Workshop on ‘India, China and the World Economy’ Organised by IDEAs at Magnolia Hall, India Habitat Centre, New Delhi, India, 24 January, 2008.

April 7, 2008

International Development Economics Associates (IDEAs) held a one day workshop on ‘India, China and the World Economy’ on the 24th of January, 2008 in New Delhi. The objective was to analyse the implications of the emergence of China and India as large economic powers in the Asian region for the global economy and other developing countries. Earlier activities of IDEAs had already been concerned with the questions of how to make the high growth in China and India pro-poor, better distributed and more beneficial to other developing economies. These issues became even more interesting in the context of the looming recession in the US economy. Therefore, the impact of the US economic recession on India’s and China’s growth stories and the need for these economies to delink from the US economy at this juncture became much debated topics at the workshop. Other topics included: exploring the nature of growth in these two economies, in particular the apparent paradox of high growth along with sustained poverty and rising inequality; the implications of China’s foreign exchange reserves for the global economy; China’s changing development path and its interaction with growth, policy and the subsequent impact on globalization; the role of China and India in recent Asian trade patterns; impact of China and India on the African economies via engagements in the global trade system and their effect on global prices and demand patterns; and finally, the history of Latin American engagement with the US economy and the lessons for the rest of the developing world.

The workshop had a participation of around 65 with representation from China, US, Mexico, Africa as well as many Indian participants. The attempt was to involve academicians as well as policy makers and therefore the participants included Professors of Economics from Jawaharlal Nehru University, University of Delhi and various colleges of Delhi, members of various research institutes in New Delhi along with members from several government policy making bodies.

The first session was chaired by Prof. S K Thorat, Chairman, University Grants Commission, India. The first paper, ‘Will the US Recession lead to Global Slowdown? What role for China and India?’ was presented by Prof. Jan Kregel from the Levy Economics Institute of Bard College, USA. He explored in detail the nature of the US recession and the possible impact on other parts of the world. His presentation concluded, following George Soros, that while a recession is now more or less inevitable in the developed world, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

The second paper, ‘A Perspective on the Growth Process in India and China’, was presented by Prof. Prabhat Patnaik, of the Centre for Economic Studies and Planning, JNU, New Delhi. The paper explored the basic nature of the growth in India and China. Prof. Patnaik argued that inherent in the very nature of this growth process is a tendency towards “dualism” or a progressive accentuation in the internal social hiatus; an increase in the growth rate, far from eliminating or reducing this hiatus, may well accentuate it further. This position is fundamentally different, argued the author, even from the “benefits-of-growth-will-not- automatically-trickle-own” point of view. It constitutes a basic critique of the growth process itself. If it is valid, and inherent to the growth process is a production of dualism, then no fiscal intervention by the State is likely to nullify it, as the Indian eleventh plan believes.

The next session, chaired by Prof G S Bhalla, Professor Emeritus, Centre for Studies in Regional Development, JNU, was devoted to understanding economic growth and its implications in China. The first paper, ‘China’s Changing Development Path: Growth, Policy, and Impact on Globalization’ was presented by Prof. Dic Lo, from the School of Economics, Renmin University, Beijing who is also a visiting faculty at School of Oriental and African Studies, University of London. In the context of global growth, he explored the new development paradigm in China. He argued that this is a result of a capital-deepening growth path, emphasising strong productive efficiency, and is thus potentially sustainable. It is also the result of a mix of government policies which both reinforce the growth path and promote wage-enhancing employment expansion. It is in relation to this nexus of growth path and government policies that the Chinese experience post-crisis might be considered as a paradigm of “new developmentalism”, which in turn is bound to have a far-reaching, systemic impact on globalization

The second paper was presented by Dr. Andong Zhu, Assistant Professor, School of Humanities and Social Sciences, Tsinghua University, Beijing. Entitled ‘Implications of China’s Foreign Exchange Reserves for the Global Economy’, the paper argued that holding the huge amount of foreign reserves that China is currently holding may not be a positive outcome for the country as it involved significant costs in terms of the loss due to depreciation of USD, the colonization of the Chinese economy in terms of increasing ownership by foreign capital and the uneven rate of return which meant that China paid out more in return to holding foreign reserves compared to what these could have earned in the US economy. The author finally suggested that these reserves could be used to lend or invest in developing countries which increased the power balance of the developing bloc rather than to do so in developed countries which represented a competitive lending-borrowing relationship.

The subsequent sessions were chaired by Prof. Sheila Bhalla, Professor at the Institute of Human Development, New Delhi and retired Professor, from CESP, JNU. A presentation on Latin American countries’ pursuit of economic liberalization and their relationship with the US by Alicia Puyana, Professor of Economics, at FLACSO, Mexico City, was entitled ‘The long and Sad History of LAC Development or Two Hundred Years of LA Economic Liberalism’. This sought to draw lessons for developing countries from the Mexican experience, which was focused on a liberalizing development strategy based on engagement with the US economy. The paper pointed out that North-South integration and liberalizing the economy with the intensity Mexico did, may not allow a less developed economy to harvest the positive growth effects of external trade. Secondly, negotiating with a super power is hard and the possibilities of reaching agreements that will give room for special treatment according to level of development are nil. She also argued for certain policy prescriptions for the Mexican economy, including using the exchange rate for development purposes in coordination with monetary policy, increasing public investment for inducing sectoral growth and broad based employment generation, using import substitution to reduce the external component of the economy, and promoting active sectoral development.

Two papers looked specifically at the external impact of China and India. The presentation by Prof. Jayati Ghosh, Centre for Economic Studies and Planning, JNU, New Delhi, entitled ‘The “Asian Century” So Far: China and India in Recent Asian Trade Patterns’, described the recent rise of emerging Asia not only within Asian trade but also in Asia’s trade with the world. She tried to analyse the pattern of Asian trade in the recent period and found that both China and India, the most important players in emerging Asia, were increasingly looking regionally inward and reducing their dependence on developed countries in both exports and imports of goods. This was also true for FDI flows which saw an increasing concentration within Asia. However, the final destination for exports was still dominantly the developed North, especially the US and the EU, and so the entire region would be adversely affected by a US recession unless there was more emphasis on export diversification through regional and South-South integration. Therefore this is an opportune moment for China and India to re-orient trade towards developing countries, possibly through providing investment and Marshall Plan-type resources to other developing countries.

A paper on ‘China and India in Africa’ was presented by Prof. C P Chandrasekhar, Centre for Economic Studies and Planning, JNU, New Delhi. This presentation looked at how the growing economies of China and India could engage Africa in terms of trade and investment and what this meant for the African economies. The Impact of especially China in affecting the international price level of even non-fuel commodities by creating demand for certain commodities like industrial raw material that Africa supplied was considerable. He also argued that for China and India, there is a trend of increasing interaction with developing economies including Africa (to a lesser extent for India). While African shares of Chinese trade are still negligible, China is now a major trade partner for most African countries. Africa has benefited in both volume and price terms from China and India trade. This can provide a challenge to the old imperialism as it gives Africa and developing countries more space to negotiate. So, while Africa still remains the hinterland, it is trading with and receiving investments from with new partners other than the erstwhile colonial powers and more importantly, on terms that are improving.

The last session was a panel discussion on the topic ‘Is There a Challenge to the International Economic order?’ and was chaired by Dr. Arjun Sengupta, Chairman of the National Commission on Enterprises in the Unorganized and Informal Sector, Government of India.. The chair in his opening remarks pointed to the need to protect the workforce in the current juncture of development. He suggested that the installation of social security measures by the government will benefit the labour force, which is going through a process of casualisation and increasingly subject to hire and fire policies. Prof. Jan Kregel underscored the need to translate the rise in productivity, especially in certain sectors of the emerging economies, into the creation of higher aggregate demand through a rise in the wage share. According to him, this is a necessary condition for a sustainable macroeconomic and development policy. Prof. Prabhat Patnaik reiterated that the high growth regimes in the newly developing countries like India and China are also accompanied by a rise in inequality and poverty for large sections of the population. He construed that a reorientation in the balance of class forces, which is tantamount to a political change, is required to ensure better living conditions for the poor and the working class in these economies.

Prof Sunanda Sen (Professor Emeritus, Jamia Milia Islamia, and retired professor, CESP, JNU, New Delhi) reasoned that the current growth process in the economies like India or China is leading to huge and uncontrolled financial inflows, which is making it more and more difficult to control the exchange rate. She argued that an uncontrolled appreciation of the domestic currency in this era of trade liberalization will potentially lead to deindustrialization in these economies. While the export-oriented industries will suffer from the rise in their product prices in the global markets, cheaper imports will also hurt industries which cater to the domestic consumer markets or supply inputs to other domestic industries. Finally, Prof. Abhijit Sen emphasized that economic growth should be accompanied by the expansion of economic activity and generation of new employment. It was therefore necessary that there should be appropriate state interventions through policies, which can successfully achieve these targets.

The programme of the workshop follows below with links to the presentations / papers.

10-11.30 a.m.

Chair: S. K. Thorat

Jan Kregel – Can China and India stall a global recession?

Prabhat Patnaik – A Perspective on the Growth Process in India and China

Discussant: Pronab Sen

11.45 to 1.15 p.m.

Chair: G. S. Bhalla

Dic Lo – China’s Changing Development Path: Growth, Policy, and Impact on Globalization

Andong Zhu – Implications of China’s foreign exchange reserves for the global economy

Discussant: Prasenjit Bose

2.15 to 3.00 p.m.