Economic development is a key element of growth and sustainability of a country, as well as of equity, prosperity and well-being of its population. Recently the world has witnessed rapid economic growth of two Southeast Asian countries: China and Vietnam. Both of the countries faced major challenges for the growth of their economy, they survived these challenges well and proved themselves to be the success stories of development. Vietnam continues to follow the footsteps of China, which is already one of the strongest economies of the world. Vietnam is working to transit from low-income countries to middle income ones whereas China is trying to work its way from being a middle-income country to a high-income country. Comparing these two countries with one ahead of the other in economic prosperity especially with regards of industrialization will give clarity in understanding what it takes to become developed form being an under-developed country and the challenges they faced or continue to face and the policies designed to overcome those challenges.
Economic Development and Industrialization
China, a communist country faced major challenges for its growth and sovereignty. The country experienced civil unrest, outbreak of major diseases and wars, which killed millions of people and deteriorated the condition of economy. Then it focused on market-based economic development and soon it became one of the economically fastest growing countries, hosting huge amount of foreign investment, being one of the biggest exporters of the world, and a rapidly growing industrialized country. According to World Bank, China became world's second largest economy in 2010. Over the last three decades poverty rate in China fell from 65% to 4% (World Bank).
On the other hand, Vietnam, which is a developing country, shares border with one of the fastest growing countries of world such as China. It also shares a similar system of governance with China. The country faced several issues, which hindered its economic prosperity including conservative policies of communist leaders and war. Now this communist government is focused on market-based economic development and is giving more freedom to its population. They are working towards a long awaited dream of becoming an industrialized country. According to World Bank, Vietnam is a success story of development. World Bank states:
Political and economic reforms (Doi Moi[footnoteRef:1]) launched in 1986 have transformed Vietnam from one of the poorest countries in the world, with per capita income below U.S.$100, to a lower middle-income country within a quarter of a century with per capita income of U.S.$1,130 by the end of 2010. [1: Economic reforms in Vietnam to create socialist oriented market economy.]
The country has a population of 91,519,289 and GDP per capita of $3,300 (CIA). According to CIA in the last decade the share of agriculture in economic output has shrunk from 25% to 22% and industrial share has increased from 36% to 40%. Incidence of poverty has sharply declined in the last decade and most of the welfare indicators depict prosperity in the country. Vietnam like many other developing countries is working to achieve Millennium Development Goals (MDGs) and has already attained five of its MDGs targets. However this developing country is facing numerous financial challenges including slow rate of export growth, trade deficit, high inflation rate, low foreign exchange reserves high borrowing cost and undercapitalized banking sector. A comparison of some key statistics of China and Vietnam over a period of fifteen years has been made (see table 1).
(Rosenstein-Rodan 202-211) commends industrialization by introducing the concept of "Big Push," that is; if various sectors of economy adopt increasing returns to technology they create income that leads to creation of demand of goods in other sectors of the economy. Eventually the size of the market expands and that makes industrialization profitable for the whole economy. This theory is based on using locally available technology and no foreign investment of resources is required, this is especially beneficial for those countries, which have restricted foreign relations or access. Later on (Murphy, Shleifer, and Vishny 1003-1026) further investigated this concept. They discussed that almost every country, which has experienced growth of productivity and living standards, has achieved this by industrialization and that industrialization of some sectors of economy benefits all of them. Industrialization of one sector of economy increases demand of products of other sectors as well as helps in development of infrastructure, making different sectors of economy user and investors of infrastructure.
Hence, industrialization plays a pivotal role in the growth of any economy, development of China and Vietnam is also based on industrialization. Both the countries have heavily invested in industrialization. Table 1 shows that the share of industry as a percentage of GDP is the highest and is consistently increasing than the share of other sectors of economy such as; agriculture, manufacturing and services. Vietnam which was a poor agriculture-based economy is now transiting to industry and service oriented economy. Industrialization also improves and strengthens other factors which are essential for economic development of a country like; health, education, communication and infrastructure etc.
Vietnam is a country in transition with the help of World Bank they are trying to foster industrialization and have set 10-year program Socio Economic Development Strategy (SEDS) 2011-2020. They aim to achieve this goal with modernization and improvement in infrastructure. The government is also devoted to achieve some of MDGs by 2015 according to (Communist Party of Vietnam Online Newspaper). The government wants to enhance scientific and technological capacity to further strengthen the economy.
Vietnam could not actively participate in international trade because it was subject to blockade as a result of military intervention in Cambodia. During this period centrally planned policies were implemented to foster heavy industry. These policies were inappropriate and ignored exports, production of consumer goods and rural development (The World Bank Group). Poor policies were implemented for building material and technical facilities. Country then faced economic and financial crisis including traded deficit, hyperinflation etc.
World Bank has extended a helping hand to this growing economy by giving technical advice and loans. They helped to design strategies focused on specific industries. They facilitated improvement in infrastructure, helped to deal with the environmental concerns risen due to growth and industrialization, and supported rural sector of the country in development along with the urban sector.
Infrastructure is a key element for industrial growth and World Bank has invested in developing many economic and social infrastructure sectors, including: transportation, energy, irrigation, water supply and urban development, information technology, health care and education and training. World Bank has contributed to improve and expand the electric industry making production, transmission, management, and procurement of power supply. According to (The World Bank Group) the improvement in electricity industry has improved access and quality of power supply especially in rural areas and has made the facility more affordable.
Moreover, International Financial Corporation (IFC) has invested in cement, dairy, steel and sugar industries. They also helped by giving consultation services for stock market establishment and enterprise equitization programs.
Now the country is actively participating on different economic forums, Vietnam chaired annual meetings of board of governors of World Bank Group and IMF in 2009 and also participated in Association of South East Asian Nations (ASEAN) in 2010.
There are many positive impacts of industrialization, which have been discussed above, but as every picture has two sides, there are also a few problems, which are being faced by the nation as a result of industrialization. Due to the emission of industrial wastes, deforestation etc. environmental degradation has occurred which raised health and cleanliness issues. Policy makers are trying to resolve these environmental concerns.
Like Vietnam, China was also an agriculture-based country and within three decades it has experienced significant growth and now it is a role model for other developing countries. China had a centralized government, which is now shifting to market-based economy and the private sector is also developing in this country. The country undertook economic reforms in 1978. According to World Bank the economy grew at the average rate of about 9.7% after the reforms and experienced remarkable growth of 11% between 2003-2007. The financial sector was so strong that even during global recession economic prosperity and growth continued in China - depicting strong growth drivers of the economy.
China became world's second largest economy in 2010 (World Bank) and is playing a leading role on the global financial platform. As depicted in Table 1 the share in GDP of agriculture is decreasing over time. Share of industry as a percentage of GDP is highest among all other sectors that support economy. Industrial progress was occurring even before the economic reforms took place in the country it was producing complex technological products such as nuclear weapons and owned world's biggest hydropower unit (Technological and industrial history of the People's Republic of China). Main issue faced for the growth was centralized decision-making of the government.
In 1970 major economic reforms took place which focused on decision making of government, changing the focus towards market-based economic decisions. Policies were designed to foster…