Governance Issues in Economic Development

A China-India Comparative Perspective

Abstract

The Chinese developmental model has seven distinctive characteristics: First is an essentially capitalist development under decisive authoritarian leadership and purposive governance. Second is a vertical production structure where basic capital goods are produced in monopoly state-owned enterprises and the much-larger rest of the economy is under private ownership often connected with local party officials dispensing local monopoly rights. Third, at least in the post-Mao decades China is politically stable in relative terms. Fourth, the model is characterized by state-guided nationalist industrial policy and finance, subsidized access to land and credit for business, repression of labor rights and of yield on household financial savings. Fifth, there are massive investments in infrastructure funded by a very high national savings rate (particularly because of large undistributed profits of companies). Notably, per capita stock of government investment in fixed assets in 2017 was larger than that in Germany or UK, and five times that in India. Sixth, one notes rural industrialization in a decentralized framework with acute competition over jurisdiction, particularly in the early decades after reform. Seventh, there is openness to foreign trade and acquisitions and learning from foreign technology.