The integration of China and
India into the world economy:
a comparison
ISABELLE BENSIDOUN. FRANÇOISE LEMOINE, DENIZ UNAL
PRESENTATION BY AGNESE PERSIANI
Who are the ”emerging economies”?
First defitition in 1980s:
Fast growing economies with rising financial markets and which offered new
opportunities to international investors.
Sometimes:
BRICs
Fast growing economies
All developing countries
 The dividing line emerging and not emerging economies is quite imprecise
Classification
2 criteria:
1. Level of income per capita
2. Export performance during the period between 1995-2006
EMERGING
ECONOMIES
Level of income per capita below the threshold
set by the World Bank (11 100 US current dollars
in 2006).
Have been able to increase their share in world
markets ofmanufactured goods/services by at
least 0.05 percent point.
Classification
RENTIERS
RICH ECONOMIES
THE REST OF
THE WORLD
Countries with more than 40% of their exports made
of primary products and which enlarged their share
in world exports of primary goods by more than 0.05
point.
Countires with an income per capita above the
World Bank threshold and not rentiers.
Economies neither rich, nor emerging, nor
rentiers.
Classification
The LARGE emerging economies
The LARGE emerging economies
India and China differ from the other two countries for differtent
important reasons:
 They are characterized by a huge population that enabled them to
become big economic powers long before getting rich
 they are by far the two poorest large emerging economies
(intermediate and low-income category)
Trade in good and services
China began to open up its economy in 1978 and in thirty years considerably
enlarged its share in world exports of manufactured goods (processing trade).
 The industrial exports to manufacturing value added has jumped since 2001
and reached 90% in 2005.
More than ten years later, India started a process of economic liberalization
(1991) and achieved the best export performance in the service sector.
 The ratio of trade (export + import) in goods and services reached 40% of
GDP in 2006.
Specialization: from textile to new technology.
Indicator used to measure specialization:
Xi – M i / X + M
Indicator calculated for 1995, 2000, 2005 and 2006.
The two countries have in common that they have developed their strongest
specialization in sectors linked to information and communication technology (ICT):
 China in electronic goods
 India in ICT services
These sectors represented for long time a very dynamic component in
international trade  between 1995 and 2005, world trade increased at an annual
rate of 7.8% in electronic goods and of 23.9% in computer and information
services.
Both China and India contributed to enlarge the world supply in these areas.
Offshoring and outsourcing
China  The performance on the export of electronic goods has been built on
foreign direct investment (FDI) that created a huge assembly line of electronics
components.
FDI provided local entrepreneurs the financing means they needed.
India  In the 1980s multinational companies have begun outsourcing
computer services from Indian firm, stimulating the development of larger firms.
Entrepreneurs chosen to develop activities in sector with relatively low financial
requirements and less constrained by infrastructure bottlenecks and labour
restriction.
Quality upgrading
Composition by price/quality range:
China  heavily specialized in low-price/ quality goods
India  higher quality good or “costumized” products and services
But the specialization in down-market product is strong in high-tech export for
both countries.
Implication:
Strong price competitiveness
Different varieties from advanced economies: their technological upgrading
would not imply an increased direct competition with advanced countries.
India cannot skip the industrialization phase.
The modern sector of the Indian economy has not been able to create job. It still
employs a small fraction of the labour force.
But  Demographic wave: the working-age population is going to increase up to
2035.
To face this, India cannot skip the industrialization phase and bypass the mass
manufacturing production.
Industry and services should be viewed as complementary in the economic
development.
China: a more balanced growth
Boom of industrial production:
1. Increase in energy intensity
2. Cost competition has led to downward pressure on the wages of unskilled
labour, has contributed to create income inequalities and social tensions.
3. Decline of working age population after 2015  reduction of comparative
advantage in labour intensive production.
Need to:  Rebalance the economy in favour of services and domestic
consumption. 2008: phasing out of preferential tax treatment to foreign invested
firms indicated that export-oriented production was no longer the main
objective.
Conclusion
During the past two decades, India and China have successfully integrated into
the world economy. They have changed the balance of international supply and
demand in primary products, manufactured goods and servicestaking advantage
from globalization.
To build upon their strenght they have now to address numerous challenges:
tackle inequalities, face unemployment, raise living standards and enhance
private consumption and social sercives.
Thank you!