Wednesday, September 2, 2009

Yasheng Huang: Doubting China, Admiring India

Every year Delhi hosts Yasheng Huang, the MIT academic who has made a name for himself as a China-doubter and an India-praiser. Yesterday he was in Beijing and gave an interview to the Hindustan Times which is worth reading because it highlights how China's stimulus plan is compounding the country's obsession with public sector controlled capitalism.

“China is clearly overbuilding. Very little real value is being created. We’re not talking of new technology, innovation...essentially more of the same.”

The stimulus is only delaying reforms, says Huang. “The state sector is advancing and the private sector is retreating. It’s creating an asset market bubble on top of a bubble that has not been burst."

Prof Huang's take is that he "favours India" for its capitalistic approach to development ie building wealth through creating a vibrant private sector.

“India needs to plod ahead on the existing course of privatisation and deregulation. China needs to actively reverse what it has been doing, which is harder," is how he explains it.

The downside of India's story is there for all to see. And I think Prof Yasheng sometimes underestimates the yawning gap in inequality that is opening up. But he's largely right - and was right before anybody else.

However the article by Reshma Patil ends with a good summing up of what anybody with a head for economics thinks when she or he visits China.

Glancing around the lobby flanked by Beijing’s most expensive stores, the professor shook his head over the Chinese obsession with luxury brands.

“India’s income growth is very respectable. The middle-class is buying appropriate purchases like Nano cars. In China, there is a sudden burst of wealth. Nobody knows how they made the money”.

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