China and India have become global economic powers. Even at the market exchange rate, China overtook Japan in 2010 as the second largest economy. China's trade and financial activities, India's emergence as a technology and innovation hub, and both countries' commerce and investment interactions with other developing nations have been covered extensively in all forms of media. They are regarded as economic and political drivers of the international economy, particularly in the trade arena and global governance. Their economic engagement with developing countries and regions entails interactions in the areas of labour, human rights, international relations, security, and environmental sustainability. The potential threats are mostly associated with trade and financial flows, and with the social and political implications of China's financial outflows. Nevertheless, in the midst of the recent global economic crises, China and India's demand for developing country goods proved to be a cushion to the declining flows of resources from advanced nations. China and India influence global economic and political dynamics, and can provide alternative sources of development assistance for developing countries. They can also provide a number of potential lessons for other developing countries, three of which are highlighted in this article: absorption of surplus labour, raising of domestic and foreign investment, and support for R&D. Further lessons and more information on the role of China, India, and other emerging economies, can be found on UNU-WIDER's website: Southern Engines of Global Growth.
Labour market policies
Labour market peculiarities are key in understanding how economic growth has led to absorption of surplus labour in these economies--particularly in China. Here surplus labour from traditional agricultural sector has shifted to the progressive industrial sector, promoting industrialization. Characteristics of China's labour market include an extensive rural-urban inequity, rapid rural-urban migration despite various restrictions, and high and rising real wages in the formal sectors. In this respect it has much in common with other emerging economies, such as South Africa. It is instructive however, to draw out the differences between China and South Africa, as this may hold some general lessons for the role of labour market dynamics in economic growth
China, a labour-surplus economy, is rapidly experiencing a scarcity of labour, whereas South Africa--which historically has featured worker shortages--is increasingly suffering from a labour surplus in the form of open...