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7d5d2d0446f86f380e303f24_pa3444c.jpg Paul Lachine

Asia’s BRICs Hit the Wall

China and India have used very different political models to achieve their GDP growth targets. Nonetheless, as their economies mature, both will need to embrace structural change – and to address the challenges of overdue political reforms.

NEW DELHI –India’s democratic credentials do not impress Francis Fukuyama, who two decades ago prophesied the “end of history,” as being a catalyst for the country’s economic growth. Fukuyama finds excessive “patronage politics and fractiousness” in India – flaws that stand in stark contrast to China’s speedier, though not necessarily cleaner, political system.

The reality is, however, somewhat different. China’s local governments have been accumulating mountains of debt to fund their construction binges, raising serious concerns about potential defaults. Premier Wen Jiabao himself recognizes the urgent need to address the country’s inequitable growth, calling for means to be found to “share prosperity evenly,” and thus to reduce the widening gaps between “rich and poor, cities and countryside.”

The economist Nouriel Roubini has predicted that China’s economy will most likely slow sometime between 2013 and 2015, the point at which its fixed-asset investments of nearly 50% of GDP will demand social and monetary returns. Until now, says Roubini, China’s export-led growth has depended on “making things that the rest of the world wants, at a price that no other country can match,” a consequence of cheap labor and economies of scale. This cost advantage is diminishing fast.

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