China and India: Credit, Politics, Environment
Willem Buiter is more pessimistic about China and India:
Willem Buiter http://blogs.ft.com/wolfforum/2007/03/in_this_brave_n.html#comments: Both India and China are in the terminal stages of a credit boom.... If the monetary and fiscal authorities act in time (they appear to be well behind the curve in both countries) and if they have the right instruments and the political will and freedom to use them (doubtful in both countries) the credit boom can end with a whimper. A hard landing seems more likely, however.
Second, a domestic political question mark... political risk to growth is seriously under-priced by the domestic and global communities of investors. In China economic liberalisation is proceeding side by side with continued political repression through the monopoly on political power of the Communist Party.... The sustainability of such a social-political-economic configuration has never been tested. India has had an open and representative form of government for sixty years. I believe this to be an important socio-political safety valve....
Third and probably most importantly, an environmental question mark. Environmental supply-side constraints on growth in Chindia... invalidates the growth accounting exercise by Bosworth and Collins, reported by Martin [Wolf].... [O]utput is seriously mis-measured and a key input - the services yielded by the stock of environmental capital - is ignored completely. For Chindia, this omission matters even in the medium run.... It is the local (national) natural resources of clean fresh water and fertile land (some would add clean air as well) that are not only important domestic ‘consumer durables’ but also key inputs into the production of the goods and services that are captured by conventionally measured GDP indices.... The water constraint is likely to be the first one to become binding in both China and India, certainly within 10 years. It will impair even the production of those goods and services included in conventional GDP measures....
Chindia urgently needs to re-orients its growth policies towards environmental sustainability. Pricing all water and power use (including agricultural) at long-run marginal social cost would be a good start. Without such a radical re-orientation, the 21st century may well become the century of China and India for a very different reason from the one prophesied by the current uncritical Chindia cheerleaders...
