China vulnerable to shocks, says Nobel laureate
(Aug. 06, 2005)SINGAPORE, Aug 5 (Reuters) - China's breakneck pace of growth may not last and the world's seventh largest could be vulnerable to external shocks, said Edward Prescott, the Nobel 2004 economics prize laureate.
Prescott, who teaches at the Arizona State University and also works for the Federal Reserve Bank of Minneapolis, compared China's growth with that of Brazil's from the 1960s to the 1980s.
"China's spectacular rate of growth may not be sustainable, and the country risks the same shocks that hit Brazil in the 80s," he told an economics conference in Singapore on Friday. (boxun.com)
"Good things happened in Brazil, but they were hit by shocks and they couldn't handle it in the 80s. And they lost all that ground that they made from the 60s to the 80s," he said.
In the early 1980s, several Latin American countries suffered a sharp deterioration in their terms of trade and suffered from a spike in debt servicing costs as oil prices and interest rates rose and as industrial economies went into recession.
"At some point, the spectacular growth in China has to stop," Prescott said but declined to predict when that might happen.
Prescott, who has warned that Asian banks cannot continue accumulating U.S. dollars forever, said China should avoid buying large amounts of low-interest rate yielding dollars.
"The Chinese are saving like mad, but they are not getting a very good return on their savings," he said.
Prescott said democratic institutions in India inspire more confidence in that country's growth path.
Reuters
_(博讯记者：晴续) (boxun.com)
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