China, US -- and world economic growth

April 30, 1984

President Reagan's visit to China once again reminds Westerners just how enterprising and dynamic Asian societies -- for all their thousands of years of history -- can be.

One of the key issues coming up for discussion among Chinese leaders and the presidential party is the theme of industrial and economic modernization for China -- and in particular, how the United States, through commercial and diplomatic actions, can contribute to that nation's long-range economic growth.

In that regard, we were struck by the particularly apt analysis of World Bank president A.W. Clausen last week. In a speech before the Los Angeles World Affairs Council, Mr. Clausen raised many of the same issues that we suspect are now being discussed by Chinese and US officials in Peking. Mr. Reagan would seem well served by listening carefully to what the Chinese leaders have to say about China's -- and, indeed, the world's -- long-range economic growth. For what is increasingly clear is that how well the United States and other major Western industrial nations go about putting their own economic houses in order will have much to do with the duration and strength of the present global recovery.

The various countries of Eastern Asia have posted impressive gains during recent years in terms of national growth. The free-market developing countries of Asia such as South Korea, Hong Kong, and the Philippines have averaged significant growth -- in the range of 7.5 percent a year or so over the past two decades.

Unfortunately, growth rates since the recession have dropped -- averaging about 3 percent a year for 1982 and 1983.

But competitive exchange rates helping to propel solid growth in exports of manufactured goods, high savings rates, solid support for agricultural expansion , and diversion of government funds to public education have all worked together to lay the foundation for continuing economic progress.

China's economy exceeds the combined national income of all the rest of Eastern Asia -- excluding, of course, Japan. Further, China posted economic gains of over 6 percent annually between 1978 and 1983. In the past China, because of domestic political considerations, largely shied away from the larger global economy. The result was somewhat fortuitous in that China was insulated from the shocks of the recent recession -- such as the world slowdown in foreign trade.

Now, as Mr. Clausen observed last week, ''Chinese authorities are convinced that the benefits of international trade, technology, and finance outweigh the risks of deeper involvement'' in the global economy.

We would concur with the objectives cited by Mr. Clausen to sustain the current global recovery and thus enhance growth patterns for the nations of Asia as well as developing nations everywhere:

* The Western industrial nations must avoid protectionism -- which could cut off the flow of trade so vital to the manufacture and sale of goods in world commerce.

* The industrial nations, and particularly the United States, must work to reduce real interest rates. In the US, that would mean reducing budget deficits.

* Finally, the industrial nations must step up their financial support for -- and political commitment to -- international lending agencies such as the World Bank and the International Development Association.