Business

Berger: Protectionism risks are increasing

By Li Xiang (China Daily)
Updated: 2010-08-17 15:13

BEIJING - The unfavorable global economic environment, including protectionism, may pose the biggest risk to the Chinese economy in the second half of the year as the economy still largely depends on foreign demand for its exports and access to raw materials, Morgan Stanley Chief US Economist Richard Berner said on Monday.

"The single biggest risk is that the global environment is not favorable for China," Berner told China Daily. "The Chinese economy still depends on the open market for imports and access to raw materials and if protectionism closes those markets even partly, that's not good news for China."

Berner said the slow recovery of the US economy would mean that China has to become more reliant on its own market and resources to sustain economic growth.

The US Federal Reserve has recently downgraded its outlook for the US economy amid rising fears of a double-dip recession as the country's unemployment rate remained high and the housing market continues to be sluggish.

"China has realized that the reliance on the US for the strong consumer growth is something that it cannot do in the future," he said.

But Berner remained cautiously optimistic about the prospect of the US economy for the second half as factors including the rapidly rising infrastructure spending and the favorable financial conditions will contribute to a moderate but sustainable growth.

"The availability of credit, asset prices and the dollar value in the foreign exchange market are all supportive to growth rather than headwinds to growth," he said.

While some market watchers are cautious on whether China will be able to keep driving a global recovery during the rest of the year, Berner said he expects the Chinese GDP growth to be around 10 percent this year and 9.5 percent next year.

In the meantime, China's trade surplus surged in July to its highest level in 18 months at a time when the US trade deficit has been widening. The rise in the trade surplus will attract attention on the pace of the yuan's appreciation after Beijing ended the currency peg to the US dollar.

"It will add some political pressure because there is a small but vocal minority in the US Congress that would like to see the yuan appreciate much faster to facilitate the adjustment of the US-Chinese trade imbalance."

But a sharp appreciation of the yuan could only be counterproductive and gradual rise of the currency should be the best option, he said.

China Daily