Eco­nomic might in­tact: China ex­perts

China Daily (Canada) - - FRONT PAGE - By CHEN WEIHUA in Wash­ing­ton chen­wei­hua@chi­nadai­lyusa.com

Top US econ­o­mists have played down fears of China’s eco­nomic slow­down and warned some Amer­i­cans who wish to con­tain China eco­nom­i­cally.

Larry Sum­mers, di­rec­tor of the White House Na­tional Eco­nomic Coun­cil in 2009 and 2010, said China is fac­ing an enor­mous com­plex set of chal­lenges but he does not be­lieves this will be as dis­rup­tive as some think.

“There is still enor­mous eco­nomic en­ergy in China, and that it is rea­son­able to hope that it is not ex­tra­or­di­nary dis­rup­tive slow­ing,” he said on Wed­nes­day at the Johns Hop­kins School of Ad­vanced In­ter­na­tional Stud­ies (SAIS).

Sum­mers be­lieves that it is also a mat­ter of broad na­tional strat­egy for the US, say­ing “this is ex­actly the wrong mo­ment to em­brace the views of those who be­lieve we need to eco­nom­i­cally con­tain China”.

The US’ early re­jec­tion of the Chi­naled Asia In­fra­struc­ture In­vest­ment Bank (AIIB) and the ex­clu­sion of China from US-led Trans-Pa­cific Part­ner­ship deal have been per­ceived by many as a US scheme to cur­tail the grow­ing Chi­nese eco­nomic in­flu­ence.

Sum­mers said the US should po­si­tion it­self in ways to avoid the sce­nario of a weak Chi­nese econ­omy rather than in ways that make the sce­nario more likely.

“We should avoid do­ing any­thing to cre­ate a sense that we are ner­vous about the Chi­nese eco­nomic suc­cess,” said Sum­mers, a noted econ­o­mist who had served as Har­vard Univer­sity pres­i­dent and for­mer US Trea­sury sec­re­tary un­der Pres­i­dent Bill Clin­ton.

Sum­mers be­lieves that kind of ner­vous at­ti­tude at a time of China hav­ing dif­fi­cul­ties would un­der­mine the im­por­tant bi­lat­eral re­la­tion­ship be­tween the two na­tions.

Stephen Roach, a se­nior fel­low at Yale Univer­sity’s Jack­son In­sti­tute of Global Affairs and for­mer chief econ­o­mist at Mor­gan Stan­ley Asia, said he has al­ways been skep­ti­cal of those who take the tur­moil in China’s fi­nan­cial mar­kets to neg­a­tively in­ter­pret what it means for the real econ­omy.

“I think the Chi­nese econ­omy is per­form­ing much, much bet­ter than your av­er­age mar­ket par­tic­i­pant would want to con­clude right now,” he said on Wed­nes­day at the Brook­ings In­sti­tu­tion in Wash­ing­ton.

Roach cited ur­ban job growth as a strong in­di­ca­tor, with an av­er­age of 11 mil­lion new jobs cre­ated per year over the last three years, com­pared with the Chi­nese govern­ment tar­get of 10 mil­lion jobs.

Chi­nese of­fi­cial sta­tis­tics put the an­nual job cre­ation in the past three years be­tween 12 mil­lion to 13 mil­lion each year.

He said the an­swer to the job growth un­der a slow­ing econ­omy is the shift to la­bor- in­ten­sive ser­vices. Ser­vices in China gen­er­ated about 30 per­cent more jobs each year.

We should avoid do­ing any­thing to cre­ate a sense that we are ner­vous about the Chi­nese eco­nomic suc­cess.”

“So it’s quite pos­si­ble to ac­tu­ally have a slow­ing GDP growth, firm job growth, and the econ­omy, you know, goes through the early stages of pow­er­ful struc­tural trans­for­ma­tion,” he said.

“I think the trans­for­ma­tive process in China where mix of GDP is far more im­por­tant than the over­all GDP is re­ally the key to the puz­zle,” Roach said.

Re­al­iz­ing that the ad­vanc­ing Chi­nese econ­omy will en­counter chal­lenges and prob­lems along the way, Roach said the bot­tom line is that the trans­for­ma­tion is in­tact and that the econ­omy is not on the brink of a hard land­ing.

The Chi­nese govern­ment in the past few years has pledged more eco­nomic re­forms and a tran­si­tion to a more sus­tain­able eco­nomic model, a model that is of­ten de­scribed as New Nor­mal. Un­der that model, eco­nomic growth will be mod­er­ately slower from the dou­ble dig­its of the pre­vi­ous three decades.

Ac­knowl­edg­ing the poor per­for­mance of the fi­nan­cial mar­kets and the debt, Roach cau­tioned peo­ple not to un­der­es­ti­mate the re­silience and ca­pac­ity of the real side of the Chi­nese econ­omy to per­form much bet­ter than many in the West tell peo­ple.

Roach has a par­tic­u­lar view of the Chi­nese prop­erty mar­ket, which many be­lieve is ex­pe­ri­enc­ing a big bub­ble.

He be­lieves the huge de­mand from China’s mas­sive ur­ban­iza­tion will re­quire even more con­struc­tion over the next 10 to 15 years.

Roach said he would give a great grade to the Chi­nese govern­ment on cre­at­ing jobs and in­creas­ing real wages, but he pointed out that the safety net is still the miss­ing piece in the puz­zle.

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