Tags: Summers | China | India | economy

Summers: Chinese, Indian Economies Might Grow Slower Than Expected

By    |   Tuesday, 28 October 2014 01:05 PM

Many economists anticipate the Chinese and Indian economies will sustain their rapid growth rates of recent years.

But former Treasury Secretary Larry Summers and his Harvard colleague Lant Pritchett beg to differ. China's economy grew 7.3 percent annualized in the third quarter, and India's expanded 5.7 percent in the second quarter.

"Consensus forecasts for the global economy over the medium and long term predict the world's economic gravity will substantially shift toward . . . China and India," they write in a paper published by the National Bureau of Economic Research.

"While such forecasts may pan out, there are substantial reasons that China and India may grow much less rapidly than is currently anticipated."

And what are those reasons?

"Most importantly, history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth," Summers and Pritchett say.

"Furthermore, statistical analysis of growth reveals that in developing countries, episodes of rapid growth are frequently punctuated by discontinuous drop-offs in growth."

In China, corruption, authoritarian rule and state meddling in the economy play a role too, they write.

As for the U.S. relationship with China, the Asia titan isn't a true ally, says CNBC commentator Larry Kudlow.

"We have to do something," he explains. "We know they're hacking into our economic and commercial enterprises. We know they're hacking into the defense. We know they're hacking into the homeland security."

The Chinese government also has harassed U.S. companies active in the country, including Microsoft and McDonald's. "The Chinese are not our friends," Kudlow adds.

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Many economists anticipate the Chinese and Indian economies will sustain their rapid growth rates of recent years.
Summers, China, India, economy
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2014-05-28
Tuesday, 28 October 2014 01:05 PM
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