January 30: Reforms, Regionalism, and Trade in China and India

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January 30, 2012: Ganeshan Wignaraja and Ellen Frost
Dr. Ganeshan Wignaraja and Dr. Ellen Frost discuss the future of prospects for India and China's growing economies at the East-West Center in Washington
(Click to enlarge) From Left to Right: Dr. Ganeshan Wignaraja, and Dr. Ellen Frost. The two experts discussed the future of prospects for India and China's growing economies at the East-West Center in Washington

Reforms, Regionalism, and Trade in China and India

WASHINGTON, DC (January 30, 2012) In the world economy, still recovering in many regions from the effects of the 2008 financal crisis, China and India have emerged as Asia’s economic “giants.” With the PRC ahead in world trade due to manufacturing, and India leading in skill-intensive IT exports, Dr. Ganeshan Wignaraja, of the Asian Development Bank characterized the giants rise as “impressive,” but warned that many uncertainties lie ahead and how each country moves to meet them will determine their continued success in the future. Dr. Ganeshan was joined by Dr. Ellen Frost of the Peterson Institute for International Economics in a discussion on the economic strategies and aims of China and India; how they compare, how their ascendancy is explained, whether India can outpace China, and what lies ahead for the Asian “giants.”

In comparing the reform and flowering of the two economies, Dr. Wignaraja noted that some conditions favored the PRC, such as its location in economically dynamic East Asia, and larger domestic market. Both had distinct, gradual strategies of reform, but took different paths: China was earlier, faster and more comprehensive in its reforms, but India has dismantled all of its central planning systems, while China has kept some in place. Dr. Wignaraja explained that while India will have a demographic advantage over China in coming years, the PRC still outpaces India in education and infrastructure spending that is equally important for economic growth.

Among the future challenges facing the continued success of these giants, Dr. Wignaraja pointed out that both must rebalance their growth as the “big buyers” in North America and the EU slow down by investing in the mechanisms to improve intraregional trade. Meanwhile as their economies mature, China will want to move beyond assembly into higher value production, while India’s challenge is to take that place in the manufacturing chain. In this way, Dr. Wignaraja describes China and India to competitive in for short-run, but complementary in the long-run- depending of course, with how the two giants cope with these challenges.

Dr. Frost supplemented this presentation with her own expertise on the politico-diplomatic side of these interactions. She noted that there is a long history of rivalry as well as periods of mutual exchange between China and India. The ASEAN+6 framework has become the most recent stage for this rivalry: China initially resisted the expansion from the ASEAN+3 model it dominated to one that included India. China has also resolved all of its outstanding (land) border disputes with its neighbors, with India as the one exception. At the same time, however, trade and investment between the two continue to grow. Because of this, Dr. Frost said that the challenge how to manage this rivalry in constructive ways.

Click here to download Dr. Wignaraja's presentation sides. [PDF]

Ganeshan Wignaraja is Principal Economist in the Asian Development Bank’s Office of Regional Economic Integration. He represents the Bank on the WTO Director-General’s Advisory Group on Aid for Trade as well as at APEC and ASEAN senior officials meetings. Formerly, he was a manager at a leading UK economics consulting firm and Chief Program Officer at the Commonwealth Secretariat. He is currently an Executive Editor of the Journal of Asian Economics. His doctorate in economics is from Oxford University.

Ellen L. Frost is a visiting fellow at the Peterson Institute for International Economics and an adjunct research fellow at the National Defense University's Institute of National Strategic Studies. She previously served in the U.S. government as counselor to the U.S. Trade Representative (1993-95), deputy assistant secretary of defense for international economic and technology affairs (1977-81), various positions in the Treasury Department (1974-77) and the State Department (1963).