from its own sources.  But the agricultural sector has not been growing at the rate at which it should. It has come down to one per cent from three per cent in the eighties.  That is why the agricultural experts fear that if India does not move now to raise its agricultural output it may face severe food shortages in 20 years from now.  The average annual rate of growth of agricultural sector has been hovering between three and four per cent for the past 20 years.

Far from reforms in the agricultural sector, we do not have any agricultural policy at the moment.  We are still dithering over foreign investment in the industrial sector.  The Chinese are going in for foreign investment in the agricultural sector in a big way.  This sector in China which was opened to foreign investment has attracted large foreign investments.

According to the Chinese sources nearly 60 per cent of foreign direct investment in the country’s agricultural sector has gone into the developed coastal region.  But now the Government is encouraging foreign investors to invest in the agricultural sector in western and central China. The Chinese feel that they would be able to increase the output of grain by 50 million tons in the next few years and achieve that it needs to invest between 20 and 50 billion dollars in the agricultural sector.  Precisely for this reason it will encourage foreign investment.  In India, it would be some achievement for the agricultural sector if we are able to remove all restrictions on the movement of agricultural products within the country. 

There is very little information available on the agricultural technology being used in China.  But going by the fact, its arable land is half of India’s and is yet able to produce five times the grain output, shows that Chinese productivity per hectare is much higher.  This should be a challenge for us and should afford us an opportunity to increase agricultural output by devising appropriate strategies. 

This is not to say that everything is alright with the Chinese economy; it has its problems and that corruption in China is also rampant. There are areas and regions where poverty is acute and unemployment relatively high.  The non-performing assets (NPAs) of the state- owned banks are reported to be much larger than the NPAs of state-owned Indian banks and economists are expecting that it may burst at any point of time. 

Whether the Chinese banks go bust or not, the above observations should make our nation think seriously as to how we can match their growth and emerge as an important economic power in the region.  There is an urgent need to push economic reforms in all the three sectors of the economy viz., agriculture, industry and service.---INFA

 (Copyright, India News and Features Alliance)




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