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Why are China and India growing so fast? [Copy link] 中文

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Post time 2016-9-19 16:44:51 |Display all floors

The world’s two fastest growing major economies are China and India.

Both countries demonstrate a common pattern of development different from that of the slowly growing West. Rapidly growing state investment plays a significant role in China and India’s economic expansion, while private investment is either growing very slowly or declining. In contrast, the slowly growing Western economies rely on private investment with no rapid growth of state investment.

This economic reality is crucial for China’s practical economic policy as the country seeks to achieve its goal of a “moderately prosperous society“ by 2020 and a “high income economy” by World Bank standards shortly thereafter.

But the facts of this global economic trend are also crucial for economic theory and analysis. According to the dogmas of “neo-liberalism” and the “Washington Consensus,” private investment is supposed to be “good” while state investment is supposed to be “bad.” The facts show the exact opposite trend is occurring.

Rapidly rising state investment is associated with high economic growth (China and India); over-reliance on private investment is associated with low growth (U.S., EU and Japan).

China and India’s Rapid Growth

In 2015 China’s per capita GDP growth was 6.4 percent and India’s 6.3 percent based on World Bank data.

These are easily the fastest growth rates for any major economies. They also propel the most rapid rates of growth of household and total consumption. In particular, both China and India are growing far more rapidly than the Western economies — in 2015 the EU’s per capita was only 1.7 percent, the U.S. 1.6 percent, and Japan’s 0.6 percent. Data for 2016 to date show the same pattern of rapid growth in China and India and slow growth in the U.S., EU and Japan.

Professor Zhu Tian from China Europe International Business School points out, referring to National Statistics Bureau data, that from January to June 2016, state-owned fixed-asset investment had grown by 23.5 percent over the same period last year, but private fixed asset investment growth had decelerated to 2.8 percent.

Chinese state and private investment percent change year to year: 2011-2016 (CEIBS)

India, the other rapidly growing major economy, shows the same pattern as China. The analysis by Pranjul Bhandari, chief India economist of HSBC, in July noted that the year-on-year increase of India’s state investment was 21 percent while private investment actually fell by 1.4 percent.

Indian public versus private investment from 2010-2016 (CEIBS/HSBC)

In other words, the world’s two fastest growing major economies, China and India, are both being driven by rapidly rising state investment, with private investment playing a less significant role.

Slow Growth in Western Economies

In contrast to China and India, Western economies are experiencing very slow growth. For Q1 of 2016, per capita GDP growth was 6.2 percent in China, 6.6 percent in India but only 1.6 percent in the EU, 1.3 percent in the U.S. and 0.2 percent in Japan. Q2 data of 2016 show continuation of the same growth rate in China while per capita growth in the U.S. fell to 0.4 percent, nearly one-fourteenth of China’s rate.

Year-to-year growth in per capita GDP 2015-2016 (IMF/OECD)

If we look at per capita GDP growth for world’s major economies since 2007 — the peak year of the last U.S. business cycle and the last year before the global financial crisis — it is noteworthy that per capita GDP grew by 85 percent in China and 52 percent in India, but only by 3 percent in the U.S., and less than 2 percent in the EU and Japan.

GDP per capita change 2007-2015 (IMF)

The vast growth outperformance by China and India compared to the Western economies is evident.

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Post time 2017-8-12 19:47:46 |Display all floors
The cycles of civilizations  come and go, and we are now in one of the major transition periods.

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Post time 2017-8-12 20:16:18 |Display all floors
When an economy is in the dire straits that India's and China's were until the end of the 20th century, then catching up with their betters automatically gives them a huge growth rate.

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