Expect the economies of China and India in a more languid pace in 2012, according to leading Yale University lecturer and global economist Dr. Stephen S. Roach.

With the global economy seen most unlikely to rebound due to the staggering of the European Union, Asia's emerging super stars China and India are also seen with somnolent growths if they tend to look outwards, according to Dr. Roach, in his analysis of the Asian region.

The continuing debt debacle and stagnation of European countries, which are prime export markets of both China and India, should now urge Asian nations to reassess their targets and strategies.

He noted that although these two countries have proven they could have economic stability in the past, it is now time for Asia "to reinvent itself."

"Japanese-like stagnation in the developed world is challenging externally dependent Asia to shift its focus to internal demand. Downside pressures currently squeezing China and India underscore that challenge," Dr. Roach said.

Although he believes the European countries will not severe their economic union, there would likely be a serious impact on the export growths of China and India in the near term.

China's Local Government Debts

Dr. Roach is also more concerned about Chinese banks debts to local governments and not so much on the property bubble that the state-government has tried to pacify in the last 14 months.

Noting that the real estate industry is only a small fraction or "accounts for only 15-20% of that - no more than 10% of the overall economy," he said a cause for real concern is the exposure "to ballooning local-government debt, which, according to the government, totaled $1.7 trillion (roughly 30% of GDP) at the end of 2010. Approximately half of this debt was on their books prior to the crisis."

India's Deeper Problem

India, according to Dr. Roach, is in a more serious problem beginning with its fiscal policy setting which holds the government in a tight bind.

"Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India - which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem - can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9% of GDP limits India's fiscal-policy discretion," said Dr. Roach, who is also the non-executive chairman of Morgan Stanley Asia.

On the first trading day of 2012, Asian stocks and bonds edged lower. Bloomberg Research said the MSCI Asia Pacific excluding Japan Index slipped 0.4 percent as of 12:16 p.m. in Singapore, with about three shares retreating (MXAP) for every one that rose. Financial markets from Japan to Hong Kong and the U.S. are closed for a holiday.