China and India have shown some exciting economic growth in recent years, but United States Treasury Secretary Lawrence Summers cautions that rapid growth doesn’t mean continuous growth. In early November, at a San Francisco Federal Reserve conference on Asia economic policy, he said that Asia is still a risky bet, according to the Wall Street Journal. Summers and fellow economist Lant Pritchett having been keeping an eye on Asia, and both agree that while growth has been promising, it may crash before too long.
“Hitching the cart of the future global economy to the horse of the Asian giants carries substantial risk,” wrote the two economists in a recent policy paper. Why is that? Neither claims to be the next Nostradamus, and they have no list of concerns — but based on consistent patterns seen in the gains of developing countries, they say it’s normal to see “episodes of super-rapid growth,” which “tend to be of short duration and end in decelerations back to the world average growth rate.”
“The single most robust and striking fact about cross-national growth rates is regression to the mean,” they say, basically saying that much like gravity, what goes up must come down to the average, at least based on all previous experience. They also mention the legal system of both China and India as possible sources of instability. “In neither country does investor confidence rely on rule of law,” and a political hullabaloo could result a recession or economic crisis, according to the Wall Street Journal.
The leadership of China’s Communist Party has plans to announce their economic strategy for the future on Tuesday — hoping to remain buoyed economically and not fall into a “middle-income trap.”
Back when the strategy plan was announced, Wei Yao, economist with Societe Generale noted that the future was a bit uncertain. “If the new leadership were to execute this plan, it would certainly be a major positive to China’s long-term prosperity as well as short-term business confidence. However, we caution that the road map to be delivered at the plenum may be notable less aggressive,” said Yao — according to the Financial Times