5.1.      China

Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and more than 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.

China is now an upper-middle-income country. Although China has eradicated extreme poverty, a significant number of people remain vulnerable, with incomes below a threshold more typically used to define poverty in upper-mid­dle income countries.

China’s high growth based on investment, low-cost manufacturing and exports has largely reached its limits and has led to economic, social, and environmental imbalances. Reducing these imbalances requires shifts in the structure of the economy from manufacturing to high value services, from investment to consumption, and from high to low carbon intensity.

Over the past few years, growth has moderated in the face of structural constraints, including declining labor force growth, diminishing returns to investment, and slowing productivity growth. The challenge going forward is to find new drivers of growth while addressing the social and environmental legacies of China’s previous development path.

China’s rapid economic growth exceeded the pace of institutional development, and there are important institutional and reform gaps that China needs to address to ensure a high-quality and sustainable growth path. The role of the state needs to evolve and focus on providing a clear, fair and stable business environment, strengthening the regulatory system and the rule of law to further support the market system, as well as ensuring equitable access to public services to all citizens.

Given its size, China is central to many regional and global development issues. Although not the main source of historical cumulative emissions, China today accounts for 27 percent of annual global carbon dioxide and a third of the world’s greenhouse gas emissions – with per capita emissions now surpassing those of the European Union, although slightly below the OECD average and well below the level of the United States – and its air and water pollution affects other countries. Global environmental problems cannot be solved without China’s engagement. China’s growing economy is also an important source of global demand. Its economic rebalancing will create new opportunities for manufacturing exporters, though it may reduce demand for commodities over the medium-term.

China is a growing influence on other developing economies through trade, investment, and ideas. Many of the complex development challenges that China faces are relevant to other countries, including transitioning to a new growth model, rapid aging, building a cost-effective health system, and promoting a lower-carbon energy path.

Following China’s swift reopening after the COVID-19 outbreaks in late 2022, GDP growth is expected to rebound to 5.1 percent in 2023, from 3 percent in 2022. Growth will be led by a recovery in demand, particularly for services. Investment is expected to remain robust, supported by slower but sustained growth in infrastructure and manufacturing investment, as well as the gradual stabilization of property investment. Net exports are expected to weigh on growth, due to softer external demand coupled with a modest acceleration in import growth driven by the increase in domestic demand.

To support the ongoing recovery fiscal policy is expected to remain expansionary, albeit less so than in 2022. Monetary policy is likely to be relatively accommodative, and policy easing in the property sector will be maintained in 2023.

Over the medium term, China’s economy continues to confront a structural slowdown. Potential growth has been on a declining trend, reflecting adverse demographics, tepid productivity growth, and rising constraints to a debt-fueled, investment-driven growth model. Structural reforms are needed to reinvigorate the shift to more balanced high-quality growth.

Source:

The World Bank, (2023, Apr 20), China Overview: Development news. 

5.2.      India

Over the past two decades, India has made remarkable progress in reducing extreme poverty. Between 2011 and 2019, the country is estimated to have halved the share of the population living in extreme poverty – below $2.15 per person per day (2017 PPP) (World Bank Poverty and Inequality Portal and Macro Poverty Outlook, Spring 2023). In recent years, however, the pace of poverty reduction has slowed; key welfare indicators have also been slow to improve. Recent estimates suggest that extreme poverty increased due to the COVID-19 pandemic but moderated in 2021-22 as access to vaccines became widespread.

Inequality in consumption has remained persistent, with a Gini index of around 35 over the past two decades. Child malnutrition has remained high, with 35.5 percent of children under the age of 5 years being stunted, with the figure rising to 67 percent for children in the 6-59 months age group. Headline employment indicators have improved since 2020 but concerns remain about the quality of jobs created and the real growth in wages.

India’s aspiration to achieve high income status by 2047 will need to be realized through a growth process that delivers broad based gains to the bottom half of the population. Growth-oriented reforms will need to be accompanied by an expansion in good jobs that keeps pace with the number of labor market entrants. At the same time, gaps in economic participation will need to be addressed, including by bringing more women into the workforce.

The World Bank is partnering with the government in this effort by helping strengthen policies, institutions, and investments to create a better future for the country and its people through green, resilient, and inclusive development.

Video: India the best emerging market right now: Mobius. CNBC Television.

Economic Outlook

After real GDP contracted in FY20/21 due to the COVID-19 pandemic, growth bounced back strongly in FY21/22, supported by accommodative monetary and fiscal policies and wide vaccine coverage. Consequently, in 2022, India emerged as one of the fastest growing economies in the world, despite significant challenges in the global environment – including renewed disruptions of supply lines following the rise in geopolitical tensions, the synchronized tightening of global monetary policies, and inflationary pressures.

In FY22/23, India’s real GDP expanded at an estimated 6.9 percent. Growth was underpinned by robust domestic demand, strong investment activity bolstered by the government’s push for investment in infrastructure, and buoyant private consumption, particularly among higher income earners. The composition of domestic demand also changed, with government consumption being lower due to fiscal consolidation.

Since Q3 FY22/23, however, there have been signs of moderation, although the overall growth momentum remains robust. The persisting headwinds – rising borrowing costs, tightening financial conditions and ongoing inflationary pressures – are expected to weigh on India’s growth in FY23/24. Real GDP growth is likely to moderate to 6.3 percent in FY23/24 from the estimated 6.9 percent in FY22/23.

Both the general government fiscal deficit and public debt to GDP ratio increased sharply in FY20/21 and have been declining gradually since then, with the fiscal deficit falling from over 13 percent in FY20/21 to an estimated 9.4 percent in FY22/23. Public debt has fallen from over 87 percent of GDP to around 83 percent over the same period. The consolidation has largely been driven by an increase in revenues and a gradual withdrawal of pandemic-related stimulus measures. At the same time, the government has remained committed to increasing capital spending, particularly on infrastructure, to boost growth and competitiveness.

Source:

The World Bank, (2023, Apr 21 ), India Overview: Development news.