Jon Huntsman Part 2: Can China Keep Growing?

08/29/2012 8:30 am EST

Focus: GLOBAL

MoneyShow.com continues its interview with former US Ambassador to China Jon Huntsman. In this segment, he discusses whether China can make a successful transition into a consumer economy.

MoneyShow.com: Official economic growth in China has fallen from 10% to 7.6% recently. What do you think is causing that? Can we expect slower growth in the future?

Jon Huntsman: Slower growth will be inevitable in China, largely because its major export markets are not performing well—one, of course, Europe, and the other, the United States. And that will, in fact, have a short-term impact on China’s growth going forward.

But whether it does 10%, 8%, or 7.6% is really not the question. The question for China is: will it be able to successfully transition from an export model—from which it has benefited enormously—to a consumption model?

They’re well into this transition, [but] there’s no guarantee that they’ll arrive at any safe harbor. I suspect for the next couple of years, they’ll be preoccupied with the issues associated with making this a successful transition.

That is combined with what is a very strong balance sheet for the most part. As China transitions more to a consumption-based model, they have a population with a higher savings rate, they have the ability through monetary policy to pull more levers than we do in the West, [and] they have the means with which to stimulate pockets of the economy, which they are only too willing to do, even if they overstimulated things back in 2009.

So I suspect their growth will taper off somewhat, even into the low 7s, although we may see some pickup by the fourth quarter. But the real big question for China will be just how successful it is making this transition to a consumption-based economy.

MoneyShow.com: Do you think they will be successful?

Jon Huntsman: I do.

MoneyShow.com: Why?

Jon Huntsman: They have an emerging middle class. They have a consumer class, which didn’t exist before. And they have more in the way of disposable income. There’s clearly evidence, even if you look at the numbers so far this year, that this nascent, emerging middle consumer class is beginning to buy more and more from the rest of the world—if you just look at our trade numbers, for example.

So I suspect that if China is successful in addressing some of the larger, overarching issues like health care, affordable housing, [and] retirement programs, which are very much on the minds of ordinary citizens in China—and those will all be very, very costly undertakings—then they will ultimately be successful in building greater confidence in the direction of China’s society and their economy. And I think that will likely stimulate more in the way of consumer response.

MoneyShow.com: Do you think there’s a battle between exporters and people who make a lot of money from the old infrastructure-building models, and those pushing for a more consumption-oriented economy?

Jon Huntsman: I think you have the rise of special-interest politics in China, which is a relatively new phenomenon, which we’ve never seen before. I think this has implications both for leadership changes later this year, and over the longer term the whole reform agenda. So when you’ve got representatives of the extraction industries and the export industries with a louder voice and with more political clout, they will no doubt influence the trajectory of reforms going forward.

What are the big reforms? Beyond finding the proper role of the Internet in society, what about SOEs (state-owned enterprises) that continue to fall back on bad practices—whether they be purchasing and procurement practices, whether it’s lack of transparency or of formal governance structures? There’s a lot that needs to be changed and reformed in that sector, and it’s particularly important for the United States, because it has a lot to do with how competitive our companies can be in the Chinese marketplace going forward.

Read Part One of our four-part interview with Gov. Huntsman here.

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