2.

Looking for information on economic development of india and China

China and India has been widely recognized as a future superpower in the world economy. By playing various roles, as consumers, suppliers, competitors, innovator and provider of qualified human resources, China and India will reshape the world economy. Both countries became a formidable player in the production cost reduction, improved technology and servic as well as having a strong defense in advancing the state. In fact both are urged by economist such as Paul Samuelson to rethink about free trade and comparative advantage. China and India also encourage the emergence of anxiety and debate about America's global competitio and developed countries (G8) in the future. India Republic of India is a country in Asia which has the second largest population in the world, with a population of over one billion people, and is the seventh largest country by geographic size. India is th fourth largest economy in the world in GDP, measured in terms of purchasing power parity (PPP), and one of the fastest growing economies in the world. India, a country with the largest liberal democracy in the world, also has emerged as an important regional power, has the greatest military power and have nuclear weapons capability. India have economies that are in the order of-10 in currency conversion and the 4th largest in PPP. He has a record of the fastest growing economy about 8% in 2003. Due to the large population, but India's per capita income at PPP is only U.S. $ 3,262, was ranked 125th by the World Bank. India foreign exchange reserves of about U.S. $ 143 billion. Mumbai is the financial capital of this country and also the home of the Reserve Bank of India and the Mumbai Stock Exchange. Although a quarter of India's population still live below the poverty line, a large number of middle class has emerged due to the rapid growth in the information technology industry.

India's economy used to be much dependent on agriculture, but now only accounts for less than 25% of GDP. Other important industries include mining, petroleum, diamond, film, textiles, information technology, and handicrafts. Most of the Indian industry is centered in major cities. Recent years, India has emerged as one of the biggest players in software and business process outsourcing, with revenues of approximately U.S. $ 17.2 billion in 20042005. And there are also many small-scale industries that provide stable employment for residents in small towns and rural areas.

While India receives only around three million foreign visitors every year, tourism remains an important source of national income but are still undeveloped. Tourism accounts for 5.3 percent of India's GDP. India's main trading partners including the United States, Japan, People's Republic of China and the United Arab Emirates.

India's main exports include agricultural products, textiles, precious stones and jewelery, software services and technology, the engineering, chemistry, and the skin, while commodity imports are crude oil, machinery, precious stones, fertilizers, chemicals.

China Low cost of raw materials is another aspect of the Chinese economy. This is due to competition in the vicinity which causes the excess that helped lower the cost of purchasing raw materials. There are also price controls and guarantees the living resources of the old economic system based on the Soviet. When continues to privatize state owned companies and workers move into more profitable sectors, the influence of the nature of this deflation will continue to add upward price pressures in the economy.

Tax incentives "preferential" is another example of export subsidies. China tries to harmonize the tax and customs systems that run on domestic and foreign companies. As a result, the tax "preferential" customs and policies that benefit exporters in special economic zone and the port city has been targeted to date.

Chinese exports to the United States some $ 125 billion in 2002; American exports to China were $ 19 billion. This difference caused primarily on the fact that Americans consume more than they produce and low-paid Chinese people can not afford to buy expensive American products. Americans alone buy more than the people who made and even if the PRC wants to buy American-made product, they can not do so because the price of American goods is too high. Another factor is the unfavorable exchange between Chinese Yuan and U.S. dollar in the "key" as the PRC remains tied to the levels of 8 renminbi to one dollar. On July 21, 2005, the People's Bank of China announced to allow the renminbi is determined by the market, and allow an increase of 0.3% a day. Chinese exports to the United States increased 20% per year, faster than U.S. exports to China. With the elimination of textile quotas, the PRC is certainly going to control most of the world clothing market.

In 2003, China's GDP in terms of purchasing power parity reached $ 6.4 trillion, becoming the second largest in the world. Using conventional calculations China is ranked 7th. Despite its large population, it still gives an average GNP per person is only about $ 5,000, about 1/7 the United States. Officially reported growth rate for 2003 was 9.1%. Estimated by the CIA in 2002 that agriculture contributed 14.5% of Chinese GDP, industry and construction 51.7% and services about 33.8%. The average rural income of about one-third in urban areas, a distinction that has widened in recent decades.

Because of the size of the very wide and very long cultural history, the PRC has a tradition as a country's economic power. In the said Ming Zeng, a professor at Shanghai officials, the partial statistics, at the end of the 16th century though, the PRC has a third of GDP. United States is strong at present has only 20%. So, if you make this historical comparison, three or four hundred years earlier, China is certainly the greatest power the world. The experiments re-state that prides realize this is certainly a goal of the Chinese one. It is not surprising that the phenomenon of Chinese flooded the world to another is not willing to learn Chinese language and anger against Chinese Americans and the West generally occurs in the political scenario in today's world.

However, the gap in wealth between the coastal beach and the deepening of China is still very large. To emulate the situation that could potentially invite this danger, the government implemented a strategy of West China Development in 2000, Reconstruction of the East China Sea in 2003, and the Rise of Central China Region in 2004, all aimed at helping the rural areas of China are building together. (a) why China's economy could grow tremendously; what strategies they run. CHINA GDP GROWTH RATE The Gross Domestic Product (GDP) in China expanded 2 percent in the fourth quarter of 2011 over the previous quarter. Historically, from 2011 until 2011, China's average quarterly GDP Growth was 2.15 percent reaching an historical high of 2.20 percent in June of 2011 and a record low of 2.10 percent in March of 2011. China's economy is the second largest in the world after that of the United States. During the past 30 years China's economy has changed from a centrally planned system that was largely closed to international trade to a more market-oriented that has a rapidly growing private

sector. A major component supporting China's rapid economic growth has been exports growth. This page includes: China GDP Growth Rate chart, historical data, forecasts and news. Data is also available for China GDP Annual Growth Rate, which measures growth over a full economic year.

In 1978, after years of state control of all productive assets, the government of China embarked on a major program of economic reform. In an effort to awaken a dormant economic giant, it encouraged the formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and invested in industrial production and the education of its workforce. By nearly all accounts, the strategy has worked spectacularly.

While pre-1978 China had seen annual growth of 6 percent a year (with some painful ups and downs along the way), post-1978 China saw average real growth of more than 9 percent a year with fewer and less painful ups and downs. In several peak years, the economy grew more than 13 percent. Per capita income has nearly quadrupled in the last 15 years, and a few analysts are even predicting that the Chinese economy will be larger than that of the United States in about 20 years. Such growth compares very favorably to that of the "Asian

tigers"--Hong Kong, Korea, Singapore, and Taiwan Province of China--which, as a group, had an average growth rate of 7-8 percent over the last 15 years.

Curious about why China has done so well, an IMF research team recently examined the sources of that nation's growth and arrived at a surprising conclusion. Although capital accumulation--the growth in the country's stock of capital assets, such as new factories, manufacturing machinery, and communications systems--was important, as were the number of Chinese workers, a sharp, sustained increase in productivity (that is, increased worker efficiency) was the driving force behind the economic boom. During 1979-94 productivity gains accounted for more than 42 percent of China's growth and by the early 1990s had overtaken capital as the most significant source of that growth. This marks a departure from the traditional view of development in which capital investment takes the lead. This jump in productivity originated in the economic reforms begun in 1978.

Measuring Growth

Economists studying China face thorny theoretical and empirical issues, mostly deriving from the country's years of central planning and strict government control of many industries, which tend to distort prices and misallocate resources. In addition, since the Chinese national accounting system differs from the systems used in most Western nations, it is difficult to derive internationally comparable data on the Chinese economy. Figures for Chinese economic growth consequently vary depending on how an analyst decides to account for them.

Original data for the new IMF research came from material released from the State Statistical Bureau of China and other government agencies. Problematically, the component statistics used to compile the Chinese gross national product (GNP) have been kept only since 1978;

before that, Chinese central planners worked under the concept of gross social output (GSO), which excluded many segments of the economy counted under GNP. Fortunately, China also compiled an intermediate output series called national income, which lies somewhere between GNP and GSO and is available from 1952 to 1993. After making appropriate adjustments to the national income statistics, including adjusting for indirect business taxes, these data can be used to analyze the sources of Chinese economic growth.

Much previous research on economic development has suggested a significant role for capital investment in economic growth, and a sizable portion of China's recent growth is in fact attributable to capital investment that has made the country more productive. In other words, new machinery, better technology, and more investment in infrastructure have helped to raise output. Yet, although the capital stock grew by nearly 7 percent a year over 1979-94, the capital-output ratio has hardly budged. In other words, despite a huge expenditure of capital, production of goods and services per unit of capital remained about the same. This pronounced lack of capital deepening suggests a constrained role for capital. The labor input-an abundant resource in China--also saw its relative weight in the economy decline. Thus, while capital formation alone accounted for over 65 percent of pre-1978 growth, with labor adding another 17 percent, together they accounted for only 58 percent of the post-1978 boom, a slide of almost 25 percentage points. Productivity increases made up the rest.

It turns out that it is higher productivity that has performed this newest economic miracle in Asia. Chinese productivity increased at an annual rate of 3.9 percent during 1979-94, compared with 1.1 percent during 1953-78. By the early 1990s, productivity's share of output growth exceeded 50 percent, while the share contributed by capital formation fell below 33 percent. Such explosive growth in productivity is remarkable--the U.S. productivity growth rate averaged 0.4 percent during 1960-89--and enviable, since productivity-led growth is

more likely to be sustained. Analysis of the pre- and post-1978 periods indicates that the market-oriented reforms undertaken by China were critical in creating this productivity boom.

The reforms raised economic efficiency by introducing profit incentives to rural collective enterprises (which are owned by local government but are guided by market principles), family farms, small private businesses, and foreign investors and traders. They also freed many enterprises from constant intervention by state authorities. As a result, between 1978 and 1992, the output of state-owned enterprises declined from 56 percent of national output to 40 percent,while the share of collective enterprises rose from 42 to 50 percent and that of private businesses and joint ventures rose from 2 to 10 percent. The profit incentives appear to have had a further positive effect in the private capital market, as factory owners and small producers eager to increase profits (they could keep more of them) devoted more and more of their firms' own revenues to improving business performance.

China's recent productivity performance is remarkable. By comparison, productivity growth for the Asian tigers hovered around 2 percent, sometimes slightly more, for the 1966-91 period. China's rate of almost 4 percent simply puts it in a class by itself.

Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only one in two did. Reforms expanded property rights in the countryside and touched off a race to form small nonagricultural businesses in rural areas. Decollectivization and higher prices for agricultural products also led to more productive (family) farms and more efficient use of labor. Together these forces induced many workers to move out of agriculture. The resulting rapid growth of village enterprises has drawn tens of millions of people from traditional agriculture into higher-value-added manufacturing.

Further, the post-1978 reforms granted greater autonomy to enterprise managers. They became more free to set their own production goals, sell some products in the private market at competitive prices, grant bonuses to good workers and fire bad ones, and retain some portion of the firm's earnings for future investment. The reforms also gave greater room for private ownership of production, and these privately held businesses created jobs, developed much-wanted consumer products, earned important hard currency through foreign trade, paid state taxes, and gave the national economy a flexibility and resiliency that it did not have before.

By welcoming foreign investment, China's open-door policy has added power to the economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly US$100 billion in 1994; annual inflows increased from less than 1 percent of total fixed investment in 1979 to 18 percent in 1994. This foreign money has built factories, created jobs, linked China to international markets, and led to important transfers of technology. These trends are especially apparent in the more than one dozen open coastal areas where foreign investors enjoy tax advantages. In addition, economic liberalization has boosted exports--which rose 19 percent a year during 1981-94. Strong export growth, in turn, appears to have fueled productivity growth in domestic industries.

In one final area, price reform, the Chinese have proceeded cautiously, granting a fair amount of autonomy to producers of consumer goods and agricultural products but much less to other sectors. Several bouts of inflation have buffeted the Chinese economy in the past two decades, deterring the government from implementing full-scale price liberalization. High rates of growth also raise inflationary worries. Inflation may pose the single greatest threat to Chinese growth, though thus far it has been largely contained.

10

(b) you also discuss why India's economies could grow higer and what are their advantages execute the strategy. India is an emerging economy which has witnessed unprecedented levels of economic expansion, alongside China, Russia, Mexico and Brazil. India is a cost effective and labor intensive econmy, and has benefited immensely from outsourcing of work from developed countries, and has a strong manufacturing and export oriented industrial framework. In order to sustain ecconomic growth, government authorities in India announced stimulus packages to prop up economiic growth. To finance the stimulus packages, the India government has raised over $100 billion over the last four quarters. The countrys public debt, according to RBI, has surged to over 50 percen of the total GDP.

The Gross Domestic Product (GDP) in India expanded 6.1 percent in the fourth quarter of 2011 over the previous quarter. Historically, from 2000 until 2011, India's average quarterly GDP Growth was 7.45 percent reaching an historical high of 11.80 percent in December of 2003 and a record low of 1.60 percent in December of 2002. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. This page includes: India GDP Growth Rate chart, historical data, forecasts and news. Data is also available for India GDP Annual Growth Rate, which measures growth over a full economic year.

10

11

4. Find information about bankruptcy noted that financial institutions like Lehman Brothers, America, and General Motors. Then you discuss a. What caused the collapse of the companies above?

Lehman Brother Holding Inc Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets. On September 22, 2008, a revised proposal to sell the brokerage part of Lehman Brothers holdings of the deal, was put before the bankruptcy court, with a $1.3666 billion (700 million) plan for Barclays to acquire the core business of Lehman Brothers (mainly Lehman's $960 million Midtown Manhattan office skyscraper), was approved. Manhattan court bankruptcy Judge James Peck, after a 7 hour hearing, ruled: "I have to approve this transaction because it is the only available transaction. Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets. This is the

11

12

most momentous bankruptcy hearing I've ever sat through. It can never be deemed precedent for future cases. It's hard for me to imagine a similar emergency." Luc Despins, the creditors committee counsel, said: "The reason we're not objecting is really based on the lack of a viable alternative. We did not support the transaction because there had not been enough time to properly review it. In the amended agreement, Barclays would absorb $ 47.4 billion in securities and assume $ 45.5 billion in trading liabilities. Lehman's attorney Harvey R. Miller of Weil, Gotshal & Manges, said "the purchase price for the real estate components of the deal would be $ 1.29 billion, including $960 million for Lehman's New York headquarters and $ 330 million for two New Jersey data centers. Lehman's original estimate valued its headquarters at $ 1.02 billion but an appraisal from CB Richard Ellis this week valued it at $900 million. Further, Barclays will not acquire Lehman's Eagle Energy unit, but will have entities known as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Private Investment Management business for high net-worth individuals. Finally, Lehman will retain $20 billion of securities assets in Lehman Brothers Inc that are not being transferred to Barclays. Barclays had a potential liability of $ 2.5 billion to be paid as severance, if it chooses not to retain some Lehman employees beyond the guaranteed 90 days. On September 22, 2008, Nomura Holdings, Inc. announced it agreed to acquire Lehman Brothers' franchise in the Asia Pacific region including Japan, Hong Kong and Australia. The following day, Nomura announced its intentions to acquire Lehman Brothers' investment banking and equities businesses in Europe and the Middle East. A few weeks later it was announced that conditions to the deal had been met, and the deal became legally effective on Monday, October 13. In 2007, non-US subsidiaries of Lehman Brothers were responsible for over 50% of global revenue produced. The impact of that bankruptcy
12

13

The Dow Jones closed down just over 500 points (4.4%) on September 15, 2008, at the time the largest drop by points in a single day since the days following the attacks on September 11, 2001. This drop was subsequently exceeded by an even larger 7.0% plunge on September 29, 2008.) Lehman's bankruptcy is expected to cause some depreciation in the price of commercial real estate. The prospect for Lehman's $4.3 billion in mortgage securities getting liquidated sparked a selloff in the commercial mortgage-backed securities (CMBS) market. Additional pressure to sell securities in commercial real estate is feared as Lehman gets closer to liquidating its assets. Apartment-building investors are also expected to feel pressure to sell as Lehman unloads its debt and equity pieces of the $22 billion purchase of Archstone, the third-largest United States Real Estate Investment Trust (REIT). Archstone's core business is the ownership and management of residential apartment buildings in major metropolitan areas of the United States. Jeffrey Spector, a real-estate analyst at UBS said that in markets with apartment buildings that compete with Archstone, "there is no question that if you need to sell assets, you will try to get ahead" of the Lehman selloff, adding "Every day that goes by there will be more pressure on pricing. Several money funds and institutional cash funds had significant exposure to Lehman with the institutional cash fund run by The Bank of New York Mellon and the Primary Reserve Fund, a money-market fund, both falling below $1 per share, called "breaking the buck", following losses on their holdings of Lehman assets. In a statement The Bank of New York Mellon said its fund had isolated the Lehman assets in a separate structure. It said the assets accounted for 1.13% of its fund. The drop in the Primary Reserve Fund was the first time since 1994 that a money-market fund had dropped below the $1-per-share level. Putnam Investments, a unit of Canada's Great-West Lifeco, shut a $12.3 billion moneymarket fund as it faced "significant redemption pressure" on September 17, 2008. Evergreen
13

14

Investments said its parent Wachovia Corporation would "support" three Evergreen moneymarket funds to prevent their shares from falling. This move to cover $494 million of Lehman assets in the funds also raised fears about Wachovia's ability to raise capital. Close to 100 hedge funds used Lehman as their prime broker and relied largely on the firm for financing. In an attempt to meet their own credit needs, Lehman Brothers International routinely re-hypothecated the assets of their hedge funds clients that utilized their prime brokerage services. Lehman Brothers International held close to 40 billion dollars of clients assets when it filed for Chapter 11 Bankruptcy. Of this, 22 billion had been rehypothecated. As administrators took charge of the London business and the U.S. holding company filed for bankruptcy, positions held by those hedge funds at Lehman were frozen. As a result the hedge funds are being forced to de-lever and sit on large cash balances inhibiting chances at further growth. This in turn created further market dislocation and over all systemic risk, resulting in a 737 billion dollar decline in collateral outstanding in the securities lending market. In Japan, banks and insurers announced a combined 249 billion yen ($2.4 billion) in potential losses tied to the collapse of Lehman. Mizuho Trust & Banking Co. cut its profit forecast by more than half, citing 11.8 billion yen in losses on bonds and loans linked to Lehman. The Bank of Japan Governor Masaaki Shirakawa said "Most lending to Lehman Brothers was made by major Japanese banks, and their possible losses seem to be within the levels that can be covered by their profits," adding "There is no concern that the latest events will threaten the stability of Japan's financial system."During bankruptcy proceedings a lawyer from The Royal Bank of Scotland Group said the company is facing between $1.5 billion and $1.8 billion in claims against Lehman partially based on an unsecured guarantee from Lehman and connected to trading losses with Lehman subsidiaries, Martin Bienenstock.

14

15

Lehman was a counterparty to mortgage financier Freddie Mac in unsecured lending transactions that matured on September 15, 2008. Freddie said it had not received principal payments of $1.2 billion plus accrued interest. Freddie said it had further potential exposure to Lehman of about $400 million related to the servicing of single-family home loans, including repurchasing obligations. Freddie also said it "does not know whether and to what extent it will sustain a loss relating to the transactions" and warned that "actual losses could materially exceed current estimates." Freddie was still in the process of evaluating its exposure to Lehman and its affiliates under other business relationships. After Constellation Energy was reported to have exposure to Lehman, its stock went down 56% in the first day of trading having started at $67.87. The massive drop in stocks led to the New York Stock Exchange halting trade of Constellation. The next day, as the stock plummeted as low as $13 per share, Constellation announced it was hiring Morgan Stanley and UBS to advise it on "strategic alternatives" suggesting a buyout. While rumors suggested French power company lectricit de France would buy the company or increase its stake, Constellation ultimately agreed to a buyout byMidAmerican Energy, part of Berkshire Hathaway (headed by billionaire Warren Buffett). The Federal Agricultural Mortgage Corporation or Farmer Mac said it would have to write off $48 million in Lehman debt it owned as a result of the bankruptcy. Farmer Mac said it may not be in compliance with its minimum capital requirements at the end of September. In Hong Kong more than 43,700 individuals in the city have invested in HK$15.7 billion of "guaranteed mini-bonds" () from Lehman. Many claim that banks and brokers missold them as low-risk. Conversely, bankers note that minibonds are indeed low-risk instruments since they were backed by Lehman Brothers, which until just months before its collapse was a venerable member of Wall Street with high credit and investment ratings. The default of Lehman Brothers was a low probability event, which was totally unexpected.
15

16

Indeed, many banks accepted minibonds as collateral for loans and credit facilities. Another HK$3 billion has been invested in similar like derivatives. The Hong Kong government proposed a plan to buy back the investments at their current estimated value, which will allow investors to partially recover some of their loss by the end of the year. HK chief executive Donald Tsang insisted the local banks respond swiftly to the government buyback proposal as the Monetary Authority received more than 16,000 complaints. On October 17 He Guangbe, chairman of the Hong Kong Association of Banks, agreed to buy back the bonds, which will be priced using an agreed upon methodology based on its estimated current value. This episode has deep repercussions on the banking industry, where misguided investor sentiments have become hostile to both wealth management products as well as the banking industry as a whole. Under intense pressure from the public, all political parties have come out in support of the investors, further fanning distrust towards the banking industry. General Motor Much like Chrysler before it, the approved GM bankruptcy plan includes a release from liability for any claims arising from GM-manufactured vehicles before the company emerged from bankruptcy. This means that the new GM cannot be held responsible in a court of law for any injuries caused by its products anytime before July 10. However, unlike Chrysler, the new GM has accepted liability for any injuries caused by GM vehicles from July 10 onwards, whether the vehicle was manufactured by the old GM or the new GM. Conversely, in the Chrysler bankruptcy, the new Chrysler only accepted liability for defects in vehicles manufactured by the new Chrysler. Anyone with claims associated with vehicles produced by the old Chrysler will not be able to bring them against the new company, regardless of when the injury occurs. Originally, GM pursued the same limit on liability as was granted to Chrysler. But after the public outrage against the automaker for escaping liability in addition to pressure from
16

17

consumer advocacy groups, several state Attorneys General and private and public attorneys, GM eventually agreed to accept a greater range of liability than the other car company. However, the GM plan still falls far short of what American consumers not only deserve, but are owed.

b.

What impact the U.S. corporate bankruptcy on the economy of Indonesia?

Fall of the fiscal position of countries in Europe and the U.S. will lead to a loss (capital loss) for many of the world's major financial institutions. With the capital position has not recovered from the global crisis and then, it will further aggravate the intermediary function. Losses will also be experienced in the real sector will lose confidence (optimism) business.

Indonesia certainly can not escape the global economic growth was negative. The impact of global economic growth will occur through trade, financial, and psychological. High durability such as when facing a global crisis in 2008-2009 may have been, given the trade sector contributed only 10% -15% of the formation of national output. However, indirect effects on consumption and investment (which includes a 70% share of national output) through the more important financial and psychological attention.

Drop in global economic conditions will lead to a reduction in the portion of foreign investment drastically. Portion of foreign funds into the financial markets (portfolio investment, also known as hot money) reached U.S. $ 15.2 billion in 2010 or 50% of the outstanding balance of payments. Although this year contributed an estimated investment

17

18

portfolio declined slightly, the share of the surplus balance of payments is still dominant.

18