Bloomberg: Summers on the Slowdown in China

Former US Treasury Secretary Lawrence Summers and Steve Rattner of Willett Advisors talk about the economic troubles facing China. They appear on Bloomberg Television’s “Wall Street Week with David Westin.”

Lawrence H. Summers, former US Treasury Secretary and Steve Rattner, Willett Advisors CEO discuss . They speak with David Westin on “Wall Street Week Daily.”

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Transcript

Wall Street week daily segment the host of Wall Street week David Weston joins us as he does around this time and of course David it’s been a wild week in markets and one thing that really dominated the conversation worldwide was everything that’s going on in China yeah

Pretty much every day right Romaine we heard something about China it was not good news so we decided to sit down with two of our contributors in Wall Street because Larry Summers of Harvard and Steve Ratner World advisors to talk to Larry about where the economy is going

In China and to Steve about for an investor because he invested a lot of Mike Bloomberg’s money over in China what it means for investors starting with Larry and whether he’s surprised at the the weakening of the Chinese economy I fought for a number of years that the

Chinese Juggernaut was going to slow juggernauts usually do in economics classic examples were Russia in 1960 when it was seen as going to surpass Us in 1980 or Japan in 1990 when people expected uh that it was going uh to uh surpass us so it’s a pretty good rule

That when American High School Kids rushed to study a foreign language that’s about when the country’s economy uh is peaking so you’ve got that then you have a variety of near-term challenges the kind you just referred to uh Financial uh strains in China coming from excessive Reliance on real estate

And drying up of uh export markets then you’ve got some fairly profound adverse fundamentals for China the fact that Chinese parents had only half as many kids last year as they did six years ago the fact that there’s large amounts of people with money in China who are very

Very eager to get it out which is always a sign of impending difficulty in Emerging Markets so I would not be confident at all that China will be a faster than average growing major economy over the next decade and that’s obviously a big difference from the world we’ve been living with for the

Last 40 years so just a personal note Steve let the record reflect that Larry was right in his rule of thumb I studied Russian in high school in the 1960s so so certainly here’s one anecdote that supports you Larry so so you’ve an investor in China you’ve spent a lot of

Time there where they’re fairly recently actually what do you make of what we’re seeing right now well first of all look I have been more optimistic about China in the past and I will say that I have recalibrated my views I mean it is definitely going through a tough period

I don’t think I’m as pessimistic as Larry is I would just mention for example that they may not make their five percent GDP growth number this year maybe it’ll be four maybe it’ll be four and a half it’ll still be probably twice what ours is so I don’t think we can yet

Sort of wipe China off the Blackboard it was clear on my trip there that the sanctions that we’ve imposed and the whole deglobalization phenomenon and the fact that business feels that they have to be more careful about their supply lines and has taken a toll and it’s definitely affected their exports and

Their General mentality and their business the second big problem they have is G who has who has reasserted his control over the economy who many of my our investors that we talk to there feel doesn’t really even understand economics and you can by their policy action so

Far I think you probably agree with that and so you’ve got really bad government policy on top of a bunch of difficulties whether it’s the property sector whether it’s export exports whether it’s whatever but I would I would say I’m not completely going to wipe China off

Because I think you have to recognize that you do have a lot of tools for example uh everybody talks about their debt nobody talks about their assets the IMF just came out with a paper in the last few days that basically tried to look at the balance sheet assets and liabilities

Of the Chinese government and while their net assets have been coming down they’re still substantially positive I think if he went through the same exercise for the U.S you’d find a different result their central government debt to GDP is only about 30 percent they have plenty of scope to do

Something on the fiscal side to both stimulate the economy as well as solve some of the problems that the provincial governments do have with debt which are which are very meaningful Larry if China continues to struggle economically the way they have and Steve points out they’re still growing more than we are

But still struggle compared to where they were is that good for the United States and the rest of the world or is it bad do we need a strong China economically or a weak one it’s it’s two-edged it’s good when your customer prospers and it’s bad when your competitor gets hyper efficient

So it’s a two-edged thing I am concerned that we will become the object of China’s frustration and that will tempt them to uh lash out I think we need to be very careful uh in our approach uh to China at uh a moment of this kind of difficulty and we

Need to be more attentive than I think some of the policy advocates in Washington are to avoiding a situation where we terrify uh China with the potential economic damage that we’re going to do to them

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