Suppression of China’s Overexerted Economy Seen As Desirable

In addressing the “China Shock” brought by the Chinese government’s policy of suppressing its overextended economy, Stephan Newhouse, the Chairman of Morgan Stanley, said, “It is desirable that China lowers its overheated growth rate of over 10 percent to 7 or 8 percent.”

Mr. Newhouse said at a social meeting with Korean correspondents in New York on April 30 that the action taken by China was the one that relieves investors in the long term.

As for the loan suspending action, he expected, “In spite of the government’s policy, banks will not suspend loans,” and revealed the same opinion with economic specialists by saying, “An economic soft landing is possible when taking Chinese administrators’ ability into account.”

Morgan Stanley has increased its investment in China for last ten years. Particularly, it has invested 0.6 billion dollars real estates in Shanghai and Hong Kong, and regulates this investment, “Until now, we have made a big success from these investments,” said Mr. Newhouse.

In regard with prediction on interest rates in U.S., he said, “The U.S. has already been moving on the assumption that the interest rate will be raised in near future. Impending rising interest rates seem evident, but it will be a small increase.

To address the question of “what can Korea do to attract foreign investment?” he pointed out the government’s regulation and the lack of flexibility in labor market.

“Some point out the problem of communicating in English, yet it is not a big problem as a lot of students study English very hard,” he said, adding, “However, you should know that China has the largest number of people who learn English in the world.”

As for the plan of attracting U.S. leading private high schools in the Incheon Free Economic Zone, he commented that it will helpful in attracting foreign direct investment.

Regarding the plan of transforming Korea into a Northeastern Asian financial hub, he said, “This area has sufficient room for several financial hubs,” adding, “Like Dubai of United Arab Emirates (UAE) and Frankfurt of Germany, Korea needs a strategy of focusing on a specific field to become a financial hub.”

Mr. Newhouse, who has been working for Morgan Stanley for 25 years, had been in charge of the company’s international securities business, and had served in investment bank management for three years as a vice-chairman before being promoted to Chairman last year.

Kwon-Heui Hong konihong@donga.com