In the last few decades, both China and India have been targeted by TNCs for FDI. Rapid and sustained economic growth have been experienced by both countries since 1990. They are referred as third phase NICs or RICs.
China
China is the world's most populous country with over 1.3 billion people. China now has the world's fastest growing economy and is going through what has been described as a second industrial revolution. The economy by GDP of China is the second largest in the world yet it is still classed as a developing country. Although China's economy overtook Japan in 2010, they are still behind Japan in science and technology, production level, and living standard, With per capita GDP at only US $12.8 thousand, China is among middle to low-income level countries, ranking 89th place in the world (International Monetary Fund 2014). 82 million people in China live below the poverty line according to the UN standard, living on less than US $1 a day. China ranks 91st in the HDI with 0.719.
In 1978, the Chinese leadership began moving from a centrally planned economy to a more market-orientated system. Led by president Mao's successor, Deng Xiaoping, the Chinese sought to bring to an end the relative economic isolation of the country by encouraging foreign investment that would lead to huge increases in exports, as had been the case in other east Asian countries.
At first there was strict communist control of the way industries operated, however, this gradually relaxed. The decision-making powers of local officials increased and the government permitted a wide variety of small-scale enterprises in service and manufacturing. Agricultural output doubled in the 1980s as farmers were encouraged to make profits for themelves.
Special Economic Zones (SEZs) were introduced in the early 1980s. SEZs are determined by the central government where special economic policies and flexible governmental measures are given. This allows SEZs to utilize an economic management system that is suitable to doing business that does not exist in the rest of mainland China. Foreign companies were encouraged to set up manufacturing plants in return for preferable tax rates. 14 coastal cities were allocated as open cities offering incentives for foreign companies to invest.
|
The figure above shows the SEZs, open cities and industrial zones within the country, Many of them in the coastal areas.
|
China's economic growth has been largely influenced by the FDI. China is a global hub for manufacturing and is the world's largest manufacturing economy as well as the biggest exporter of goods in the world. China is also the world's fastest growing consumer market and second largest importer of goods. Since the early 1990s, China has averaged s real per capita growth of more than 8% a year. China was receiving more than $63 billion inward investment per year in 2006. China entered the WTO since late 2001 which has given China better access to global markets and as a result, trade has boomed. China also has free trade agreements with several nations such as China-Australia, China-South Korea, Switzerland and Pakistan.
|
As of 2015 China's economic growth has been said to be slowing down. This is due to; China's working age population peaking in 2012, investments have topped out and China’s technological gap with rich countries is narrower than in the past, implying that productivity growth will be lower. Although, China's economy is predicted to continue to grow in the future.
India
India is the second most populous country in the world with over 1.2 billion people. It is the seventh largest country in terms of area. India's economy is within the world's top 10 in terms of GDP, however GDP per capita is US $5,855 ranking 125th (International Monetary Fund 2014). Although India is classed as a NIC some say that India is an 'ever' developing country. This is due to the huge inequality within the country. There are still huge gaps between the rich and the poor as well as gender inequality, preventing many women in India to be educated and employed. The HDI of India is 135th with 0.586 just within the medium human development category. 179.6 million people lived in poverty in 2011 (World Bank 2014).
Unlike the other emerging Asian economies, recent transformations in the Indian economy have been based more on the service sector than on the manufacturing growht which has occured in the previous NICS. The service sector in India has been the main engine of economic growth. The service sector now contributes for over 55% of India's GDP as shown in the figure below.
India's main advantage lies in the number of highly skilled and qualified professionals in its workforce whose skills are in demand in many areas across the English-speaking world. English is the third largest language by the number of native speakers and the most commonly spoken language in terms of native and non-native speaker. This has lead to a great deal of outsourcing of work from developed countries especially those that operate in software and IT services.
Outsourcing of work to India from developed countries began in the 1980s with software development but progressed to call centres and a wide range of other business services rapidly. India used the experience from outsourcing and working under foreign companies and set up their own firms. In 1999, Infosys became the first Indian company to be listed on the New York stock market. The trigger to outsourcing from overseas firms and the Indian firms becoming successful was India's advantage in the respect of:
|
As well as ICT, India has become a world leader as IT-enabled sectors or 'back office functions'. Indian firms operate for companies in countries like the UK where they; operate call centres to deal with sales and customer enquiries, deal with accounts, undertake data entry and conversion such as medical and legal transcription and provide knowledge services which require specialists using database to solve customer problems.
The economic growth experienced by India has mainly benefited the English-speaking middle classes and certain areas of south India. The primary sector still dominates the country in terms of employment, with around 70% of the population still engaged in agriculture and other primary activities. There are many subsistence farming in India and a high level of poverty in the rural areas. In the outskirts of larger cities, there are slums that are known as shanty towns. The houses are made of any available material (mostly scrap) and have poor sanitation. Dharavi area, within Mumbai (the most populous city in India, with highest GDP in South, West and Central India ) has the world's largest slum. It was founded in the 1880s and has developed into a multi-religious, multi-ethnic and diverse settlement. Figure on the left shows poverty rates in India.
|
Click home to go back to the homepage.