'Grasp the Reality of China’s Rise'

Larry Summers:

Grasp the reality of China’s rise: …In the years ahead, China is likely to account for between one-third and one-half of growth in global incomes, trade and commodity demand, and its significance will only increase… I returned last week from a trip to China with the dispiriting conclusion that the world lacks shared understandings regarding goals for the evolution of the Chinese economy…

The first issue … is whether it is the objective of the United States and the global community to see China succeed economically…, or whether it is our objective to contain and weaken China economically so that it has less capacity to mount global threats. This is seen in Beijing as a live question… The world cannot expect economic cooperation from Beijing if its objective is to inhibit Chinese economic performance. … None of this is to say the United States does not have valid concerns…

Second,… the … reforms that are necessary if China is to grow sustainably and strongly over the next decade … will surely take a toll on growth in the short run. This … will reduce demand for imports from the rest of the world and raise China’s trade surplus. …

The world is likely to be well-served by recognizing that its deepest interests lie in China pursuing … reform, even at the expense of modest reductions in China’s contribution to global demand … and possibly more exchange rate depreciation than we would prefer. …

Finally,… the United States’ failure to provide the necessary congressional approval to allow China’s voting power in the International Monetary Fund to rise above that of Belgium’s suggests a troubling indifference to global reality. …

Today the perils of the future have much to do with China’s rise and with the worlds of commerce and economics. Let us hope that we find the wisdom to manage them well.