Absolute control still rests with the Party, however, down to the factory level. As such, is not China a socialist system with a quasi-free market periphery?
China's economic success, relative to its peer India, must be credited to certain characteristics: its culture, i.e. the innate qualities of its people, the invisible hand of a relatively free market or, god forbid, central planning. The alchemy may be a combination of all three.
How would you summarize the reasons for China's growth?
Absolute control rests with the Federal government. It can shut down any business or combination of businesses it wishes to, via regulations, taxes or simple harassment. What gets in the way of its diktats? The fact that the government isn't monolithic.
The Chinese government might be run by a single party, but its policies are a compromise between competing party factions. Part of that competition is for power and perks, but some of relates to policy differences unrelated to personal gain. Hua Guofeng was Mao's handpicked successor when he took over after Mao died in 1975. By 1978, he had been demoted to a figurehead position by Deng Xiaoping, who became China's supremo for over a decade, and shepherded its move away from a command economy.
The party does own a controlling interest in some of the biggest companies in the country, ranging from banks, insurance companies to heavy industry. But what makes a country communist isn't government ownership of industry - it's output decisions made by central planners without any reference to market cues and employees who are paid the same regardless of output. For decades, Taiwan's economy was dominated by large government-owned companies run for profit. They were inefficient and subject to political interference and rent-seeking, but no one called Taiwan's government communist.
China has developed rapidly compared to India because because the leadership has more or less agreed that capitalism is the way to move the nation forward. The factional disputes have been over the speed of the change and who gets the perks, but not over the direction. China's path, of export-driven growth, is a well-trodden road. The leadership isn't composed of rocket scientists collectively having a eureka moment.
The principal requirement for economic growth has always been good infrastructure. In that respect, China has pretty much painted by the numbers - it's built roads and railroad track, upgraded ports, telephone lines, power stations, and in general, done all the things necessary to minimize costs for companies that decide to build things in China either to sell to the domestic market or export abroad.
India has done little of the preceding. In addition to having poor infrastructure, it has persecuted companies that ventured into India, and generally made things difficult for them in very gratuitous ways. Why has the Indian leadership not reached a consensus on doing the simple things that need to be done for India's economy to take off? I have a feeling India's aristos are a bunch of Marie Antoinettes, which would make them not very different from the elites of most non-Western countries with stagnant economies. They've got theirs - why should they worry about what the hoi polloi want?
Indonesia, one of the countries leapfrogged by China in the past decade, is now adopting the policies of its successful East Asian neighbors, the same policies that have taken China from rock-bottom in the GDP per capita rankings, to the middle of the pack. At least since the 70's, it has generally had roughly 2x India's GDP per capita. Under a new president who appears to be working on making the necessary infrastructure investments, while cracking down on corruption, I expect Indonesia will expand its edge over India to 3x by 2020.
The reason I brought Indonesia into the reply was as a point of comparison. I have heard from business people on the ground that Indonesia is a hard place to operate in. I can’t imagine that India is worse, but that is apparently the case. And that is why despite an abundant pool of cheap labor and superior proximity to the EU, India remains a relative economic backwater compared to its East Asian counterparts.
Once a celebration of Indian manufacturing, Nokia's Chennai factory, beset by legal troubles, has become nobody's child. Old owner Nokia does not want it, new one Microsoft is reluctant to take it. And the solution they have come up with only provides temporary relief to the 7,500 workers there.What manufacturer wants to hand over 16% of revenues just for manufacturing in a low-cost labor locale? Any other foreign company considering setting up shop in India is thinking "If Nokia can get taken like this..." That is why Nokia's modern Indian plant was shut down instead of being sold to another company - there were no takers.
Arivazhagan, 26, reminisces about the time he travelled over 600 km to Chennai from Tirunelveli, a district in Tamil Nadu, around eight years ago to search for a job. Along with his three friends, they were walking down a road in Sriperumbudur (40 km south-west of Chennai) which was turning into a booming industrial hub, thanks to the Hyundai car factory set up in 1999.