Development path of China and India and the challenges for their sustainable growth

This paper looks at the challenges for India and China in light of their recent development paths. It examines their special characteristics during their fast growth episodes, in particular how the engines of growth came into being and propelled fast GDP growth. It also looks into the down sides, structural imbalances and problems that China and India have had to address in order to maintain sustained, fast economic growth.

It is explained that the segmentation of global manufacturing and services provided China and subsequently India with a golden opportunity to make full use of their absolute advantage - low cost yet educated labour - to integrate into the world economy within a comparatively shorter period of time than some earlier industrialisers. Though international trade functioned as a vent of surplus in view of the narrowness of their domestic markets at the beginning of their economic catch-up, the label of export-led model may not reflect the real picture as imports underwent dramatic increases during their respective growth periods, in particular for China. Foreign direct investment has played a pivotal role in their economic growth and has major presence in international trade and investment in leading sectors of both countries giving rise to certain special features and weak links for their economic expansion and sustainability of fast economic growth.

In conclusion, the authors summarise that:

• to sustain rapid economic growth, China and India must redress a multitude of imbalances and challenges - though manufacturing and services have been the growth engines of the two countries respectively, it seems lopsided development could constitute a constraint to more broad based growth 
• China needs to boost the service sector in order to generate jobs and expand domestic demand, while India needs the manufacturing sector to stimulate economic growth 
• it is important to allow wage levels to keep pace with productivity growth - the declining dependency ratio, particularly in China, appeals for policy initiatives to avoid a scenario of becoming old before getting rich 
• technology upgrading is essential for their long-term economic growth - balancing consumption and savings is also crucial as investment generated demand may lose its effectiveness if domestic consumption is sluggish.