Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India

Great book

Great book

Good book

excellent

In 1820, India and China contributed nearly half of the world's income; in 1950, it was down to one-tenth, has now risen back to one-fifth, and is projected to reach one-third by 2025. Author Bardhan compares China and India across a number of dimensions. I'm primarily interested in China, due to its fantastic economic rise since 1979, about twice that of India's.China's average output grew an average 7.1%/year from 1979 to 1984, vs. 2.7% from 1970-1978. TVEs were the most dynamic part of China's economy in the first two decades of its reform. They went from less than 6% GDP in 1978 to 26% in 1996. In the 1980s, regional and local governments had SOE managers sign performance responsibility contracts in return for greater freedom; the government also subsidized workers buying their formerly SOE-supplied apartments, while relieving the SOEs of that responsibility. Some SOE managers were selected by auctioning commitments to profit delivery. By 2005, two-thirds of regional SOEs were privatized - the top managers of three-quarters of them were the new owners. Until the late 1990s, dismissal of Chinese workers was limited to 1% of staff/year, and they had to be found new employment. Large-scale SOEe layoffs then came, cushioned by a safety net. Of the total government spending in China, over half is made at sub-provincial levels. China's manufacturers used to have excessive inventories, typical of state-enterprises, no more.Reliance on reservoir storage of water in China is almost 5X the amount in India. China's rice yield/hectare is 2X that of India's, and 1.5X in wheat - this has continued for centuries.At the beginning of the 1990s, India's highway and rail infrastructure was greater than China's in terms of miles. Chinese power companies ROE approximates 12% - enough incentive for investment and repairs. Industry uses about 75% of the power, agriculture and residential users consumer about 14%, and transmission losses are about 7%. Non-payment and theft are not problems. The cost of power in India is about 35% higher, and industrial users experience 17 significant shutdowns/month, vs. only 5 in China. Theft and non-billing losses approximate 37% in India; not surprisingly, the system runs at a loss. China had 100 km. of expressways in 1988, 60,000 by 2009. India has about 8,000. China finances roads more through tolls than fuel taxes; private finance only accounts for less than 10%. Staff costs are about 25% of China's railways, 50% in India - again, not suprisingly, India's railways are poorly utilized and repaired. China took less than two years to acquire land and relocate people in Shanghai, vs. Mumbai taking 13 years and still not finished. Beijing has 24-hour water service, while Mumbai/Delhi has 4-5 hours/day. Ship turnaround in Shanghai is much faster than Mumbai (3.6 days); Hong Kong is the fastest - down to hours, in some cases.Domestic gross savings in China was 54% of GDP in 2008 - 6% from government, retained earnings (low dividends, capital investment/replenishment -->20%), and personal savings the remainder. India's gross savings average 38%.A state study found that 2,932 of the 3,320 Chinese citizens with at least 100 million RMB were children of high-ranking Party officials. Most corruption occurs through land transfers - by 2006, 60 million Chinese farmers lost their land without adequate compensation - the money goes to kickbacks and extra government revenues.China's role in industrial support includes bargaining the terms of FDI, negotiating prices of imported materials, channelling investment to favored sectors, directing M&A, promoting capabilities, and appointing managers.Recent economic reforms are not a sufficient explanation for India's recent growth - over 94% of its population lies outside the affected corporate sector. India's IT-enabled services sector employs less than 0.5% of the labor force, and business services/telecommunications only cover about 25% of the total service sector. India's rate of decline in poverty has not accelerated recently either. Those reforms included abolishing most restrictions on entry/capacity expansion (from about 80 products, now less than 40), lowering taxes and tariffs, increasing the allowed foreign investment, and a modest opening of the public sector. It still has strong anti-dumping regulations - mostly aimed at China. Small firms use 90% of total manufacturing employment, and produce about one-third total output. It is still difficult to reduce staff in large firms.Indian agricultural subsidies mostly go to large firms, and soak up funds for investment elsewhere. Indian local governments are hampered by their dependence on higher levels of government for funds and personnel. India's poor lack the rural safety net that land redistribution in China provides, creating greater resistance to market reforms. It greater social heterogeneity also makes reaching consensus more difficult.

This is a fantastic book- and Prof. Bardhan is among the top rsearchers in the field of Development economics. There are too many books published these days which talks about the rise of China and India- but this book is in a league of its own. Prof. Bardhan doesn't do hype, this is a serious scholarly work that would be easier to enjoy if you have an economics background, but even if you don't, you should be able to take away something from this book.I just have one critical comment. The author talks about the positive aspects of China's socialist legacy- a solid investment in basic health and education, a relatively egaliterian land ownership pattern, rural electrification etc etc. He is quite right to highlight these things as China's socialist legacy is usually presented in wholly negative terms in most mainstream discussions of these issues. However, we should never allow ourselves to forget the horrendous human rights crimes perpetrated during this period. Somewhere between 20 to 30 million people perished during the Great Leap Forward alone. More than a million people were murdered in cold blood during the Cultural revolution. Children were sometimes forced to denounce their parents and witness their public humiliation and death. I think it is necessary to remember these episodes before we get too carried away celebrating the "positive aspects" of China's socialist legacy. Now, I am not accusing Prof. Bardhan of supporting these things- that would be ludicrous. What I am saying is that these factors must always be kept in mind while discussing China's socialist legacy to have a more balanced perspective on China's performance during this period.

This short book has a few interesting ideas.The most surprising ones involve favorable claims about China's collectivist period (but without any claim that that period was better overall).China under Mao apparently had a fairly decentralized economic system, with reasonable performance-based incentives for local officials, which meant that switching to functioning capitalism required less change than in Russia.Chinese health apparently improved under Mao (in spite of famine), possibly more than it has since, at least by important measures such as life expectancy. This is reportedly due to more organized and widespread measures against ordinary communicable diseases under collectivism.

This book is highly informative, beautifully written and covers a wide range of issues. The book is very crisp. I started the book with a pencil in my hand and soon I realised that I will end up underlining the whole book.