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Chinese outlook unusually uncertain: experts


This news story was published on January 8, 2012.
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By Greg Robb, MarketWatch –

CHICAGO — The outlook for the Chinese economy is cloudier than it has been in years, experts said.

The road ahead for China is the “great unanswerable question,” said Lawrence Summers, the former top economic adviser to President Barack Obama, in a speech at the American Economic Association meeting Saturday.

“Whatever you think the range of possible outcomes is (for China) over the next 25 years, it is wider,” Summers said.

Robert Zoellick, the president of the World Bank, said there is widespread recognition that the Chinese growth model, that has been so successful the past 30 years, will not work in decades ahead.

China has been an exporting powerhouse, but now must develop its domestic market. But political forces may upend the transition.

“It is not clear China’s system is favorable to shift to domestic demand,” said Robert Mundell, an economist at Columbia University.

Zoellick urged the U.S. to work with China to assist their strong interest to alter their economy instead of engaging in a tit-for-tat trade war.

“You have a strong Chinese interest in a series of structural changes that would make sense for them and would make for the United States and the rest of the world. So wouldn’t it make sense to focus government policy on what you can do to try to support those changes as opposed to narrow trade actions,” he said.

China needs to develop a domestic financial system, allow small firms access to capital, and allow for more innovation, Zoellick said.

It looks like recent U.S. and China trade frictions are manageable, the World Bank chief said.

“But when you have difficult economic times in both countries, these things can run away,” Zoellick said.

With a $245 billion trade surplus in goods with the U.S. through October, the Asian nation has few friends on Capitol Hill, neither among union-friendly Democrats nor Southern-state Republicans.

The Senate passed a bill this year on a bipartisan vote that would make it easier to impose sanctions on China, but the House hasn’t taken the bill up.

Republican presidential candidate Mitt Romney has said he’d brand China a manipulator on his first day in office.

Economists criticized Romney’s China stance.

“It is a great mistake for Romney and other Republicans to be involved in China bashing. The lower middle classes in the United States benefit enormously from import of Chinese goods — 90 percent of everything they buy is made in China,” said Gary Becker, an economist at the University of Chicago.

Summers said that it was no surprise that political parties that have lost the White House will criticize China’s trade policy.

But Summers also had a warning from Chinese leaders not to turn back from the path of reform.

The world economy will not function well if China continues to export at such a rapid pace “and there is not a lot of importing,” Summers said.

“Those of us who support free trade cannot be wholly indifferent to all insults to it from any source,” he added.

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