Nitya Nanda (Fellow, TERI) replies: The question presumes that the level of economic integration in South Asia is very low compared to other regions of the world. This may appear so if one looks at the intra-regional trade in South Asia which is very often considered an indicator of regional integration. But this may not be the right indicator to measure the level of economic integration in South Asia due to its extremely skewed size distribution in the region as well as due to the fact that most countries do not share border with each other. In fact the level of trade integration of Nepal, Bhutan, Bangladesh and Sri Lanka is reasonably high with India. Indian investment is also quite high in these countries except Bangladesh. Thus even higher level of integration can happen only if there is better relationship between India and Pakistan. This will strengthen economic ties not only between India and Pakistan but also between India and Afghanistan as well as Pakistan and Nepal. There can also be sectoral cooperation, particularly in the fields of energy, telecom, transport, information technology and education. Economic integration also requires greater movement of people. As of now people can move freely betwen India and Nepal and India and Bhutan. Indians also get visa on arrival in Sri Lanka. India can also offer similar facility to Sri Lankans. Making movement of people between India and Bangladesh easier should not be too difficult. Overall, I would argue that the level of economic integration is not as low as is often made out to be. But the the key to furthur economic integration lies in the domain of politics, particularly in India Pakistan relationship.

Smita Purushottam replies: This question is increasingly being asked in the wake of the economic crisis, which China coped with by investing in massive domestic stimulus packages, but which contributed to overheating in the property market and greater indebtedness in the banking sector. China’s exports to the developed world, which fell at the height of the crisis in 2009, are also projected to face challenges (though first half yearly 2010 trade statistics show a rebound at 43 per cent, with the trade surplus shrinking by 42.5 per cent), as the latter shift to savings over consumption, boost exports, and maintain pressure for yuan appreciation. In addition, inflation, inequalities (China’s GINI coefficient is 0.47), environmental and societal problems, demographics and related dips in savings rates - are the near to long term challenges for China (please see http://www.chinadaily.com.cn/opinion/2010-06/29/content_10032151.htm).

However, China’s economy has a robust base. Chinese reforms in the 1980s were directed at building a strong infrastructure and supporting China’s manufacturing and export sectors. The Chinese manufacturing sector thus got its factor inputs at relatively lower rates than India’s - cheaper electricity, currency, land, labour, and capital - and is 48 per cent of GDP compared to India’s 29 per cent. This led to creation of many virtuous cycles and assets like a competitive workforce. China later shifted to a more high-tech production strategy. Its export basket now more closely approximates the export baskets of advanced economies (after making allowances for processing trade – i.e. exports minus imported inputs) than India’s.

To tackle these problems China has announced it will encourage greater consumption, manufacture more high value-added manufactures/exports to cope with currency appreciation, invest in China’s less developed, western regions, etc. Rising wages are being seen as a means to increase domestic consumption and shift to a more high value added economy.

It may be recalled that a 2000 projection by Chinese strategic experts had forecast a US $2.5 trillion economy in 2010, but, in reality, nominal GDP has reached nearly US$5 trillion (at current prices) in 2010.

As mentioned above, there are problems in the Chinese economy with Chinese growth rates expected to moderate to 8-9 per cent. The challenge will lie in managing the issues raised in the transition as the economy is restructured and slows down.