Zhu: Chinese economy unable to sustain growth

China's rapid economic growth has turned heads worldwide, but the nation's recent spurt of prosperity may not continue without considerable costs, Vice President of the Bank of China Min Zhu GS '88 told a full audience in Robertson Hall yesterday.

During his lecture, titled "2007: Global Economy and Financial Market," Zhu strove to address China's economic rise in the context of its relationship with the United States. He said the country's current role as a massive center of production for the global market is bound to create problems, particularly regarding the use of environmental resources.

"I don't think China can sustain that path," he said.

Zhu, who received an MPA from the Wilson School and a Ph.D. at Johns Hopkins, has held his current position since August 2006. When he joined the Bank in 1996, Zhu served as general manager of the Bank's Institution of International Finance. He subsequently filled several positions in the Bank of China (Hong Kong) including assistant president.

Zhu first presented statistics to demonstrate just how dramatic China's recent market growth has been. Overall, China's GDP has averaged a 3.9 percent growth rate over the last 20 years, he said. In contrast, the United States has averaged 3 percent over the same time period, according to U.S. Treasury Department.

But he argued that much of China's growth has been due to supply shortages, which caused prices to shoot up. Particularly in the commodity market, he said, a reduction in supply for goods such as oil spurred a price increase.

Over the last 15 to 20 years, "everything is inflating," Zhu said, adding that "the money's everywhere."

Zhu said that China's economic relationship with the United States is vital, explaining that China's massive production of goods makes it a global factory, while the United States is a global consumer. "The U.S. and China have got to work together," Zhu said.

He said that the United States must maintain its financial stability, while China needs to preserve its jobs. Furthermore, he said, the U.S. savings rate must go up in order to balance the global financial market.

The economic roles of the United States and China must be balanced, he added, though the topic may be widely ignored. "We don't see any global action against the issue," Zhu said, calling 2007 a "transitional year" in balancing the economic relationship between the two nations.

To move toward balancing the global market, Zhu said, China should focus on increasing consumption in the domestic sector, while the government should offer a safety net behind that consumption. Downsizing the commodity market might also aid in that process, he added.

One concern resulting from China's rapid economic growth is the environmental impact of the pervasive manufacturing industry, he said. As a large production center, China must deal with supply-side problems of available materials and natural resources. One specific issue, he said, is water shortages.

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There is also concern that the massive amount of money flowing into China due to the widespread market boom is causing volatility in several economic sectors, Zhu said.

"The real problem is that there's too much money in the market, so the prices in particular markets are fluctuating," Zhu said. He presented several graphs depicting sector booms but pointed out how, despite an overall rise, prices oscillated dramatically along the way. This volatility, Zhu added, has been caused by a weak dollar.

During the question and answer section of his talk, Zhu addressed the possibility of a growing service sector in China. This, he said, would alleviate problems related to the country's current role as a major production center. The government is encouraging a shift to information services, he said, but added that the transformation may take time.

"This is not an easy process," he said.