More on China and India

February 28, 2012

From Mike Spence:

I am pretty optimistic about both China and India.  They have different challenges but they have both proven to have deep talent in both the private and public sectors, and they both have a flexible, pragmatic approach to policy.

They are also rethinking the role of the state and the resources it needs.  This is happening in China, where the state balance sheet is unusually large for historical reasons.  There are, of course, mistakes.  I think that having a substantial state balance sheet to deal with stability, equity, and sustainability issues is a good idea.   But using the large balance sheet to displace market activity is not.  In China, it is possible the government will make the state presence in what should be the private sector too large, and that will impair growth, especially at the present stage, sometimes called the “middle income transition.”

The latter is one of the issue addressed in the joint report of the World Bank and China’s Development Research Center, but the whole report makes interesting reading.  If you’re in a hurry, here’s a summary from The Economist, together with their own take.

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