while thanking u for your enlightenment, just add some of my 'frontline' observation, fragmental though
It's also argued that 'cheap labor' or low manufacturing cost doesn't help with the demand in the long run esp. when China endeavours to shift to stimulating domestic consumption thus gradually erodes off as a 'competitive edge'. We don't want to be 'cheap' any longer.
You are an export-oriented economy. Your years of stellar growth have accrued from low-cost, mass-scale manufacturing for primarily export markets. That was, and still remains, your comparative advantage. As fundamental (in your case, manufacturing) wages increase, as they are doing now due to 'relative saturation' of the labour market, so do prices and relative prices of other commodities. Higher commodity prices, in and of themselves, contribute to the phenomenon of 'cost-push inflation'. On the other hand, rising wages contribute to increased domestic consumption and aggregate demand, contributing to what is in economic jargon, called 'demand-pull inflation'. Inflationary propensities, in turn, fuel speculation of future rational inflationary expectancies. What results as a consequence is a continuous "feedback loop", in which wage hikes due to inflation cause companies to raise prices, and those rising prices lead to demand for further wage increases, perpetuating the cycle. This is a rather simplistic, albeit empirically rigorous model. Its effects can be mitigated via monetary policy: a) through government procurement of bonds, raising the interest rate, which via the interest parity condition or the Fischer effect in high-arbitrage financial instrument markets such as China, or India, will lower the exchange rate and appreciate the value of your national currency, in turn eroding into your comparative low-price advantage; or b) wage/price controls, which are always temporal in nature and used only in exiguous circumstances because they cause distortions in unemployment, particularly when demand is high: in either case, it involves a payoff between a) an erosion in comparative advantage via high-costs and dearer (and consequently, lower) nominal exports, and b) high (real)-wage regimes that attempt to rely on domestic consumption, but spurn foreign investment because of higher factor costs and lower aggregate product prices.
Hence, the natural economic progression of liquid investment capital seeking alternative, lower-cost manufacturing destinations.
Comprenez?
No, far from even 'relative' saturation, just think about only %% of households own a car ... and the rural areas lagging behind, the backward West...
By the way S. Korea 7th economy in the world with GDP equivalent to India's, is still growing though at a much slower pace. How comes China is 'saturated' with such a vast domestic market while far from the peak?
Do you understand the meaning of the term 'relative'? What do you understand by it?
As an analogy, read up on the consideration of relative prices. When it dawns upon you that your entire argument is premised upon 'absoloute saturation', you will understand what I'm talking about.
My argument is not and never was in the context of 'absoloute saturation'.
Your example of 'South Korea 7th economy in the world with GDP equivalent to India's, growing at a slower pace' is indeed a validation of 'relative saturation' and its impact upon growth rates.
don't take one-child policy at its face value - only in urban areas is it strictly implemented and nowadays we in cities tend to delay birth, or have 1 or even 0 kid due to various pressure and changed mindset. but higher birth rate in rural areas and for ethnic minority who're not bound by one-child policy. aging problem isn't yet that serious in the decades to come.
I assure you, pâtron, I do not. Your argument is digressing from the economic into the anthropological. My assertion that China's population is rapidly ageing, as indeed it is, is based upon studies of China's population pyramid vis-à-vis its Indian counterpart, which you can avail of here:
http://www.nationmaster.com/country/ch/Age_distribution
http://www.nationmaster.com/country/in/Age_distribution
Two glaring factors you've obviously overlooked: China's 'ethnic minorities', not bound by its one-child policy, comprise 8% of its population. Prefectural and sub-prefectural relaxations of the legislation are indeed a remedial measure for the "less fortuitous consequences of the one-child policy".
India needs to have the CAPACITY to provide the emerging young population with sufficient eduction and medicare and... to enable them to be 'eligible' workforce and future consumers. How does India cope with the challenge i.e. inadequate resources allocated to them?
Investment attraction via a low-wage regime is
exactly one of those measures towards building CAPACITY to provide our urban young generation with the means to sustain a decent livelihood and acquire basic services. As is the $ 1 trillion fiscal injection in infrastructure I've been harping on, which includes not just roads and bridges, but civic hospitals and rural schools as well.
Reforms in the education sector have gathered apace in recent years. Literacy now stands at 81%,measured via stratified 'gallup'-type polls, vis-à-vis 67% in 2001. The most recent and proclaimed of these being the near-total opening up of the domestic education sector to foreign players, hundreds of which have already existed in India since 2001. The institution of the DPEP (the District Primary Education Programme) which has opened 160000 regular and 84000 alternative education schools since 1994, and has also evinced a 50% increase in enrollment of girls, has also been a critical factor. Education has
now been made a fundamental right, which means people denying children the right to education may now be
criminally prosecuted, and on a
suo motu, suo sponté and class-action basis. You won't believe how many NGO's are gearing up their legal services to take advantage of the act.
India's stratified, progressive sectoral-liberalization approach to economic development means it has already laid much of the tertiary groundwork required to cater to middle-income audiences. Private, burgeoning healthcare already exists, so much so that we are providing health care to foreigners: a phenomenon piquantly known as 'medical tourism'. Inherent qualities for healthcare provision already exist, we produce the highest number of doctors in the world and
rank consistently in the top ten states for most other medicare professionals, who presently leave for greener pastures in the United States, Canada, Australia and the U.K. because the percentage of the demographic that can afford their services has been so low. Obviously, as incomes increase, this disparity will be mitigated. India's public healthcare system is in urgent need of reform, but the private and semi-private/partial state-funded sectors are capable of shouldering a bulk of the burden.
India is simply another pattern or a different way. There seems no ground for 'who'll beat whom'.
You seem to have misunderstood the context of the phrase 'beat hands down': it applies purely to the prospects for medium-term economic growth rates for the two countries, and nothing else. Qualitative evaluations, though necessarily important, are precluded.