Resurging Asian Giants: Lessons from the People’s Republic of China and India The economies of the People’s Republic of China and India have seen dramatic growth in recent years. As their respective successes continue to Asian Giants: Resurging reshape the world’s economic landscape, noted Chinese and Indian scholars have studied the two countries’ development paths, in particular their rich and diverse experiences in such areas as education, information technology, local entrepreneurship, capital markets, macroeconomic management, foreign direct investment, and state-owned enterprise reforms. Drawing on these studies, the Asian Development Bank has produced a timely collection of lessons learned that serves as a valuable refresher on the challenges and opportunities ahead for developing economies, especially those in Asia and the Pacific. About the Asian Development Bank Lessons from the People’s Republic of China and India Republic Lessons from the People’s ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries substantially reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two-thirds of the world’s poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, Resurging Asian Giants environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the Lessons from the People’s Republic of China and India region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org ISBN 978-92-9092-068-7 Publication Stock No. BBK090140 Printed in the Philippines Resurging Asian Giants Lessons from the People’s Republic of China and India Edited by Klaus Gerhaeusser Yoshihiro Iwasaki V. B. Tulasidhar © 2010 Asian Development Bank All rights reserved. Published 2010. Printed in the Philippines. ISBN 978-92-9092-068-7 Publication Stock No. BBK090140 Cataloging-In-Publication Data Gerhaeusser, Klaus et al. Resurging asian giants: lessons from the People’s Republic of China and India. Mandaluyong City, Philippines: Asian Development Bank, 2010. 1. Economic development. 2. Macroeconomic management. 3. People’s Republic of China. 4. India. I. Asian Development Bank. The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Note: In this report, “$” refers to US dollars. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax +63 2 636 2648 [email protected] Contents Abbreviations xi Foreword xiii Acknowledgments xv 1 Lessons from the People’s Republic of China and India 1 Yoshihiro Iwasaki 2 Reforms in the People’s Republic of China: Achieving Growth with Price Stability 39 Manmohan Agarwal 3 Developing Physical Infrastructure: A Comparative Perspective on the Experience of the People’s Republic of China and India 57 Rajiv Lall, Ritu Anand, and Anupam Rastogi 4 The People’s Republic of China’s Manufacturing Sector since 1978: Implications for India 117 Rajeev Anantaram and Mohammed Saqib 5 State-Owned Enterprise Reforms in the People’s Republic of China 167 Poonam Gupta and Amitendu Palit 6 Segmentation and Unification in the People’s Republic of China’s Labor Market: Lessons for India 201 Bibek Debroy 7 An Overview of India’s Growth and Development 227 Dashu Wang 8 The Experience of India’s Software and Information Technology-Enabled Service Industries 261 Jiang Qiping 9 Higher and Professional Education in India 307 Shi Xiaoguang and Yan Fengqiao 10 India’s Financial Sector Reform and Experience: Lessons for the People’s Republic of China 345 Peter G. Zhang and Jian Yang 11 Outstanding Entrepreneurs in India 385 Zhang Minqiu iv Resurging Asian Giants: Lessons from the People’s Republic of China and India List of Tables Lessons from the People’s Republic of China and India Table 1: Key Indicators for Selected Asian Developing Countries, 2006 3 Table 2: Sector Shares in Gross Domestic Product 12 Developing Physical Infrastructure: A Comparative Perspective on the Experience of the People’s Republic of China and India Table 1: Development of Infrastructure Capacity, People’s Republic of China and India 58 Table 2: Macroeconomic Indicators, People’s Republic of China 60 Table 3: Infrastructure Investment in 1998, 2005, and 2006 61 Table 4: Consolidated Fiscal Balance, People’s Republic of China and India 62 Table 5: Structure of Investment of National Economy 63 Table 6: Sources of Funds for Fixed Investment in Infrastructure, 2006 65 Table 7: Return on Equity for the People’s Republic of China’s Publicly Traded Coal and Power Companies 78 Table 8: Development of Road Infrastructure in the People’s Republic of China 80 Table 9: Effective Electricity Tariff, 2004 86 Table 10: Returns to Power Generation, Transmission, and Distribution 86 Table 11: India: Power Capacity Addition during the Five-Year Plans, Actual versus Target 92 Table 12: Rural Electricity Development, 1987–2002 93 Table 13: Main Purpose of Rural Electricity Usage 94 Table 14: Household Access to Electricity in India 95 Table 15: Power Consumption in India by Category, 2003–2004 96 Table 16: Progress of the Road Network in India 98 Table 17: Installed Power Capacity and Output Generated by Fuel Source, People’s Republic of China 99 Table 18: Installed Power Capacity and Output Generated by Fuel Source, India 100 Table A.1: Macroeconomic Indicators, India 111 Table A.2: Listed Power Companies in the People’s Republic of China, End 2003 112 Table A.3: Road Mileage by Technical Condition 113 Table A.4: Road Mileage by Pavement Classification 113 Table A.5: Road Mileage by Administrative Level 114 Table A.6: Electricity Prices in Selected People’s Republic of China Provinces, 2004 114 Table A.7: Electricity Prices in Selected States of India, 2004 115 List of Tables v The People’s Republic of China’s Manufacturing Sector since 1978: Implications for India Table 1: Profile of Manufacturing Exports, People’s Republic of China 120 Table 2: Comparison of the Manufacturing Sector in the People’s Republic of China and India, 1980–2005 123 Table 3: Regional Distribution of Industry in the People’s Republic of China, 2004 126 Table 4: Changes in Total Factor Productivity in Industry in the People’s Republic of China, 1952–2005 126 Table 5: Distribution of the People’s Republic of China’s Manufacturing Sector by Size 129 Table 6: Educational Attainment of the Population 137 Table 7: Impact of Foreign Direct Investment in the People’s Republic of China 141 Table 8: Gross Industrial Output Value of Foreign-Funded Enterprises by Industry, 2000 and 2005 142 Table 9: Modes of Foreign Direct Investment in the People’s Republic of China 143 Table 10: Foreign Direct Investment Stock in the People’s Republic of China, by Province, 2005 144 Table 11: Foreign Direct Investment Inflows to the People’s Republic of China, by Country or Area of Origin 145 Table A.1: Economic Indicators, People’s Republic of China 159 Table A.2: Growth of the Manufacturing Sector in the People’s Republic of China, 1978–2006 160 Table A.3: Gross Output Value of Industry in the People’s Republic of China, by Ownership 161 Table A.4: Share of Manufactured Goods in Total Expenses 162 Table A.5: Employment in the People’s Republic of China’s Manufacturing Sector 162 Table A.6: Foreign-Funded Enterprise Contribution to Industrial Output, People’s Republic of China 163 Table A.7: Regional Distribution of Foreign Direct Investment, People’s Republic of China 164 Table A.8: Checklist of Landmark Legislation of Foreign Direct Investment Policy in the People’s Republic of China 165 State-Owned Enterprise Reforms in the People’s Republic of China Table 1: Evolution of State-Owned Enterprises 175 vi Resurging Asian Giants: Lessons from the People’s Republic of China and India Segmentation and Unification in the People’s Republic of China’s Labor Market: Lessons for India Table 1: Population, Labor Force, and Employment Indicators in the People’s Republic of China 215 Table 2: Urban Employment by Province 217 An Overview of India’s Growth and Development Table 1: Growth of Gross Domestic Product 228 Table 2: India’s Population Below Poverty Line 228 Table 3: Performance of India’s Information Technology Sector 231 Table 4: Computer and Information Technology Exports 232 Table 5: Structure of India’s Services