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Indian economic

The economy of India is the tenth-largest in the world by nominal GDP and the third-largest by
purchasing power parity (PPP). The country is one of the G-20 major economies and a member
of BRICS. On a per-capita-income basis, India ranked 141st by nominal GDP and 130th by GDP
(PPP) in 2012, according to the IMF. India is the 19th-largest exporter and the 10th-largest
importer in the world. The economy slowed to around 5.0% for the 201213 fiscal year
compared with 6.2% in the previous fiscal. On 28 August 2013 the Indian rupee hit an all time
low of 68.80 against the US dollar. In order to control the fall in rupee, the government
introduced capital controls on outward investment by both corporates and individuals. India's
GDP grew by 9.3% in 201011; thus, the growth rate has nearly halved in just three years. GDP
growth rose marginally to 4.8% during the quarter through March 2013, from about 4.7% in the
previous quarter. The government has forecast a growth rate of 6.1%6.7% for the year 201314,
whilst the RBI expects the same to be at 5.7%. Besides this, India suffered a very high fiscal
deficit of US$ 88 billion (4.8% of GDP) in the year 201213. The Indian Government aims to
cut the fiscal deficit to US$ 70 billion or 3.7% of GDP by 201314.
The independence-era Indian economy (from 1947 to 1991) was based on a mixed economy
combining features of capitalism and socialism, resulting in an inward-looking, interventionist
policies and import-substituting economy that failed to take advantage of the post-war expansion
of trade. This model contributed to widespread inefficiencies and corruption, and the failings of
this system were due largely to its poor implementation.
In 1991, India adopted liberal and free-market principles and liberalised its economy to
international trade under the guidance of Former Finance minister Manmohan Singh under the
Prime Ministry of P.V. Narasimha Rao, prime minister from 1991 to 1996, who had eliminated
Licence Raj, a pre- and post-British era mechanism of strict government controls on setting up
new industry. Following these major economic reforms, and a strong focus on developing
national infrastructure such as the Golden Quadrilateral project by former Prime Minister Atal
Bihari Vajpayee, the country's economic growth progressed at a rapid pace, with relatively large
increases in per-capita incomes.

What are the basic characteristics of Indian


Economy?
Indian economy is an under developed economy in which Agriculture is the back bone
of Indian economic. 60% of Indias population are on the below poverty line. Mineral
resources are not fully utilized. We are selling iron ore by trucks and getting blades by
packets. Majority of the people of India are leading a poverty line. Indian economic is
affected by it. Countries which are on the part of progress and which have their potential

for development are called developing economic. So India is termed as developing


economic by modern views.
The important features of Indian economic:
1. Low per capita income:
Under developed economy is characterized by low per capital income. India per capital
income is very low as compared to the advanced countries. For example the capital
income of India was 460 dollar, in 2000. Where as their capita income of U.S.A in 2000
was 83 times than India. This trend of difference of per capita income between under
developed and advanced countries is gradually increasing in present times. India not
only the per capita income is low but also the income is unequally distributed. This maldistribution of income and wealth makes the problem of poverty in ore critical and acute
and stands an obstacle in the process of economic progress
2. Heavy Population Pressure:
The Indian economy is facing the problem population explosion. It is clearly evident
from the total population of India which was 102.67 cores in 2001 census. It is the
second highest populated country China being the first. Indias population has reached
110 cores. All the under developed countries are characterized by high birth rate which
stimulates the growth of population; the fast rate of growth of population necessitates a
higher rate of economic growth to maintain the same standard of living. The failure to
sustain the living standard makes the poor and under developed countries poor and
under developed.
3. Pre-dominance of Agriculture:
Occupational distribution of population in India clearly reflects the backwardness of the
economy. One of the basis characteristics of an under developed economy is that
agriculture contributes a very large portion in the national income and a very high
proportion of working population is engaged in agriculture
4. Unemployment:
There is larger unemployed and under employment is another important feature of
Indian economy. In under developed countries labor is an abundant factor. It is not
possible to provide gainful employment the entire population. Lack of job opportunities
disguised unemployed is created in the agriculture fields. There deficiency of capital
formation.
5. Low Rate of Capital Formation:
In backward economics like India, the rate of capital formation is also low. capital
formation mainly depends on the ability and willingness of the people save since the per
capita income is low and there is mal-distribution of income and wealth the ability of the

people to save is very low in under developed countries for which capital formation is
very low .
6. Poor Technology:
The lever of technology is a common factor in under developed economy. India
economy also suffers from this typical feature of technological backwardness. The
techniques applied in agriculture industries milling and other economic fields are
primitive in nature.
7. Back ward Institutional and social frame work:
The social and institutional frame work in under developed countries like India is
hopelessly backward, which is a strong obstacle to any change in the form of
production. Moreover religious institutions such as caste system, joint family universal
marriage affects the economic life of the people.
8. Under utilization of Resources:
India is a poor land. So our people remain economically backwards for the lack of
utilization of resources of the country.
9. Price instability:
Price instability is also a basis feature of Indian economy. In almost all the
underdeveloped countries like India there is continuous price instability. Shortage of
essential commodities and gap between consumption aid productions increase the price
persistently. Rising trend of price creates a problem to maintain standard of living of the
common people.

Strengths and Weaknesses of Indian Economy


Strengths

1.

sustained growth over a decade

2.

strong export potential, current a/c deficit low

3.

healthy forex reserves

4.

low external debt

5.

low inflation regime

6.

political consensus on reforms

7.

deepening financial sector

8.

knowledge base advantage,

1.

sustained growth for over a decade

With a GDP growth rate averaging 8 percent over the last decade, India is second only
to China as one of the worlds fastest-growing large economies; Indias economic
transformation began in 1991. Faced with near bankruptcy, the government started
dismantling the license Raj that had shackled the private sector by controlling even
little things such as the price of soap. This policy shift unleashed entrepreneurship on a
grand scale, a phenomenon that continues to gather momentum. A second factor was
the countrys global advantage in information technology and other knowledge-intensive
services. Over the last ten years, India has emerged as the worlds No. 1 destination for
outsourcing of everything from low-end services such as call canters to high-end work
such as pharmaceutical development, data analytics, financial market research and
legal services. The third major driver of growth has been a major ramp-up in levels of
domestic savings and investment. In the early 1990s, Indias gross capital formation
stood at only 24 percent of GDP. Since then, it has increased rapidly and now stands at
almost 40 percent of GDP, only slightly smaller than Chinas and almost doubles that of
every other large economy in the world.
2.

strong export potential


Apart from Agricultural products some of the following sectors also have great export
potential.
The astronomical growth of the Indian export sector was led by the following industry -

Information Technology

Information Technology Enabled Services

Telecommunications hardware

Electronics and hardware

Pharmaceutical and biotechnology products

Consumer durables

Textiles

Construction machinery

Power equipment

Food grains

Iron and steel

Chemicals and fertilizers

Leather products

Jewellery

Plastics products
Exports grew by 18.11% during the 1st quarter of 2007-2008 and the imports shoot up
by 34.30% during the same period

3.

healthy forex reserves


India's FOREX reserves (excluding Gold and SD` ) stood at $219.75 billion at the end of
July ' 07, which is showing steady growth over period of time, which is good sign for an
economy.

4.

low external debt


Indias external economic debt is low as compare to other growing giants nation such
as USA, European Union, Japan, Germany, UK, China, Russia and Brazil .
The robust overall growth of export sector of Indian economy led to secondary growth of the
following economic parameters On 31 December 2011 Indias external debt was

267,100,000,000 US dollars which can be calculated as 237 US dollars per capita.


This is much lower as compared to USA, UK where per capita external debt is 47,568
and 143,009 US dollars respectively. In the list of countries with high external debt India
stood at 27th position where. USA is on top with external debt of15,570,789,000,000
dollars, UK, Germany, France and Japan hold 2nd, 3rd and 4th position with external debt
of (8,981,000,000,000), (4,713,000,000,000) and (4,698,000,000,000) US
dollars respectively, fastest growing nation china also has high external debt compared
to India. China is on 18th spot with external debt of 635,500,000,000 US dollars. Low
external debt means low external pressure on economy. Low external debt leads to
increase in bargaining power of country also it strengthens the currency of nation.

5.

low Inflation regime


Indias inflation levels are low to moderate as compare to the developed nations factors
of production are much cheaper as compared to European and western nations. India is
well known for cheap labor and other natural resources hence India has good
purchasing power due to low inflation regime. Thats why Indian economy is globally on
3rd position in terms of PPP (Purchasing Power Parity)

6.

political consensus on reforms

Indian economic policy after independence was influenced by the colonial experience
(which was seen by Indian leaders as exploitative in nature) and by those leaders'
exposure to Fabian socialism. Policy tended towards protectionism, with a strong
emphasis on import substitution, industrialization under state monitoring, state
intervention at the micro level in all businesses especially in labour and financial
markets, a large public sector, business regulation, and central planning. Five-Year
Plans of India resembled central planning in the Soviet Union. Steel, mining, machine
tools, water, telecommunications, insurance, and electrical plants, among other
industries, were effectively nationalized in the mid-1950s.
A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return
for an IMF bailout, gold was transferred to London as collateral, the rupee devalued and
economic reforms were forced upon India. That low point was the catalyst required to
transform the economy through badly needed reforms to unshackle the economy.
Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state
monopolies broken, the economy was opened to trade and investment, private sector
enterprise and competition were encouraged and globalisation was slowly embraced.
The reforms process continues today and is accepted by all political parties. Today,
fascination with India is translating into active consideration of India as a destination for
FDI. The A T Kearney study is putting India second most likely destination for FDI in
2005 behind China. It has displaced US to the third position. This is a great leap
forward. India was at the 15th position, only a few years back. To quote the A T Kearney
Study India's strong performance among manufacturing and telecom & utility firms was
driven largely by their desire to make productivity-enhancing investments in IT, business
process outsourcing, research and development, and knowledge management
activities
7.

Deepening financial sector


The Indian banking industry is measured as a flourishing and the secure in the banking
world. The countrys economy growth rate by over 9 percent since last several years
and that has made it regarded as the next economic power in the world. The paper
deals with the banking sector reforms and it has been discussed that Indias banking
industry is a mixture of public, private and foreign ownerships. The major dominance of
commercial banks can be easily found in Indian banking, although the co-operative and
regional rural banks have little business segment. Further the paper has discussed an

evaluation of banking sector reforms and economic growth of the country since from the
globalization and its effects on Indian economy. Competition among financial
intermediaries gradually helped the interest rates to decline. Deregulation added to it.
The real interest rate was maintained. The borrowers did not pay high price while
depositors had incentives to save. It was something between the nominal rate of
interest and the expected rate of inflation. Finally the paper deals with conclusion and
inflation rates from the different years and regulation of economy and finance of the
country through government policies and banking sector reforms.
8.

knowledge base advantage

Weaknesses
1.

low per capita income

2.

Inequitable distribution of income and problem of poverty

3.

Predominance of agriculture.

4.

Rapid population growth

5.

Unemployment

6.

Scarcity of capital

7.

Trade deficit

8.

Poor rank (132) in Ease of doing business Index.

Growth in India

Indias economy has grown very rapidly in recent years. Since 1991 it has been among
the top 10% of the worlds countries in terms of economic growth.
The primary challenge for India is to sustain this growth while spreading its benefits
more widely. This requires continuous effort as international experience shows that
growth slows down unless reforms are pushed through when growth is high.
Major obstacles to Indias growth are:

Infrastructure Shortages

Large Fiscal Deficit

Restrictive Labor Regulations

Unreformed Financial Sector

Infrastructure
Crippling infrastructure shortages are the leading constraint to rapid growth as well as in
spreading this growth more widely. These shortages have resulted in a skewed pattern
of growth that is not sustainable.
While the high skill services sector that employs the better educated among Indias work
force has flourished, the growth of more labor-intensive manufacturing that generates
jobs for low and semi-skilled workers has remained constrained.
Infrastructure shortages have particularly hindered the growth of export oriented
manufacturing and value-added agriculture that integrate into global supply chains, and
need good roads, ports, airports, and railways as well as reliable power and water to
prosper.
Challenges:

India needs to invest 3-4% more of its GDP on infrastructure to sustain 8%


growth.

The private sector can play an important role in investing in infrastructure,


including through public private partnerships.

Improving the countrys capacity to implement infrastructure projects will be as


important as increasing the amount of investment available.

Investments should improve the delivery of services, and service providers


need to be made more accountable to consumers.

Emphasis should be placed on maintaining existing assets.


Reforms need to be accelerated in all sectors. Difficult issues such as
rationalizing user fees for services need to be faced.

Fiscal Deficit
The countrys consolidated fiscal deficit has been persistently large for many years.
While recent efforts to tackle the deficit have paid off in substantial progress, it remains
a continuing concern.

Challenges:

The existing deficit leaves no fiscal space for new government spending on
areas of high social priority. Initiatives in rural and urban infrastructure,
employment, education, and rural health will have to be financed with some
combination of higher taxes or user charges, or by cutting existing expenditures.

Large deficits and an unreformed banking sector reduce the private sectors
ability to obtain bank financing.

Labor Regulations
Indias existing labor regulations - among the most restrictive and complex in the world protect only the insiders, the small number of workers who are already working in the
organized sector, while hobbling the creation of manufacturing jobs for the tens of
millions unemployed or working in poor quality jobs.
There are at least four times more unemployed people (around 35 million) than are
employed in the organized private sector. Firms with more than 100 workers consider
labor regulations to be as constraining to their operation and growth as power
shortages.
Challenges:

Design labor regulations that attract more labor-intensive investment, especially


in the formal manufacturing sector.

Reforms should protect the interests of all workers by ensuring that workers
legitimate interests are met. The World Bank does not advocate a regime of
"automatic hire and fire" - though that is what the vast majority of workers in the
unorganized sector actually face.

Financial Sector
Financial sector reforms have led to a booming stock market that has helped large firms
finance their expansion easily. However, small and medium enterprises - which are an
important engine of growth and productivity - have not been able to access finance as
they are too small to be of interest to equity markets or FDI.
Growth in lending to this sector has been slow due to the closely regulated publicly
owned banking sector which has few incentives for innovation, and a large deficit with
the attendant fears of making new loans.

GDP growth rate


Since the economic liberalisation of 1991, India's GDP has been growing at a higher
rate

Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Growth (real) (%)


5.6
6.0
4.3
8.3
6.2
8.4
9.2
9.0
7.4
7.4
10.1
6.8
6.5
4.4

Chinese economic
Chapter 1 Introduction; Chinas economic reform in comparative perspective
Collapse of Soviet-style socialism in economic planning took place by the end of the
1980s in many socialist countries (China, Yugoslavia, Poland). Soviet leaders were
encouraged to explore reforms on their own after seeing the success the Chinese had
with exploratory reforms. China was the only socialist country to undertake system
transformation without tumbling into profound economic crisis. Since the early 1980s,
China has been the fastest growing large economy in the world.

The story and problem of economic reform


The Chinese economic reform has been gradual and evolutionary, not clearly foreseen
or designed in advance. The author tries to discuss in this book about the Chinese
economic reforming process with economic development strategy, macroeconomic
policy and system reform, focusing on industry and macroeconomic policy. He also
tries to present narrative sequences of reform-induces changes.

The distinctiveness of Chinas economic reform

The distinctive pattern of Chinas economic reform emerged from the interaction
between government policy and the often unforeseen consequences of economic
change. (Not solely by the government strategy)
Characteristics of the Chinese transition process;
1. The dual-track system
2. Growing out of the plan
3. Entry(Open market to the new entrants)
4. Price that equate supply and demand
5. Incremental managerial reforms in the state sector
6. Disarticulation
7. Initial macroeconomic stabilization achieved through the plan
8. Macroeconomic cycles persisted throughout the reform process
9. Continued high saving and investment
10. Ex-post coherence
Three models of reform
(1) European rationalizing reforms
Rationalizing reforms was never a strategy for transition to the market, rather to
introduce some market-like elements to perfect the planning system. Critical limitation of
this reform was, first, planners never renounced the effort to guide all fundamental
economic decisions. Second, prices were never set free to equilibrate supply and
demand. Third, the administrative hierarchy remained intact. This rationalizing reform
failed due to these limitations.
(2) Big bang reforms
Big ban reforms were brought with a belief that destruction of the system at a single
blow is necessary because disentangling the elements of the system was impossible.
Institutional transformation, such as privatization, reform of banking system, is the most
difficult and contentious element of this transformation. This model succeeded in
destroying command economy and eventually creating a market economy. However, it
concentrates so many of the costs of transformation in the early stages, oppressing
domestic production and unemployment. (This has been a center of debate)

China and Eastern Europe


The Chinese reform pattern resembles big bang transitions, transforming to a market
economy and reducing government controls. The difference is that Chinese leaders
were unwilling to undergo extreme short-term shocks to the economy.

Success and failure


The Chinese reform process has been generally perceived as a success, with the
limitations imposed by primitive political institutions and the problems of
underdevelopment and poverty. Despite the common view that sees non-state sector
was a drive for the economic reform, state sector did improve its performance as well.
Chinese policy makers have failed to achieve consensus about or articulate a vision of
the post-reform economic system, despite of their propaganda. Their gradualism is a
result of their ineffectiveness to follow one clear strategy. Successful economic policies
tended to bring political success to their patrons. In a sense, economy and its reform
both developed 'out of plan'.

Chap 9 Conclusion: Lessons and limitations of the Chinese experience Main


lessons of the Chinese experience Gradual reform is feasible;

Main lessons of the Chinese experience


1.
2.
3.
4.
5.
6.

Gradual economic transition is feasible.


Relaxation of monopoly by the state over industry is crucial
Entry is rapid in response to opportunity
Entry of new firms is a powerful force for systemic transformation
State-firm performance can be improved
Liberalization of production and consumption induces an increase in household
saving
7. Changing macroeconomic policies lead to deepening of reform
8. Coherence
Ambiguities and shortcomings
There are some difficulties to assess the extent and nature of change, together with
overstated GNP growth. Also The gradualness of the transition has implied the
maintenance for many years of the set of incentives that lead to wrong and wasteful
investment choices. China has failed to establish clearly demarcated property rights as
well.
Shortcomings
The failure in the Chinese economic reform is to develop institutions (e.g. investment
system) and impartial rules (property rights).

Uncompleted tasks
Painful adjustments such as restructure of the financial system, privatization and
restructure of failing state-owned enterprises, are still to be completed. The two biggest
dangers that confront the Chinese economy are the specter of macroeconomics
instability and public discontent.
The future of Chinese economic reforms
Institutional development will probably continue to lag behind the demands of the
economy. The chronic problems, such as fiscal shortfalls, investment inefficiency and
excess subsidy burdens will continue. An accelerated period of industrial restructuring
can raise efficiency and prolong very rapid growth well in to the next century.
Characteristics of Chinese Economy

Natural and historic features

Specific political system

Large system with unusual structure


Economic policies

Integration into global economy

Changing Economic Structure

GDP composition: agriculture: 9.6%, industry: 46.8%, services: 43.6%

Fast growth of export: $1.508 trillion in 2010

Reserves of foreign exchange: $2.622 trillion on December 31st 2010 No.


1 in the world

External debt: $406.6 billion Dec. 31st, 2010


Direct foreign investment: $574.3 billion Dec. 31st, 2010

Investment abroad: $278.9 billion Dec. 31st, 2010

Watching China grope its way towards a market economy is kind of moving, exhilarating
and mystifying at the same time.
It must be a bit like it how would have been in the 1780s watching the United States set
up the rules for what became the 20th centurys economic superpower. China is
becoming the 21st centurys economic superpower but its rules are very different the US
Constitution, although they are being amended as rapidly as Americas were in the
years after the Constitution was passed.
Reading the 3500-word communiqu issued last night reminded me of going
mushrooming as a kid: youd walk gingerly through a field full of cow pats looking for the
perfect white mushrooms growing in the bullshit.

The 3rd Plenum gave high appraisal to the successful practices and magnificent
achievements of the Party in the 35 years since the 3rd Plenum of the 11th Party
Congress (which brought Deng Xiaoping to power and introduced the idea of Socialism
with Chinese characteristics). There are quite a few magnificents in fact, referring to
the great strides of the past 35 years, rather different from Tony Abbotts strange
declaration this week that the adults are back in charge.
Theres a lot to be said for a one-party state; all this lurching about every few years from
children to adults is bad for business.
Anyway, the Chinese communists have now discovered the market. The Plenum
pointed out that we must closely revolve around the decisive function that the market
has in allocating resources. Deepen economic structural reform, accelerate the
perfection of modern market systems
The word perfection suggests they need to catch up with what happened in the US
and Europe in 2008, but meetings of the Chinese Communist Party are hyperbolic
chambers so thats just in keeping with the language of the whole communiqu.
The question of whether Comrade Xi Jinping would focus on economic reform or
clamping down on Chinas incipient credit bubble has been answered: its all about
reform.
Finance gets a brief mention well down the document while the mushrooms of reform
are sprinkled throughout the field.
We must realistically transform government functions, deepen administrative structural
reform, innovate administrative management methods, strengthen government
credibility and implementation, and establish a rule of law government and a servicetype government.
The communiqu even talked about democracy: to develop Socialist democratic
politics, we must pay more attention to completing democratic systems, enriching
democratic forms and fully giving rein to the superiorities of our countrys Socialist
political system.
Goodness knows what that actually means, although its very clear that the Party has no
intention of giving power. In fact quite the reverse: the reforms spelt out last night are
designed to entrench it.
Why will it work better this time than when Hu Jintao took over ten years ago, and also
issued a 3rd Plenum communiqu full of talk about reform and open government?
Mainly, I suspect, because it has to. Xi Jinping appears to be a stronger character better
able than Hu to push through reforms, but also it is ten years on. Chinas economy is
twice as large and in the meantime the internet has happened.
The people now know far more than they used to, and are demanding more more
stuff and more freedoms. For the CCP to retain power peacefully it must provide both.
As the communiqu says, it must unwaveringly encourage, support and guide the nonpublicly-owned economy at the same time as the publicly-owned economy.

This is critical to shifting Chinas reliance away from exports and heavy industry towards
an energetic domestic economy (a bit like what Australia has to do, except on a much
bigger scale).
A year ago it seemed Xi Jinping was confident he could do this while at the same time
getting control of credit growth and stopping the development of bubbles.
Reading between the lines of last nights communiqu, it seems he has given up on
that: reform is taking precedence; the speculators will have to look after themselves.
This is both understandable and dangerous. The great risk of a credit collapse in China
remains, but as long as there isnt one China should continue to grow and develop into
the worlds largest market economy, what you might call a market economy with
Chinese characteristics

The Advantages and Disadvantages


In July, 2001, Chinese economist Han Deqiang visited the European Parliament at the
invitation of the Green Group, to participate in a workshop entitled Chinas Accession to
the WTO: Alternative Voices. What follows is an edited version of his speech.
First of all, I must declare that all the viewpoints stated below are only my own opinions
and have nothing to do with my government and my university. I am among the few
scholars in China who have been consistently criticising the WTO, IMF, the World Bank,
globalisation and neoliberalism. Understandably, I am very concerned about the
consequences of China's accession to WTO. Unfortunately, this is not the attitude of the
mainstream media in China.
The first point is that China's accession to the WTO will bring about more disadvantages
than advantages. Chinese enterprises do not have adequate competitiveness in
international markets. General Motors alone has annual revenue comparable to the total
annual gross revenue of China's first 500 enterprises, and the average gross revenue of
China's first 500 enterprises is only 2% of that of the top 500 in the world. It's true that
China ranks in the forefront of the world as far as the total volume of several products is
concerned, products such as steel, cement, coal, cotton, fertiliser, electricity, colour TVs,
refrigerators, air conditioners and motorcycles, but this large quantity is produced by
hundreds of thousands of firms, each of them remaining small in scale.
China's average industrial concentration is too low to compete with foreign counterparts.
The level of equipment is more backward, which results in more energy consumption
per unit product, lower quality and performance. Furthermore, China's enterprises are
seriously short of capital in general and have no ability to improve technology and

market share rapidly. As well as this, few of China's products are famous internationally,
so high quality products do not attract high prices, which means lower profits and higher
costs.
Obviously, if China's enterprises compete with transnational corporations (TNCs) under
such conditions, a great number of them must go bankrupt, or be taken over by the
latter. In fact, the beverage, brewing, detergent, bicycle, paper, medical, elevator,
computer, aviation, and machine tool industries are all controlled by transnational
corporations, or at the least the high value-added markets of these industries have been
totally conquered by foreign companies. Other industries under more strict protection of
government, such as the automobile industry, petrochemicals, steel, coal, even
agriculture, are under serious threat from imported products and the penetration of
TNCs. Some domestic firms within these industries have become the production base
of TNCs. Hence, China's enterprises have been suffering from decreasing profits since
1996, and have been forced to dismiss workers, reduce wages and freeze welfare. One
of the results has been that the bad debts in China's major banks have been soaring. In
my opinion, the primary reason for the rising bad debts is fierce competition, especially
competition from foreign enterprises and imported goods. The second important reason
is corruption.
I want to emphasise the issue of agriculture. The rural population in China adds up to
900 million, 500 million of whom have the ability to work. The average household owns
only 0.4 hectares of land. To ensure that such tiny plots of land produce enough food,
the price of food must be maintained at a high level, which means that the prices of the
main agriculture products such as wheat, rice, and corn of China are constantly higher
than those of the international market. The price of agricultural land has been
decreasing since 1996. The price fell to such a level that, per hectare, wheat brought
$120 loss to peasants in the autumn of 2000, while an average peasant's annual
income in purely agricultural areas is only $80. Almost 600 million people live in such
areas. If the "Agriculture Cooperation Agreement between P.R.C and U.S.A" is
implemented after China joins WTO, the income of peasants will go down steeply, more
land will lie waste, and more peasants will flood into every city and fall into a poverty
trap without any hope.
As a result, China's GDP might increase temporarily, but employment, tax and wage per
GDP unit will decrease continuously. More importantly, China will no longer have an
independent industrial system, and will become instead the production base of

transnational corporations. Most of the rural population will lose land and income. The
financial system could collapse because of increased bad debts. Meanwhile, China will
have no ability to construct a social security system with sufficient funds because the
government will be unable to levy enough taxes on foreign enterprises, which will
certainly lead to a deterioration in public security.
Then, a second question naturally arises: why is China so eager to join WTO?
A great many of people find it hard to understand the motivation of China's accession to
WTO. However, China's mainstream media spares no enthusiasm in its praise of the
WTO. They loudly proclaim that accession will speed up the pace of reform and open up
policy, motivate the energy of China's enterprises in the face of international
competition, normalise China's market economy, and finally make China run in the
same orbit as a developed country. If some enterprises are eliminated, this is only the
necessary cost of China's development. The media also appeals to consumers,
implying that they will be able to buy more high quality imported goods with less money.
No voice from businesses directly faced with international competition appears in the
media. Collective enterprises owned by villages and towns or small private enterprises
are unable to compete directly with TNCs, and their main rivals are domestic firms.
Although these small businesses feel vaguely the threat from foreign goods, they have
little information about the whole situation, no organisation, and no representation in
political affairs. Most big enterprises still belong to the state, their leaders are appointed
by central or local government, and bear no final responsibility. If the government is
dedicated to joining the WTO, they will raise their hands automatically. These leaders
will have the possibility to enjoy salaries as high salary as do their foreign counterparts,
a consideration which far outweighs their concern for the overall interest of the
enterprises. Workers and peasants might be expected to hold different opinions, but
they are much less informed and organised. Most do not even know what the WTO is.
What kind of force could get rid of all these obstacles and push forward the process of
accession to WTO? The answer lies in the logic and history of China's reform-open
policy. It is generally considered that the reform-open policy allows the Chinese
economy to grow rapidly, and the living standards of Chinese people to improve rapidly.
However, the thing is not so simple. The core of reform-open policy is the introduction of
market logic, which means putting the development in the hands of those with the
desire and ability to become wealthy, which at the same time means allowing the law of
the jungle to start functioning. Before 1985, the central government improved the price

of agriculture products and the wages of workers while keeping the consumer price.
Local governments and state-operated enterprises gained more self-determination
power and were able to use bonuses and other incentives. As a result, the largest and
weakest group won a greater share in wealth distribution, which strongly promoted
development. The open-reform up policy won support from all social groups.
After 1985, however, peasants' income grew slowly while their costs grew rapidly.
Leaders of state-owned enterprises gradually seized more profit for themselves while
the political position and relative income of workers fell continuously. Nobody seems to
care about the long term; every one, from top to bottom, even the workers, learned to
use power for himself. State-owned enterprises began to die gradually under the
pressures of internal erosion and external pressure.
This process has produced a large wealthy group which included cadres in all levels of
government who hold real power, leaders in state-owned enterprises, grass roots
cadres in the countryside, leaders of collective enterprises owned by villages and towns,
owners of private enterprises, and those employed as white-collar workers in foreign
capital enterprises.
Foreign capital once played a positive role in China's economic development. During
the 1980s, the scale and level of foreign capital was relatively low, constituted mainly of
capital from Hong Kong, Macao, and Taiwan, which did not threaten China's
enterprises. Meanwhile, the government adopted a strict protectionist policy. The
domestic market boomed for five years or so, supplying all kinds of commodities whose
production once fell short of demand. The internal and external problems of stateowned enterprises existed but were not so serious.
At the end of 1980s, however, overproduction visited every walk of life, and competition
became very fierce. In other words, China ran into its first economic crisis, the most
notable marks of which were "triangle debts". To solve the crisis, it is necessary to
enlarge domestic demand, reduce the gap between the wealthy and the poverty, and
absorb overproduction capability, using financial, monetary and taxation tools; but this
solution was excluded from the beginning, because it could not gain support from the
new wealthy group, against the logic of the law of the jungle. Instead, the door was
opened far wider to foreign capital, the hope being that foreign direct investment could
stimulate growth. After 1992, and the publication of the famous speech of Deng, all
levels of government in every district competed with each other to supply more
favourable treatment to attract foreign capital. Many areas were designated

"development zones", within which governments were responsible for providing a high
standard of infrastructure. Not surprisingly, a great boom developed because of the
building real estate and infrastructure in these development zones. All the storage
space was sold out, and idle productive capacity was put to use; but the boom ended as
rapidly as it appeared. Real estate prices fell sharply.
A similar story was taking place in the entire China economy. All competitive industries
went into a descending spiral. The prices of colour TVs, refrigerators, air conditioners,
motorcycles and other manufactured goods went down by more than 50%. Idle capacity
was much more extensive than in the last crisis. The growth rate may have been 7%
p.a., but growth was evident only in foreign direct investment and export/import, which
at the same time compressed the market space of domestic industries, and aggravated
the domestic economic crisis. Indeed, foreign direct investments focused in two fields:
high value-added industries such as automobile, medical, chemical, and microelectronics; and labour-intensive export-oriented industries such as toys, shoes, leather,
and garments. Though export industries generated some employment, wages were too
low to compensate for the lost high wage jobs in high value-added industries. More
inimical to her long-term interest, China runs the risk of losing an independent industrial
capacity. To indicate how China's economy relies on foreign capital and markets, the
ratio of the sum of export and import to GDP rose to 46% in 2000.
During the process that saw Chinas economy fall into the long term deflation crisis from
the boom-bubble-bust of the 1990s, the law of the jungle functioned to its extreme.
Workers and peasants experienced a ten years' stagnation of income, while cadres in
central government and rich regional governments enjoyed an income growth to a factor
of ten and white-collar employees and intellectuals gained even more. These latter
three groups are the core force in contemporary China's politics, economics, and
culture. They all benefit from the foreign-oriented economy, even from the lasting
deflation. In their eyes, if domestic growth demands more tax and fewer imported
goods, then it must be the worst solution. Hence, when Chinas economy is faced with
the choice of acceding or not acceding to the WTO, they automatically support joining.
We are told. Join the WTO, so that reform and the opening up policy won't be reversed.
This could be translated as Join the WTO, so that the wallets of the rich won't be under
threat.
The third question is simply, `how could the public be persuaded?

In reality, even the rich will become dependent on transnational corporations if China's
accession to the WTO does take place, and thus they would not be so enthusiastic in
their support if they were fully aware of the probable consequences. It does no good,
either, to other countries and most of the people in the world if China loses the ability to
grow independently and becomes a country competing with others by its low wage
level. However, such a "fail-fail" game was presented as a "win-win" game by both the
Chinese and world media - why?
The reason lies in the neoliberalism which dominates academic discourse and public
opinion, and which has been strongly supported by transnational corporations. Almost
all Chinese economists embrace Adam Smith's "invisible hand" and its modern
representatives such as Milton Friedman; every leader in all levels of government is
trained in Smith's dogma. In fact, it's Adam Smith not Karl Marx who is the real hero.
With no exception, the media, reporters and editors all embrace Smith's dogma, and
seldom know that protectionism rather than free trade was the secret prescription of
development of America, Germany, France, Japan, and even Great Britain. In their
eyes, protectionism is equivalent to "close the door".
It is very interesting that under the surface of rejecting the western model China learnt
everything from America, putting it into practice with the reform and opening up policy.
American neoliberalism became Chinese fashion; Nasdaq upswings, the second board
stock market, became the hot topic of China's capital market; American communication
industry opens to competition, and China's communication industry becomes eager to
be dismantled. This kind of model thinking plays an important role in persuading the
public.
The fourth point I would like to point out is that things are changing.
With the explosion of the Asian financial crisis, with the rapid growth of the unemployed
population and the deterioration of the countryside, with more state-owned enterprises
going bankrupt, public feeling against market-oriented reform strengthened. In
economic academia, critiques of the IMF and the Washington consensus from several
American economists such as Joseph Stiglitz and Paul Krugman became clearly
influential. The translation of a German book on the way in which globalisation
undermines democracy and welfare gave a shock to intellectuals both inside and
outside academia. Suffice it to say that anti-neoliberalism forces are developing quickly.

Since the first half of 1999, I have written many papers criticising the policy of accession
to WTO and the related treaties. My book Collision: The globalization trap and China's
real choice was published in January 2000. Though I fell under all kinds of pressures
and difficulties, I am also gaining more support from a broader base. To my surprise,
China's central policy research institute published a long summary of my book, and the
journal International Trade belonging to the Ministry of Foreign Trade and Economic
Cooperation published my article "Thinking on anti-globalisation". In addition, dozens of
magazines have published abstracts of and made comments on my view. I have been
invited to attend various seminars and give lectures. At the beginning of every lecture, I
am in the minority, but when I finish my speech, I have become one of the majority.
It is evident that the Chinese economic academia has been split. Those neoliberal
scholars still command the majority, but have lost their arrogance, while anti-neoliberal
scholars are the minority but are now more confident and encouraged, with justice on
their side. This is why I could come here and introduce my opinion. I believe deeply that
democratic forces all over the world must oppose neoliberalism, outlaw it, because it
promotes polarisation, tragedies, and disasters in every corner of the world.
GDP by Administrative Division
There are 31 administrative divisions in China. Below are the top administrative
divisions in China ranked by GDP in 2012. GDP was converted from CNY to USD using
a FX rate of 6.3125 CNY/USD

Rank

Administrative
Division

GDP $ billions
2012

GDP per capita $


2012

mid-year
Population
2012

Guangdong

904.05

8,570

105,494,200

Jiangsu

856.37

10,827

79,093,900

Shandong

792.29

8,201

96,610,000

Zhejiang

548.22

10,022

54,700,000

Henan

472.24

5,025

93,970,000

Hebei

420.99

5,796

72,640,100

Liaoning

392.89

8,958

43,860,000

Sichuan

377.82

4,686

80,631,000

Hubei

352.48

6,111

57,682,500

10

Hunan

350.96

5,304

66,172,500

year
CN

growth
based
on
CN
(%)

2012

51,932,210

9.8

2011

47,310,400

17.8

2010

40,151,280

17.8

2009

34,090,281

8.6

2008

31,404,543

18.1

2007

26,581,031

22.9

2006

21,631,443

17.0

2005

18,493,737

15.7

2004

15,987,834

17.7

2003

13,582,276

12.9

2002

12,033,269

9.7

2001

10,965,517

10.5

2000

9,921,455

10.6

1999

8,967,705

6.2

1998

8,440,228

6.9

1997

7,897,303

11.0

China's Historical GDP figures for 1978 - 2012


GDP (in millions)
US$
growth
PPP
growt
real
based
(Intl.$)
h
growt
on
base
h
US$
d on
(%)
(%)
ppp
(%)
8,226,885
12.3
12,405,
9.7
7.8
670
7,324,952
23.5 11,305,7
11.6
9.3
69
5,931,203
18.8
10,128,
11.9
10.4
399
4,990,526
10.4
9,049,4
10.2
9.2
50
4,521,827
29.4
8,214,3
12.1
9.6
66
3,495,664
28.8
7,329,9
17.5
14.2
20
2,713,495
20.2
6,239,5
16.3
12.7
67
2,257,619
16.9
5,364,2
14.2
11.3
58
1,931,644
17.7
4,697,9
13.0
10.1
01
1,640,966
12.9
4,157,8
12.3
10.0
22
1,453,820
9.7
3,701,1
10.8
9.1
33
1,324,818
10.5
3,338,9
10.7
8.3
19
1,198,475
10.6
3,014,8
10.8
8.4
91
1,083,279
6.3
2,721,5
9.2
7.6
56
1,019,462
7.0
2,492,1
9.1
7.8
89
952,653
11.3
2,285,3
11.2
9.3

[71]

CN

38,449

GDP per capita


growt
US$
PPP
h
(Intl.$)
base
d on
CN
(%)
9.2
6,091
9,185

real
gro
wth
(%)

7.2

35,198

17.3

5,450

8,411

8.8

30,015

17.2

4,434

7,571

9.9

25,608

8.0

3,749

6,798

8.7

23,708

17.5

3,414

6,201

9.1

20,169

22.2

2,652

5,562

13.6

16,500

16.3

2,070

4,759

12.0

14,185

15.0

1,732

4,115

10.7

12,336

17.0

1,490

3,625

9.4

10,542

12.2

1,274

3,227

9.3

9,398

9.0

1,135

2,891

8.4

8,622

9.7

1,042

2,625

7.5

7,858

9.8

949

2,388

7.6

7,159

5.3

865

2,172

6.7

6,796

5.9

821

2,007

6.8

6,420

9.8

774

1,858

8.2

1996

7,117,659

17.1

856,085

17.6

1995

6,079,373

26.1

727,981

30.2

1994

4,819,786

36.4

559,224

-8.8

1993

3,533,392

31.2

613,223

25.6

1992

2,692,348

23.6

488,222

19.3

1991

2,178,150

16.7

409,173

4.8

1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978

1,866,782
1,699,232
1,504,282
1,205,862
1,027,518
901,604
720,805
596,265
532,335
489,156
454,562
406,258
364,522

9.9
13.0
24.7
17.4
14.0
25.1
20.9
12.0
8.8
7.6
11.9
11.4
13.2

390,279
451,311
404,149
323,974
297,590
307,023
309,757
301,799
281,287
286,895
303,446
261,259
216,462

-13.5
11.7
24.7
8.9
-3.1
-0.9
2.6
7.3
-2.0
-5.5
16.1
20.7

33
2,054,6
66
1,832,8
27
1,618,5
89
1,401,8
23
1,203,4
62
1,029,0
43
910,270
844,044
781,297
678,661
590,966
531,421
454,455
380,210
329,799
284,910
247,622

12.1

10.0

5,846

15.9

703

1,688

8.9

13.2

10.9

5,046

24.8

604

1,521

9.7

15.5

13.1

4,044

34.9

469

1,358

11.8

16.5

14.0

2,998

29.7

520

1,190

12.7

16.9

14.2

2,311

22.1

419

1,033

12.8

13.0

9.2

1,893

15.1

356

894

7.7

7.8
8.0
15.1
14.8
11.2
16.9
19.5
15.3
15.8
15.1

3.8
4.1
11.3
11.6
8.8
13.5
15.2
10.9
9.1
5.2
7.8
7.6
11.7

1,644
1,519
1,366
1,112
963
858
695
583
528
492
463
419
381

8.2
11.2
22.8
15.5
12.3
23.4
19.3
10.4
7.2
6.2
10.5
10.0
11.7

344
403
367
299
279
292
299
295
279
289
309
270
226

802
755
709
626
554
506
438
372
327
287
252

2.3
2.5
9.5
9.8
7.2
11.9
13.7
9.3
7.5
3.9
6.5
6.1
10.2

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