Nov. 13, 2012
YiLi Chien and B. Ravikumar
YiLi Chien, senior economist, and B. Ravikumar, vice president, both of the St. Louis Fed’s Research division, discussed the economies of China and India as part of the “Dialogue with the Fed” held Nov. 13, 2012. The panel discussion and question-and-answer session following the presentation was moderated by Cletus C. Coughlin, senior vice president and policy adviser to St. Louis Fed President James Bullard.
Chien spoke about the driving forces behind China’s extremely high economic growth rate and whether that growth is sustainable in the long run, especially given that much of its growth has been fueled by increased investments and exports. He described other potential restrictions on growth, including inequalities, inefficiencies, environmental problems, and corruption and crony capitalism. While China is expected to become the world's largest economy within a decade if it maintains its high growth rate, Chien pointed out that even if China and U.S. have the same GDP, the U.S. per capita GDP would still be four times higher than China’s per capita GDP. In addition, China’s per capita GDP is expected to remain this way for decades. In terms of trade and U.S. jobs, Chien explained why the impact is not as great as one might think. He also indicated how China can provide opportunities for the U.S., particularly in the financial services, education and entertainment sectors.
Turning to India, Ravikumar discussed how reforms in that country, including the privatization of industries such as telecommunications, have led to rapid economic growth. Expansion in the Indian services industry, such as the medical tourism sector, also contributed to its rapid growth and exponentially boosted its per capita income prospects. As of November 2012, India’s GDP stood at close to $4.69 trillion, which was larger than that of Japan and Germany and larger than the U.K and France combined. Hurdles to future growth include labor regulations and infrastructure, while opportunities include a labor force that is well-equipped with skills in science and engineering, total factor productivity and a large consumer market.