 Global Economy > World Debt Threat
Rogoff on India and China
"Another major issue on the world scene today is something fundamentally good, which is the emergence of China, which has somewhere between 150 million and 280 million surplus workers, depending on whose estimates you look at. When these workers become enfranchised, it’s also going to have a major impact on the world economy....
"I think India and China absolutely do face risks from growth. It’s more immediate in China than it is in India. Right now, one thing these countries are doing is to try to build up their reserve holdings. China has something like a $1.2 trillion economy and holds almost $450 billion in US Treasury bills to try to protect itself because it knows it has a very weak banking system. India has a smaller amount, over $100 billion. How much protection that affords, I don’t know.
"I think, in one sense, India is much more flexible than China. Many Asian economies have relatively fixed exchange rates. I think you’ll find that these reserves actually do not stop from preventing crises. A lot of European countries that got killed in the early 1990s had tons of reserves, but if you look at the whole way a crisis evolves, it doesn’t really protect you.
"People often point to China growing faster than India. India actually has more balanced growth, but I think both countries, if you look over the next 30 or 40 years, have risks. India is running a government debt that’s 11 percent of GDP, and it’s been like that for a while. At some point you have to face the problem that there’s this giant debt."
Excerpts from remarks by Kenneth Rogoff, Director, Center for International Development, Harvard University
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