© David Conklin
|
China's Need for Restructuring
China's very rapid growth was built on exports and government investment. Analysts now emphasize the need for China's future growth to depend on increases in domestic consumer demand and a shift to higher value-added activities. This transformation will encounter difficulties and these difficulties will reduce the growth rate. In response to the 2007-2009 global recession, the government of China instructed its banks to expand loans substantially. Analysts question the implications of this loan expansion for the stability of China's banking system and the productivity of the investments they funded. In addition, the slow-downs in the Eurozone and the U.S. will restrain China's exports, also reducing China's growth rate.
India's Need for Market Reforms
For two decades, India has been opening its markets to foreign business, both in terms of imports and also in terms of foreign direct investment. These changes have been accompanied by rapid growth. However, economic progress is now being blocked by the remaining bureaucratic impediments. Progress will require major political reforms, but the old political system protects vested interests that are opposed to change. It appears that political stalemate is preventing necessary economic reforms to create free markets. Some analysts have become pessimistic about India's growth prospects.
The Commodity Cycle
Commodities have always been vulnerable to cycles. When demand increases, the inelasticity of supply results in price increases. Faced with these price increases, producers invest in new production facilities. These new facilities increase supply, and suddenly an oversupply causes a fall in prices. Meanwhile, a decrease in demand creates unused capacity. Some commodities are now experiencing the downward spiral of demand and prices, causing many developing nations that depend on commodity exports to experience a slowdown in growth. In particular, China has been a major buyer in commodity markets over recent boom years and its slowdown is impacting the nations that have come to depend on its imports. Brazil stands out as a major victim of the commodity cycle. Meanwhile, new oil and gas shale technologies are adding to uncertainties and may strengthen the international competitiveness of some fortunate nations.