Author: Arend Pryor | Created: 06/21/2021
Details: Sharing content created as part of pursuing my MBA degree
Assignment Details: Prepare a presentation with detailed speaker’s notes and visual elements, including graphs and tables. Include the following in your presentation:
Choose a pair of economies from the bulleted list below, (each pair has 1 highly successful country and 1 less successful country, except for NAFTA /EU):
NAFTA vs. European Union (world’s two largest economic entities)
China vs. India (world’s two most populous countries)
South Korea vs. North Korea (two polar economic opposites, one people)
Venezuela vs. Saudi Arabia (world’s two largest sources of oil reserves)
Nigeria vs. Democratic Republic of the Congo (functioning government and civil order vs. struggling government and violent clashes among factions; note: the Republic of the Congo is not the same country as the Democratic Republic of the Congo)
Research the economies for your chosen pair of countries. Compare similarities and differences between your chosen countries/economies and explain how their economic, political, and cultural development since 1992 has influenced their economic growth and trade competitiveness.
Hi everyone and thank you for joining us today. My name is Arend and I will be taking you through the presentation where we will be comparing the economies of China and India.
As shown in the Overview slide here, this comparison will cover the following areas:
General information about China and India
Similarities and Differences of each country
An analysis of several different development factors that influenced each country’s economic growth and trade competitiveness including:
Economic, Political, and Cultural
An evaluation of factors that contribute to each county’s growth and success in international trade
The topic of Value-Added Trade will be covered as well as how it differs from Gross Value Trade
Next, Comparative Advantage will be discussed for both countries
Lastly, we will end by taking questions on the information covered today (Not applicable for this blog post)
For those who are interested, we also have a references section showing where much of this data originated
Ok, let’s start with a brief overview of China and some of its key data points
China’s current population is an enormous 1.35 billion people in a country that spans 3.7 million square miles
Some of the largest cities include Shanghai, Beijing, Guangzhou, Shenzhen, and the well known city of Hong Kong
Prior to 1966, the country enforced economic policies that did little to promote growth and kept the country isolated from open trade. Post 1966, the country has since opened up to foreign trade and has been one of the fastest growing economies in the world (China’s Economic Rise: History, Trends, Challenges, and Implications for the United States, 2019)
A calculation of the country’s Gross Domestic Product, or GDP, for 2010 was $6.9 trillion dollars
As of 2010, China surpassed Japan as the 2nd largest economy in the world (China - Country Profile, Key Facts and Original Articles, 2015).
Top exports from China include: Electrical components, machinery, computers, and Furniture (Workman, 2021a)
As a comparison, let’s cover some of the same key data for India
The country's current population is neck and neck with China at at 1.3 billion people as well. This population is spread out over less than half of the square footage of China as 1.2 million square miles
Some of the largest cities in India include Mumbai, Delhi, and Bangalore (Subrahmanyam, 2021)
GDP for India as of 2020 was calculated at $2.7 billion in U.S. dollars and is projected to hit $4.5 billion by 2026. This puts India as the 7th largest economy in the world (Statista, 2021)
Following the independence of India in 1947, the country promoted a self-sufficient economy, which changed to a system of open trade as of 1991 (India International Trade, 1999)
Top exports from India include: Mineral fuels, precious metals such as diamonds, and pharmaceuticals (Workman, 2021b)
Power Distance
This area represents the inequalities within a society and how accepting those with less power are with the gap that exists between themselves and those with more power.
China and India both score relatively high, indicating a comfort with hierarchy and structure as well as acceptance of inaccessible superiors.
Masculinity
This area looks at the motivations people have and whether they are competitive in nature (masculine) or more focused on an enjoyment of the work being done (feminine).
The scores here show China and India as being somewhat similar in terms of their competitiveness and placing less emphasis on leisure time
Uncertainty Avoidance
Scores in this category illustrate how threatened members of society feel in the face of uncertain or unknown circumstances and to what extent they would go to avoid them.
This is to say that people in both countries have an openness to new ideas and are more comfortable with situations where uncertainty is involved
At 30 China has a low score here which speaks to their need to adhere to rules, but they are flexible when it comes to laws at time in order to suit their needs. While India has a similar score, they are slightly higher and have a higher comfort with uncertainty and are very tolerant.
Indulgence
This last area shows the willpower a society has towards controlling wants and impulses.
With scores on the low end, China and India are less indulgent by nature and place less importance on relaxation and delight in leisure activities.
Long Term Orientation
Scoring low is this area, shows a tendency of upholding long-standing traditions and viewing social change with distrust. A higher score shows a more realistic view that encourages being thrifty and importance of modern education to prepare for the future.
It is within this category, that the two countries differ most of all. With China scoring so high, it points to their belief that the factors of truth depend on the situation and save for the future. India scores lower but is still a bit middle of the road and are very tolerant of cultural differences and views as well as being comfortable with the unknown path (Hofstede Insights, 2021)
As mentioned in one of our earlier slides, China has overtaken Japan as the 2nd largest world economy with 6.9 trillion in GDP and has a growth rate of 6.2%
Economists have attributed China’s growth to increases in capital investment, economic reforms aimed at decentralization, and substantial efficiency improvements
However, economists now believe that China’s growth over the next few decades will slow down significantly unless the country can become a hub of technology and innovation (Morrison, 2018)
Also previously mentioned, India’s economy currently ranks 7th in the world and is projected to grow at a rate of 7.5%, which is slightly higher than China’s projected growth
Looking at India’s current rate of growth, economists have noted that it has continued to increase at a steady pace across a variety of sectors and stabilized in 2017
In order to increase this rate of growth for the future, economists say that India will need to strengthen its public sector, make use of resources such as land and water which are becoming scarce in other parts of the world, and focus on the middle-class economy (Roy & Kabaran, 2018)
Despite China’s GDP being one of the quickest growing in the world, as of 2019, the country was experiencing a structural slowdown partly due to the effects of COVID, but more so as a result of a shift away from investment-led growth and implementation of policies aimed at a reduction in financial vulnerabilities.
President Xi Jinping’s plans for growth include reducing public and corporate debt which is said to account for 15% of all global debt and the issue of decreasing the poverty gap between cities and those in the countryside (Santander, 2020)
Last but certainly not least, the issue of tariffs implemented by the Trump administration on China have been one of the largest political impacts being faced. China has since responded by enacting tariffs of their own on the U.S., which economists overwhelmingly agree are barriers to economic growth on both sides (York, 2020)
During the recent COVID pandemic, the response of India’s government to prevent the spread of the virus exacerbated pre-existing economic issues with decreased consumption and increased unemployment
To their credit, India’s government also responded to the pandemic by approving a wide-ranging stimulus package to help soften the financial blow to low income households as well as small to medium sized businesses
Going forward, the government is setting its sights on improving inequality through implementing growth oriented improvements
With growth increasing as it has been, India is expected to surpass China as the world’s most populated country. With the right reforms and focus, India could slowly most up the economic ranks (Santander, 2021)
Cultural Development refers to the strategic planning and implementing of strategies to leverage your community's unique cultural assets for the economic and cultural benefit of the community as a whole
During 2018, China’s cultural development was at work for the economy in the form of over 1000 movies produced and distributed, which raked in the equivalent of 9 billion in U.S. dollars at the box office, making them the second largest film market
323 TV Series were also produced along with over 500,000 book publications, moving china into the for these areas
The cultural industry saw a rise of newly registered companies during 2018, which brought in 3.47 trillion yuan accounting for 4.23 percent of GDP (Xinhua, 2019)
Cultural Development refers to the strategic planning and implementing of strategies to leverage your community's unique cultural assets for the economic and cultural benefit of the community as a whole
During 2018, China’s cultural development was at work for the economy in the form of over 1000 movies produced and distributed, which raked in the equivalent of 9 billion in U.S. dollars at the box office, making them the second largest film market
323 TV Series were also produced along with over 500,000 book publications, moving china into the for these areas
The cultural industry saw a rise of newly registered companies during 2018, which brought in 3.47 trillion yuan accounting for 4.23 percent of GDP (Xinhua, 2019)
As of 1990, China had a slight lead on India with regard to GDP and hit the 1 trillion milestone as of 1998, with India hitting it nine years later.
As seen here in the graph, China’s current GDP is 5.5 times higher than India giving them the advantage in this category (World Bank, 2021)
Based on the two plotted lines showing inflation from 2009 to 2019, we see a big difference between China and India until 2017 where the numbers came very close, however, inflation in India increased while China's dropped
Based on this data, we can see that the cost of living in India was high for a number of years. (World Bank, 2021)
The individual inflation rates of India and China have stayed somewhat consistent over a ten year period with rates from the prior year dropping slightly for each country.
As a result of COVID, both countries not surprisingly showed increases during this time, however, economists expect that these rates will slowly drop closely to their previous levels (World Bank, 2021)
The data in this comparison chart is interesting in that it graphically shows just how far China has dropped in exports despite being the 2nd largest economy in the world and how close India is to catching up (World Bank, 2021)
Government debt as a percentage of GDP is an indicator of a country’s ability to make payments towards its debts, which in turn affects the borrowing costs and the yields of government bonds.
Based on the data from the chart, India has made significant headway in improving this factor. As of late 2010, the number has gradually crept up while China has seen a significant increase as noted by its increases in debt (International Monetary Fund, 2021)
Based on the data we just reviewed, we can see that these two countries have had significant differences in their economies. However, the data has shown that the efforts of India over time have led to increased efficiencies and steady growth due to governmental reforms and capital investments. This has come at a time when China has worked to surpass Japan as the 2nd largest economy in the world, however, due to the slowness of economic reforms, an ageing workforce, and massive debt, the growth of China’s economy is now settling into a period of stabilization with economists projecting slower growth over the coming years (International Trade Administration, 2021).
The establishment of global value chains (GVCs) and China's entrance to the World Trade Organization (WTO) were two linked events that set China on the path to becoming the manufacturing powerhouse it is today (WTO) (Nicita & Razo, 2021). The success of India within the international trade marketplace has been a result of their ability to export goods and services they foresaw as being in high demand. This includes communication information technology services, medical equipment and pharmaceuticals (OECD, 2019).
With $2.6 trillion in goods exported in 2020, China’s value chain consists of a wide range of suppliers who supply inputs to the production process. However, Chinese companies have been attempting to move from international inputs to domestic suppliers as part of increasing the growth of their economy and improve its self-sufficiency. India’s participation in the global value chain has allowed them to gain valuable experience, however, the next step is to move up the chain towards more refined products, which will result in higher revenues and improved economic growth (Banga, 2021).
Value-added trade is an interesting concept. When a product or material is exported and used as an input in another country, and then exported and used as an input again, each country gets credit for the original value of the export. The graphic shown is a great example of the differences between gross trade and value-added trade flows.
Another interesting fact about these two methods of calculating the value of exports is in where the trade deficit exists. With gross trade flows, the deficit of country C is with country B, where as if we use the value-add method, it exists between C and A.
With both China and India being large exporters of goods and materials that serve as inputs for final products in other countries, the value add method provides much more credit to these originating countries (Ravikumar, 2019)
Of China’s top imports, crude petroleum and integrated circuits are at the top of the list at $208 and $133 billion respectively. China is able to utilize low cost labor due to their comparative advantage as part of refining petroleum and assembling circuit boards to then export (Reale et al., 2020).
If I next told you that India’s top import was refined petroleum, I would be willing to bet you can guess where they import it from. If you said China, bonus points for you. The lower cost of labor also provides India with a comparative advantage, which in turn allows for refined petroleum to also be one of their top exports. The same holds true for India with respect to the import of processed minerals which as luck would have it also come from China and a fair amount from other countries.
That’s all the information being covered today. Before concluding the presentation, I wanted to thank everyone for your time and attention while this information was covered. I welcome any questions you may have before we conclude.
Last but not least, for those who are interested. The following slides include reference information for the data included in today's presentation
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