China’s skilled labor force helped in boosting its economy

When India and China were locked in the 1962 war, both economies were on the same plank. It was in the 1950s that both countries started rebuilding their economies—India under its first prime minister Jawaharlal Nehru and China under Mao Zedong.

According to the World Bank, India’s GDP growth in 1962 was just a little less than 3 per cent while it was 3.7 per cent in 1961. Compare this with China. Its economy contracted by 5.58 per cent in 1962; the previous year was even worse with 27.27 per cent decline.

<strong>India, China and their economies</strong>

In 1978 when Mao died, poverty and population were the headline problems for China. India, which was comparatively better placed, however, had the same problems. Speaking to IndiaNarrative.com, Sanjaya Baru, distinguished fellow, United Service Institution of India and the Institute of Defence Studies & Analysis, said that Mao’s focus on education and the social sector laid the foundation for a strong China in the later years. India neglected those issues.

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“Mao with a focus on education and social sector created a billion educated people. We lagged behind and even today we have a mass of uneducated people, unskilled manpower. China invested in education and skill building, and the development of human capital paid off. In fact, the Chinese foundation in terms of human capital led to rising labor productivity after the 1980s,” Baru said, adding that India is grappling with lower productivity rate even today.

Pahle India Foundation’s (PIF) senior fellow and head of research Nirupama Soundararajan added that though it may sound clichéd but the different forms of government in the two countries have made a difference. “China has managed to get investments in the own terms, while India, with its multiple forms of government—Central, state and local—is yet to learn the art,” Soundararajan said, adding that it is critical to learn to build consensus.

<strong>Reforms</strong>

China opened up to foreign trade and investments in 1979, which helped in boosting its economic growth. China moved on the reform path rapidly while for India it took time. It was only under the late Narsimha Rao’s prime ministership that India initiated its reform measures and opened up its economy.

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Skilled labor force helped China as it opened up to foreign investments. Demand for skilled labor increased significantly since the early 1990s. “During the 1990s and early 2000s, China quickly established itself as the world’s production house by simply imitating well-known brands. Developed countries took advantage of that and started to outsource production to China. This is how technical knowledge flowed into the country,” Forbes pointed out.

Today China’s economy is about five times the size of India’s in US dollar terms.

“From the investment point of view, both India and China are attractive markets. But China makes the terms and conditions very clear right at the point of entry. But once a company enters the market, it faces no surprise and the enablers like land acquisition and other issues relating to environment, taxes and employment work well. India presents an opposite picture. Though India is keen to invite investments with a host of promises, going ahead companies often meet with hurdles including some with retrospective effect,” Soundararajan added.

Between 1980 and 2018, China's annual real GDP averaged 9.5 per cent. The Forbes article noted that “the apprentice soon became the master.” It said, “With the newly acquired knowledge, China was able to make more sophisticated and higher-end products and technology. Chinese manufacturers quickly became modern, innovative, high-tech companies.” Starting from low-cost items to the most technologically advanced goods were being produced in China.

In 2013, China’s President Xi Jinping, who took over the reins. In the same year, he announced launching the ambitious Belt and Road Initiative through over 70 countries, focusing on a host of infrastructure projects which was aimed at giving the dragon a further edge.

Times, however, have changed. China—a Communist, a one-party country, which attained acceptance across the globe due to its economic muscle—is losing friends rapidly. The outbreak of the coronavirus, which originated in Wuhan, and thereafter Beijing’s aggression—both military and economic—have come to light. Since 2018, it has also been locked in a bitter trade war with the US.

Reports also suggest that concerns among the people within China are also increasing. It is difficult to assess the real economic picture but discontent over surging unemployment and deferred repayment and returns on account of delayed BRI projects have started to haunt the Chinese.

Besides, China’s aggression has led to souring of the dragon’s bilateral relations with several other countries including India, Australia, Japan and a host of other European nations. Multinational companies too have underlined the need for diversification instead of being dependent on one country.

India, Taiwan, Vietnam, South Korea, Thailand, and Bangladesh among that countries that stand to gain, analysts said.

In a bid to woo foreign investors, the Narendra Modi government has initiated a host of reform measures including a few critical ones in the labor sector. It is equally keen to focus on competitiveness and boost manufacturing while remaining integrated to the global economy, especially supply chain. Soudararajan also pointed out that policy stability—irrespective of the political dispensation—is critical..