China Flexing its Economic Muscle

China is hosting the summer session of the World Economic Forum in northeastern city of Dalian. Chinese premier Wen Jiabao told western countries to sort out their debt problems.

Speaking at the world economic forum, he said China was willing to help by investing in Europe – but he stressed that countries needed to take responsibility for cutting deficits to stop the crisis spreading further.

Anchor Lisa Mullins gets the latest from the summit from The World’s Mary Kay Magistad.

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Lisa Mullins: With some European countries looking to China for a financial boost, China’s premier had a message for them today.  Wen Jiabo told the World Economic Forum in the northeastern Chinese city of Dalian, he said China is willing to keep investing in other countries, but major economies have to show they’re serious about tackling their debt problems.  The World’s Mary Kay Magistad is at that forum.

Mary Kay Magistad: China has $3 trillion in foreign currency reserves, so it has money that it needs to spend outside of China, and it has been looking for ways to diversify from US treasuries.  So investing in Europe is certainly a good possibility. China also, however, has some economic problems of its own and something else Wen Jiabo said in his speech today was look, you know, we have had double digit economic growth for many years, but the economic model we’ve been pursuing — export driven, infrastructure heavy — is not something we can sustain. So he’s recognizing China’s got big challenges at home that are going to slow its annual growth.  It doesn’t mean that China is not in a position to help, to invest in other countries, it is; but I think European countries that are looking to China as the answer might want to temper their expectations a bit.

Mullins: Because of the slower growth.  How healthy is China’s economy?

Magistad: It depends what you look at.  I mean there’s been something that some people consider a real estate bubble growing bigger and bigger over the last 2-3 years.  There is a demographic shift going on that’s significant where a lot more people will be retiring than entering the workforce starting right around now.  And that will become a more important trend as the next 10-15 years unfold. This is in part due to the fact that China had a baby boom around the same time as the United States did, and then had the one child policy after that.  So bigger generation than usual retiring, smaller generation than usual coming into the workforce, and that’s gonna be a big problem.

Mullins: So is China optimistic about the prospects for the US economy?

Magistad: Well, you know, it was interesting today particularly in contrast to what Wen Jiabo has said in the time since the economic crisis started.  There were a couple of years where he was being you know, kind of challenging to the United States and saying you know, we hope you’re taking care of our money that we’re investing in treasury bonds.  Today, he said look, the US economy and the US as a nation have incredible strengths and we are confident that the US economy will fully recover.  There was sort of a change of message that we realize that beating on the US isn’t helping to build consumer confidence and we, as China, exporting to the US need Americans to buy our stuff.

Mullins: All right, speaking to us from Dalian, China at the World Economic Forum, Mary Kay Magistad, thank you.

Magistad: Thank you, Lisa.

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