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Asian Perspectives Global Issues

WORKING PAPER
FGI-2012-2

Economic Growth Patterns and Strategies in China and India: Past and Future Louis Kuijs
September 2012

Fung Global Institute Cyberport 1, Level 12 100 Cyberport Road Hong Kong Tel: (852) 2300 2728 Fax: (852) 2300 2729 www.fungglobalinstitute.org

The Fung Global Institute Working Paper Series presents the findings of original and professional research-in-progress on questions and topics that are relevant to the Institute’s research themes. Written by FGI researchers and, sometimes, researchers from other institutions, the papers aim to get the findings out for critical review and feedback. The views expressed in the papers are those of the authors and do not necessarily reflect those of the Institute, its Board of Directors and/or its Academic Board. They carry the names of the authors and should be cited accordingly.

ABSTRACT
This paper, written as part of the Fung Global Institute’s research project on the Evolving Growth Models in China and India, is a first step in exploring part of the project’s research scope. It tentatively characterises the existing economic growth patterns and problems in China and India; summarises how governments want to adjust their growth strategies; introduces some key features of the policymaking process and some of the institutional and political economy problems; and sketches some tentative economic scenarios. China’s investment and industry-heavy growth has allowed for steady growth but has also led to imbalances. India’s growth has trended up, but governance issues are constraining further progress. Meanwhile, expectations and demand have run ahead of supply in recent years, leading to macroeconomic tension. Both countries want to adjust their growth patterns, as reflected in their 12th five-year plans (5YPs). China wants to re-balance growth towards consumption and services. It also wants to upgrade its industrial structure. This calls for an extensive set of reforms. India wants to speed up economic growth and development, which calls for better governance. In both countries, the key obstacles to achieving these objectives are of an institutional and political economy nature. Looking ahead, China is likely to meet its growth targets, but it is not clear how rapidly China will re-balance its pattern of growth. In India, the key question is whether the obstacles to raising potential growth can be overcome. In our default scenario India would grow by a solid 7.6 per cent per year in the 12th 5YP period, compared to a target of 9 per cent. More progress requires higher total factor productivity (TFP) growth and thus more progress on governance.

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KEY WORDS
China, India, growth pattern, policy process

______________________________________________ A Fellow at the Fung Global Institute, Louis Kuijs is based in Hong Kong as Chief China Economist for the Royal Bank of Scotland. Kuijs has 18 years of experience in macroeconomic analysis and policy work across different regions. He previously served as a Project Director at the Institute, where he coordinated its research into the evolving growth models of China and India, and was the Chief Asia Economist for the financial firm MF Global. Prior to that, he was a senior economist at the World Bank in Beijing, coordinating the Bank’s macroeconomic analysis and policy dialogue. The main author of the World Bank’s China Quarterly Update, he also did research into savings and investment, re-balancing and on long-term growth prospects. He led the Bank’s medium-term review of China’s 11th five-year plan. Louis was with the International Monetary Fund in Washington DC from 1997 to 2004, working on both emerging markets and high-income countries. The author thanks, without implications, Andrew Sheng, Geng Xiao, Bin Ma, Jeffrey Tong and Michelle Liang for stimulating discussions, comments and other help. He can be reached at Louis.Kuijs@rbs.com. Page |0

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