While rapid trade-led growth has enabled China to surge ahead of other developing economies in recent decades, a number of analysts are projecting that India’s growth rates will soon outpace China’s.
India’s democratic political culture and favourable demographics, both of which are viewed as being more conducive to sustaining rapid economic growth over the long-term, are often cited as reasons for this. But amid such speculation, several key factors — including market conditions, economic policies and supply-side factors — suggest that China will continue to outperform India over the next decade.
From the beginning of its economic modernisaton, China benefited from favourable conditions including a large domestic market, low-cost productive labour and the geographical advantage of its proximity to Japan, the previous engine of Asian growth. Even more importantly, China pursued a swift and coordinated economic liberalisation program beginning in 1978 that served as a catalyst for subsequent decades of economic growth. This reform program included an open-door policy toward foreign direct investment (FDI), promotion of technology transfer through FDI, steady liberalisation of a controlled import regime, competitive exchange rate management, and a strategic approach to free trade agreements (FTAs) with neighbouring Asian economies. Firms operating in China now enjoy a more competitive business environment than their counterparts in India, with more market-friendly rules for business start-up, property registration, contract enforcement and bankruptcy.
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