Bellerbys Economics - Mr Stephenson

Thursday, November 23, 2006

China - An Econocracy?

Since 1989, the Chinese leadership has pursued a relentless drive for economic growth. Political issues have been put on the back-burner for the moment, though it is likely that these will become more important once again as Chinese influence in world politics increases.

Meanwhile, I have invented a new word for China - an econocracy - a society where economic efficiency takes priority over other all other policy decisions during the development phase of the economy. You can read my complete paper on this in a new economics journal early next year. Perhaps India is now also passing through the same phase.

More evidence of this can be seen in this week's new trade deal between China and India. The two countries have long-standing differences over political issues - but these have been put to one side for the moment - as both countries work hard to establish themselves in the world economy.

On most indicators, China has a comparative advantage over India in most fields at the moment but as we ll know from Modules 2 & 6, this doesn't mean that they can't both benefit from further specialisation and trade - and this is the key component of the new agreement. Easier access to Chinese manufactured products will boost the Indian economy as well as increasing the export market for India. Meanwhile, India's vast pool of cheap (compared to China) English-speaking labour provides extra possibilities for investment for Chinese business people. India's main area of absolute advantage, however, IT and software development, has a number of businesses keen to invest in China's rapidly developing electronics sector.

Trade between China and India is now expected to double by 2010. The deal also brings India closer to ASEAN, which China is set to join in 2010. Together, China and India represent 35% of the world's population and as their economies grow, we will continue to see a shift of economic and political influence towards South and East Asia.

NOTE: Any students now revising for the January exams who would like a complete set of revision notes for the module they are taking should send me an email and I will send it in reply.

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