Economic Factors

Updated 29 August 2013

One of the defining aspects of China and India is that their economies are growing faster than any of the developed nations and indeed faster than that of other BRIC countries. This aspect makes understanding their economies key.

In 2001, Jim O’Neill of Goldman Sachs invented the acronym BRIC for BrazilRussia, India and China to epitomise the fastest growing developing countries. He based his notion on the developing countries with large populations, land mass (and natural resources) and growth. Whereas Brazil and Russia have see-sawed a little – in 1978 Brazil was number 9 in GDP, Russia was number 7, in 1991, Brazil was 10 and Russia 7, and in 2009, Brazil was 10 and Russia 13 – both China and India have moved steadily up the ranks. China has benefited from the end of the Cold War and glasnost, in the manner of changes to The World is Flat as explained by Tom Friedman.

BTW – for the first time,  the BRIC countries met at a summit in June 2009.

In the decade since BRIC was invented, much has occurred economically in China and India. In this section, we cover the following economic aspects:

Note:  BRIC, since 2010, has become BRICS to include South Africa; see also – PIIGS .

 China kick starts in 1978

China has benefited from the end of the Cold War and glasnost, in a sense the change to The World is Flat as explained by Tom Friedman.

Chinese economic renaissance began with economic reforms started by Deng Xiaoping in 1978 soon after the end of the Cultural Revolution. China was number 17 in GDP terms then (India was number 18). China joined the WTO in December 2001. By the end of 2009 China was number 3 after US and Japan.  Most estimates put China at no 2 by the end of 2010.

Deng Xiaoping, the leader who eventually succeeded Chairman Mao after the end of the Cultural Revolution, once said: “It doesn’t matter if a cat is black or white, so long as it catches mice.” which did him no favours with Mao. In fact, that was one of the reasons he was sent for political correction through hard labour. Anyway, once Deng came to power in 1978, he initiated four modernisations: agriculture, industry, national defence and science and technology. Foreign Direct Investment (FDI) was permitted in several Special Economic Zones (SEZ) along the coast.

Peak growth since then has varied between 6.5 and 12+%; 2009 est: 7.5 to 8.5% (IMF).

1989: that was a momentous year

1989 was a momentous year: the fall of Berlin Wall – good for the West and eventually also for the socialist states; and Tiananmen Square protest with armed response by the People’s Liberation Army – bad for Chinese seeking some form of political freedom, but eventually good in speeding up economic reforms.

There was a major hiatus in China after the Tiananmen incident. It seemed all reform would stop. However in 1992, Deng undertook his now famous ‘southern tour’ and gave his blessing to economic reforms, implicitly halting social and political reforms. Even today, political reform is not on the agenda.

China grew 10 times from 1978: and became a centralised Market Economy. Foreign Direct Investment (FDI) is very high, unlike India until recently. And so-called private sector accounts for 60% of GDP, similar to UK. But a large part of that is actually still under state ownership and, possibly, control.

In August 2010, economic figures show that China has officially overtaken Japan as the world’s number 2 economy.

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