Read and judge for youself

U.S.-China Relations: An Affirmative Agenda, A Responsible Course [Rush Transcript; Federal News Service]
Speakers:
Carla A. Hills, Chairman and CEO, Hills & Company; Vice Chairman, Council on Foreign Relations; Task Force Cochair

Dennis C. Blair, Former Commander-in-Chief, U.S. Pacific Command; Task Force Cochair
Presider:
Kathryn Pilgrim, Correspondent, CNN
May 14, 2007Council on Foreign Relations
Excerpt:
QUESTIONER: I'm Hunter Smith In a recent speech, Wen Jia-bao characterized the fundamental -- the underpinnings of China's economic growth as unsustainable, and one aspect of that, which he indicated and which other analysts have cited, was the rampant growth of commercial lending, particularly to fund construction of fixed assets. And the analysts have pointed to the fact that control of commercial credit generally lies more in the hands of local and regional communist parties than with banking officials.
Is there any way for China to resolve this institutional conflict to create more sound credit growth?
HILLS: Without a question, there are things that China can do. It is spending about 43 percent -- 43 percent of its growth comes from investment. That's extraordinarily high for a developing country. And so it would be much better if instead of having the state fund new investment -- like steel plants and industrial facilities and real estate development -- if they would allocate those resources in the same percentage to consumption, which would also feed their economic growth. And two areas where they desperately need to stimulate consumption are in the health and pension field. If -- and they would moderate the possibility of upheavals if people were less anxious about their future.
The other thing about China's economy is that it has a 50 percent savings rate, rather extraordinary to this country when our private savings rate is in the minus column, but 50 percent is incredibly high vis-a-vis any developing country. The reason it's so high is precautionary savings. They're saving for their health; they're saving for their old age. And with a One-child Policy, they don't have much human insurance. So if the government would allocate monies to stimulate consumption that would create growth, alleviate the need for precautionary savings, we would get a better balance between our two economies.
The other thing they could do, which you would probably like, would be to open up the consumer credit market. You know, they don't have credit cards to the extent that other countries do or cannot buy houses with mortgages. If they would open up and let financial services into their economy that could lead by example -- other countries have done that with great benefit. And the -- I always think of the mortgage market, the consumer credit market and the insurance market are absolutely home runs from the point of view of the Chinese people, and the competing banks are not adversely affected because by seeing the good competitive practices, they become better. We've seen that in other countries; we've also seen it in China.
There a number of things that China could do to fix their imbalance, and we could talk to them about those but also talk about what we must do, which is to cut our deficit. And that means that we have something to talk about that has a positive outcome for the tremendous imbalance that is affecting global economics

Related article: http://www.jbs.org/node/4023