Biggest China Bears Reside in Beijing, MIT's Simon Johnson Says: Tom Keene

As Group of 20 nations look to China to underpin global growth, the Chinese anticipate their economy slowing, said Simon Johnson, a professor of finance at Massachusetts Institute of Technology’s Sloan School of Management.

In China, bankers and economists expect their economy will slow after growth accelerated to the fastest pace in almost three years in the first quarter, Johnson said today in a radio interview with Tom Keene on Bloomberg Surveillance. Gross domestic product rose 11.9 percent the first quarter from a year earlier, the Chinese statistics bureau said April 15.

“The biggest China bears I’ve met recently were in Beijing,” said Johnson, who said he was in China last weekend. Johnson said China can’t maintain growth at previous levels.

Chinese who fear economic “overheating” worry their country’s heavy infrastructure investment, overburdened state sector and focus on objectives such as air quality instead of economic expansion will slow growth, Johnson said in a column today on the Economix blog on NYTimes.com. They do not agree with others who claim “China is going to be great,” he said.

“They haven’t drunk the same Kool-Aid,” Johnson said during the radio interview.

Toronto View

Following the June 26-27 meeting in Toronto, G-20 leaders pointed to an expected 8 percent to 9 percent growth in China’s GDP to stimulate the global economy as distressed European nations enact austerity measures and large countries like the U.S. face record budget deficits.

China, which makes up about 6 percent of the world economy, according to Johnson, grew at 8.7 percent in 2009 and 9.6 percent in 2008.

“G-20 and the industrialized countries are saying: ‘Assume China will grow fast, and that will help the world economy,’” Johnson said. “In China, they’re much less convinced they can continue to grow at these rates.”

While the country’s past growth supported the global economy by creating high demand for commodities, driving prices higher and fueling emerging markets such as Latin America, China will not be able to support other countries as its growth slows, said Johnson, who co-authors a blog called The Baseline.

Big Banks ‘Won’

Johnson, who also co-authored with James Kwak the book “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” said the U.S. financial-regulatory bill, approved by the House of Representatives yesterday, didn’t go far enough to restrict bank size, making it “nothing more than mush.”

“The big banks have won, and they’ve won hands down, and they’ve won with a terrific smokescreen,” Johnson said. “There’s a lot of pretense there’s actually some sort of reform going on.”

While investors and political leaders may have confidence in proven financial services industry leaders such as James Dimon, chief executive officer of JPMorgan Chase & Co., Johnson said future executives might not be up to the task.

Even the best banks will eventually have problems with “less than fully competent” leadership, he said.

To contact the reporter on this story: Alex Kowalski in New York at Akowalski13@bloomberg.net Tom Keene in New York at tkeene@bloomberg.net

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