No. 337 - Economic reforms in China and India: past and future challenges

In China and India broad economic reforms since the 1980s progressively opened to private initiative and international trade and were key contributors to their formidable growth patterns. Today, the positive effects of past liberalizations are fading and the two countries have reached a level of development and complexity that requires a “new generation” of reforms, qualitatively more complex and politically less palatable. This paper identifies the turning points in China’s and India’s long phases of fast growth. It then turns to the open issues that need government action to support a sustainable and lasting growth process. In China, the priorities are to foster new growth engines by boosting domestic consumption and improving quality and efficiency on the supply side. In India, the reforms proposed by the government aim at facilitating investment, fostering innovation, protecting intellectual property, and building top-class manufacturing infrastructure. Broad reforms of financial and labor markets are also on the agenda. To make progress in these reforms both countries will require overcoming the resistance of vested interests and short term implementation costs.