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China and India: Economic Performance, Competition, and Cooperation, An Update

Dec 2003
Stanford King Center on Global Development Working Paper
By  T. N. Srinivasan

China and India have only recently broken out of their deliberate insulation from the world economy and the ushered in market-oriented economic reforms and liberalization. China began its external opening and economic reforms in 1978. India, which unlike China had always had a large private sector and functioning markets, began its reforms away from rigid state controls over the economy in the 1980s. These reforms, hesitant and piecemeal at first, became systemic and far broader after India experienced a severe macroeconomic and balance of payments crisis in 1991. This paper reviews the achievements of reforms and remaining challenges. Macroeconomic prospects and problems are covered, as well as external sector issues, in particular, the spectacular performance of China relative to India in their competition in world markets as well as the emerging perception in India of the opportunities in the large and rapidly growing Chinese markets. Also noted is the protectionist backlash that China’s growing dominance in world trade and India’s success in Information Technology have induced in the US and Europe. The paper concludes with a discussion of the cooperation of China and India in the failed fifth ministerial meeting of the WTO in Cancún, Mexico, in September 2003 and its importance for the resumption and successful conclusion of the Doha Round.