China was more unfavorably placed than India at the time of its ‘liberation’ in 1949. It lagged behind India in terms of infrastructure and industrial development.
India and China initially followed the same set of policy options especially centralized planning but in different institutional framework.
China went for radical agrarian land reform programme, thus, creating a truly mass market for consumption goods produced by a more labour-intensive industrial set-up compared to more capital intensive Indian industries.
China abolished landlordism in 1950, primarily to secure the loyalty of poor peasants. Under its land reforms, 46 million hectares or 113 million acres of China’s 107 million hectares or 264 million acres of arable land was redistributed among the peasants to give about 300 million peasants land of their own.
To accelerate economic performance of agrarian economy, commune system similar to the Soviet collectives was adopted so as to squeeze more labour out of the peasants. Collectives were granted more credits and other facilities than the individual peasants.
After 1956, more intensive collectivization measures were adopted. The Chinese collectives were bigger than Soviet ones and also contributed to industrial production. About 8% of male population was drafted to non-agricultural production, thereby, increasing the burden on women.
The Great Leap Forward (1958) was intended to modernize Chinese agriculture by simultaneously developing industries with small-scale methods in villages. It only led to a series of bad harvests. The withdrawal of Soviet experts in 1960 led to further economic catastrophe.
The ‘Leap’ was abandoned and more attention was paid to monetary incentives and market mechanisms as well as efficient, economical production rather than aiming to maximize output at all costs the Cultural Revolution (1966- 69) involved transfer of production-decisions from ministries and experts to a group of revolutionary guards.
Millions of skilled workers and experts were sent to work on farms for ideological reasons. It led to another drastic decline in the industrial production, foreign trade and growth rate of GNP. Another shift to a more market-friendly strategy that provided an incentive to the foreign capital came after 1978.
The process of reform started with de-collectivization under which use rights with respect to land were transformed by allowing independent decisions on investment and land-allocation to peasants and by permitting sale of a large output in the open market.
This resulted in a sharp increase in agricultural production but had an adverse impact on the employment and utilization of surplus labour. Another aspect of this market friendly approach has been to provide incentives to direct foreign investment especially in the special economic zones to maximize their utility.
The ethnic Chinese capital, not multinationals, dominated these activities and China favoured launching of export drive without liberalizing imports. Entry of foreign investors was favoured in new areas and not in the core industrial areas. As a result, the Chinese industrial growth increased from 11% per annum during 1970-80 to 16% per annum during 1990-97.
The direct foreign investment in China rose from $11.16 billion in 1992 to above $40 billion in 1996. There was, however, only gradual erosion of state control rather than a quick retreat from planning. The Chinese state-owned enterprises were reformed.
The 15th Congress of Chinese Communist Party decided to corporatize the state-owned enterprises. Many of them have been converted into share-holding companies. However, many of the basic components of a ‘pure’ market economy are still in their incipient stage in China.
Government guided investment mechanisms, a state controlled banking system and dominant state-owned enterprises still run in a framework molded primarily on the previous planned economy. The Chinese economic reforms have raised incomes, created considerable private wealth and reduced the incidence of chronic poverty.
However, declining profits, growing unemployment, idle capacity, unrepeatable debts of state enterprises and environmental costs due to over-dependence on coal in China’s fuel use are some of the accompanying benign effects. Though China has slightly improved its position from low-income (below $785 per capita income) to lower middle-income group ($786- 3125 per capita income), it still suffers from the signs of- underdevelopment.
However, its record in achieving remarkable transition in health, nutrition and educational accessibility has been universally acclaimed. It has also considerably raised life expectancy and lowered infant-mortality besides taking effective public action to ensure access to nutrition, health facilities and social support.
In comparison to India’s elitist, urban-biased schooling, China’s thrust has been towards universalization of primary education, though it also has its own privileged urban schools financed by the national government as well as private schools. However, the disparities in education and health services between regions, gender and across social groups and classes are less marked.