Friday, November 4, 2011

Morgan Stanley On China and India

This commentary’s unusually long, but if you’re interested in the short to medium term economic prospects for both countries, it’s a must read (excerpt):

Asia Insight: Why China Needs Consumption and India Needs Investment

In the immediate aftermath of the 2008-09 credit crisis, China and India adopted an easy approach of aggressively boosting domestic demand largely via credit and fiscal expansion. China's policy measures were biased towards boosting investment, which lifted investment/GDP from 41.7% of GDP in 2007 to 48.6% in 2010. India's measures were biased towards boosting consumption and did not focus on generating new productive capacity.

The aggressive policy push to domestic demand in the region, particularly in China and India, lacked the productivity dynamic of private sector-led growth, leading to a swift return of the inflation problem and questions over asset quality in the banking system. As we enter another phase of global growth slowdown, we believe the time has come for policy-makers to accelerate policy measures to make the transition towards boosting growth on a sustainable basis…

There's acknowledgement of demographic pressures - something often lacking in other economic commentary - as well as policy challenges in restructuring China's and India's economies. Both are suffering from moderately high inflation, with somewhat higher inflation in India. Both economies also have huge potential, with large populations and economies still transitioning towards full industrialisation. The future of Asia will revolve around developments in these two giants.

1 comment:

  1. thanks, hishamh.