Larry Summers Explains Why US Must Stay Wary Of Economically Weaker China: 'Can Become Irrational And Dangerous'

Following a string of negative economic readings from China, the unanimous opinion among economists is that China is finally hitting a wall. Former Treasury Secretary Larry Summers recently weighed in on the economy's slackness and explained why a wounded China is a grave threat to the U.S.

US Supremacy May Not Be Challenged: China, the world's second-largest economy, is unlikely to leapfrog the U.S., according to Summers.

“I think there is a good chance that measured at market exchange rates, U.S. gross domestic product will exceed China's for another generation,” he said in a Washington Post opinion piece published on Friday.

As was the case with Russia and Japan, countries whose growth is driven by super-high capital investment in manufacturing eventually hit a wall, the economist said.

As in those cases, China is now facing a demographic disaster, with the number of births in China now less than half of what they were seven years ago and marriage rates collapsing, he said.

China is seeing its export growth stall due to a lack of global willingness to accept more of its production, Summers said. The former Treasury official also noted that the country's infrastructure and real estate sectors still must “work off the massive overbuilding of recent years.”

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China Still A Threat: Technology cannot arrest an economic slide, the economist said, pointing to Russia's prowess in space research with its Sputnik artificial satellite and Japan's electronics leadership. He was apparently referring to these core competencies not helping these countries maintain a dominant position among the global nations.

“The same will likely be true in China, even if it ends its corrosive political interference with top companies,” he said.

Summers also weighed in on the impact of all these on the U.S. “No one should conclude that we can be complacent about the Chinese geopolitical challenge,” he said.

“Indeed, as Russia's behavior in Berlin, Cuba, and Eastern Europe during the 1960s illustrates, nations that see the economic route to glory foreclosed can become irrational and dangerous.”

The iShares MSCI China ETF MCHI, an exchange-traded fund tracking the performance of Chinese equities available for overseas investors, ended Friday’s session down 2.39% at $43.32, according to Benzinga Pro data.

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