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Time:March 18-20, 2017
Beijing Diaoyutai State Guesthouse
Sponsor:Development Research Center of the State Council
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Summers: China’s reform will benefit the world

Lawrence H. Summers, born in 1954, is the son of two economists. 

He is also the nephew of two Nobel laureates in economics: Paul Samuelson and Kenneth Arrow. 

In 1983, at the age of 28, Summers became the youngest tenured professor in Harvard’s history.

 He received the John Bates Clark Medal in 1993.

 On March 18-20, 2017, he will attend the China Development Forum 2017 as a special guest.

 He once attended the Forum in March 2001 before he became President of Harvard University in July that year.

I. The only Treasury Secretary who left office with national budget in surplus

Summers has a remarkable career. He was the member of the Council of Economic Advisers (CEA) under President Reagan in 1982–1983. From 1991, he worked as Chief Economist for the World Bank. In 1993, was appointed Under Secretary for International Affairs and later, promoted to Deputy Secretary of the Treasury in the Government. In 1999, he succeeded Rubin as Secretary of the Treasury. He served as president of Harvard University from 2001 to 2006, and Director of the National Economic Council (NEC) from 2009 to 2011. 

Summers’ tenure at the U.S. Treasury went along with the longest period of sustained economic growth in the U.S. history. He is the only Treasury Secretary in the last half century who left office with the national budget in surplus. Former Secretary of State Henry Kissinger once said that Summers should be given a permanent post in the White House with the role of shooting down bad ideas. Summers was a key economic decision-maker in the Obama administration. He remains among the first that the government would turn to for help when faced with urgent economic issues. For this special role, he was hailed by American media as “financial firefighter”.

II. Dissatisfaction about Trump

In December 2016, then President-elect Donald Trump promised to give Carrier tax incentives and the company agreed to keep about 700 jobs in Indianapolis.

According to Summers, American capitalism is dominantly based on the rule and law. All economic activities operate according to law. This rules-based system can reduce market risks and costs. In deal-based capitalism, on the contrary, he argues, “economic actors assume that they have to protect their property and do their own contract enforcement. Companies and governments buy from their friends rather than seek low cost bids… The state’s monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.”

Summers thinks that Trump’s carrot-and-stick tricks to change the company into doing what he wants is a shock to the principle of the American capitalist market. “It seems to me what we have just witnessed is an act of ad hoc deal capitalism and what is worse is that, it has been celebrated as a model, but there is huge symbolic value…Predictability and procedure are less important than getting the right result at the right time”, he comments, worrying that the country has “taken a first step towards a kind of reverse transitioning from law-based capitalism to deal-based capitalism”. In addition, he also decried Trump’s attack on the free trade agreement (FTA), saying that to “tearing up” the FTA is “dangerous” and “counter-productive”.

III. On China’s economic transformation and reform

Summers said that despite China’s economic slowdown, he was still optimistic about China’s economic transformation. Likening economic reform to investment, he pointed out that sustained economic reform was a huge challenge to any country or economy and price must be paid to get returns. In his opinion, the Chinese economy definitely has to slow down before it gets stronger and benefit from the reform.

With the rise of China, the conflict of interests between China and the U.S. seems unavoidable. As to how to deal with the relations between emerging economies and advanced ones, Summers shared his views. He always believes that the international economic community must accept the reality of a more powerful China and should allow China to have a greater say, especially in the field of international financial systems. He believes that political dialogues based on justice and equality should realize the conflicts between immediate interests and long-term interests and between national interests and global interests. The fundamental interest of the world lies in China’s reforms, even at the cost of decreased proportion in global demand and RMB depreciation, which many would not like to see. Reaching consensus in this regard will benefit the whole world.

C hina is now faced with tough economic transformation and industrial restructuring, and currently struggling to transform the traditional mode of economic growth and maintain healthy development to prevent the backdrop of economic slowdown, environmental degradation and financial inequality. As how to make economic growth more inclusive with the income gaps widening, Summers thinks that the answer is to bring into full play the role of market, because in market economy, every production factor can participate in production equally. This is a mechanism that allows all to share the fruit of economic growth. He argues that China should increase investment in education to ensure that all factor providers participate in fair competition, adding that a company’s profitability should be determined by the quality of its products and services rather than its government connections, because a relatively predictable environment is key to corporate success.

Summers will share his insights at this year’s China Development Forum under the theme of “China and The World: Economic Transformation through Structural Reforms”.