(Letter) Michael Spence, Nobel Laureate 2001 in Economics, on China’s Economic Management
These statements are “notable” only in that they represent a rare, positive (and fairly objective, in my view) comment on China’s responsible management of its economy, from an authoritative figure, made on U.S. mainstream news.
In light of the coming U.S. election and our tendency to scapegoat foreigners for domestic ills, it is helpful to hear a voice which does not seek to assign either blame, cast China’s role in a negative light or speak of China with a sense of paranoia.
At the very least, it might help some people realize that not everyone who opines that the Chinese government is doing a responsible job in managing their economy is a mere unthinking follower of Chinese government propaganda.
My favorite soundbite: “China’s faced challenges for the last 30 years, when they started reforms, people bet against them every year, and every year we’ve been wrong, [laughter] so this is not a good time to start betting against them.”
See the link below.
The exchange on China starts at about 5:50 mins and runs to 7:30. My rough transcript follows:
Excerpt from Nobel Thoughts on the Economy. Assessment of today’s global economy, with Michael Spence, 2001 Nobel Laureate in Economics and Jack Welch, former GE chairman/CEO. SquawkBox, CNBC, October 23, 2008.
Q. Is China going to save us?
Michael Spence (MS):Yes.
Q. They are?…[Jack Welch interruption]…Talk about China. In what way are they gonna help? Cause some people are talking about real dire circumstances there that’s not going to rescue us.
MS: Yeah, there’s a lot of talk of that, let me just put it into perspective.
China’s faced challenges for the last 30 years, when they started reforms, people bet against them every year, and every year we’ve been wrong, [laughter] so this is not a good time to start betting against them.
They have enormous fiscal and other resources. Their debt to GDP ratio is tiny. They have a huge batch of government revenue, and they\’re done this before. In 1997-98, we, the United States government, and and the IMF, asked them not to devalue into that disaster, in Asia, and they didn’t. Highly responsible action.
And Zhu Rongji poured billions into the economy, uh, to stimulate domestic growth. And and it’s…it’s perfect for them anyway. Their savings rate is you know, ten percent above the investment rate. At 55 percent, they might as well consume a bit more right now. So, I think they will hold it at eight, eight-and-a-half percent.
Q. Are they, and others, gonna to continue to finance our debt? All our new debt?
MS: Well…in the long run, no. We’re going to restore…get rid of the imbalances. Uh, there’ll be some recycling of capital, it has nothing to do with trade deficits, right? We pour capital in there, other people do too, and they cant absorb it all, so the Central Bank sends it back out, so I wouldn’t be surprised to see reserves continue to grow for some time. But they they won’t shoot themselves in the foot. For sure.
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