The Future of China’s Economic Transformation and India’s Economic Strategies

Peter Drysdale, Shiro Armstrong, Paul Hubbard, Neil Thomas, Dong Dong Zhang
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China’s large-scale structural transformation opens up huge opportunities for the development of the Indian economy through the shift in productive capacity across the region. China is in transition, from an investment- and export-led growth model to an economy based around consumption, services and innovation. This transition is both caused by and further contributing to rising Chinese incomes and Chinese firms moving up global value chains, two factors that are already driving the relocation of manufacturing activity from China to other more price-competitive countries in the region. This process will be further advanced through the gradual liberalisation of China’s capital account. While China’s commitment to, and thus the timing of, capital account policy changes are uncertain, the process is an inexorable product of the financial market liberalisation already in place. India can best take advantage of this situation by strengthening its own ‘Make in India’ economic reform agenda through liberalising labour laws, improving infrastructure investment and financing, opening to foreign investment, and pursuing regional economic integration. These measures will enable India to leverage its abundant and growing low-cost labour resources to exploit a comparative advantage in labour-intensive manufactures and services. This process has the potential to transform India into the next industrial superpower and the economic growth leader of the region.