Читать книгу The Political Economy of the BRICS Countries - Группа авторов - Страница 40

Both China and India are still poor countries with low per capita income — with the average of OECD member countries being $38,423 as of 2014. There is a need (and a potential) for substantial growth of China and India that can help revive global economy. Both countries have large domestic markets that are their biggest advantages in present times, which can help withstand external demand shocks. China needs to move away from housing and infrastructure investment to social sector investment and consumption-led growth — though widely admitted, it finds it hard to change the policy gears apparently due to political economic reasons. Rules governing the distribution of fiscal resources between the center and provinces perhaps need to be redrawn to reduce the incentive for provinces to rely on land sale and real estate.

India perhaps needs to make a move in the opposite direction of regaining the investment-led growth witnessed during the last decade to improve not just physical infrastructure but social infrastructure to stimulate private investment and improve human resources. This is urgently needed if India has to seize the one time opportunity offered by potential demographic dividend.

Critical questions: Will China succumb to Japanese-style debt deflation? It is a difficult question to answer. India does not seem to face a similar fragility; it may be growing slowly and its growth numbers may be suspect, but the prospect of macroeconomic crisis seems remote relative to China. India’s external financial position is not very sound, but in a comparative EME perspective, the risks do not seem large. Though India’s corporate debt is very large compared to its past levels, it is not high by the contemporary levels among EMEs. India also has greater political stability and certainty, its market institutions are more rule-based and hence supportive of market economy. China on the other hand is far more state dominated; though it may appear strong, it is in fact brittle.

I suspect a contradiction could emerge in China between the center’s desire to stabilize the economy on to a more sustainable path, whereas the provinces may continue to pour money (via bank credit) into fixed investments and shadow banks would continue to finance real estate investment. (This is evident from the fact that when the central government decides to scrap excess capacity in manufacturing or close down unsafe mines, the efforts are thwarted by local interest groups who tacitly oppose it, because such efforts are not in the interests of provisional party-state in terms of keeping peace and generating employment and earning tax revenue for provinces.) Then, at some point, the economy risks spinning out of control of the central government and monetary authorities, unless the rules of engagement between the center and provinces are amicably changed with an alternative political incentive structure in place.