BEIJING, July 3 (Reuters) - From a smooth unwinding of global imbalances to a sharp rise in trade protectionism, Chinese central bank governor Zhou Xiaochuan on Friday laid out six different scenarios for how the world economy might develop in coming years.
Speaking at a forum in Beijing, Zhou focused on how the core imbalance -- excessive savings in China and excessive consumption in the United States -- might be ironed out, or not.
The People's Bank of China posted Zhou's speech on its website. Here are excerpts from it.
SMOOTH UNWINDING
"This is what we've talked about quite a lot these days, and it is the scenario we most want to see. U.S. households' savings rate and the overall savings rate rise, and Chinese consumer spending also rises, helping correct global imbalances. This is the most ideal. However, the restructuring will touch on many difficult issues, and it will not be easy. At the same time, we cannot assume that this problem can be easily solved just based on recent short-term data."
CHINESE OVERCAPACITY
"The U.S. household savings rate rises and the United States does not need as many Chinese imports as before, which leads to over-capacity, idle facilities, less employment, ushering in a period of low GDP growth for China. We must try hard to avoid this scenario. Another aspect of this scenario is that perhaps inflation could bring about a change in the real exchange rate, leading to restructuring."
CHINA FOCUSES ON DOMESTIC INVESTMENT
"The U.S. household savings rate rises; Chinese consumer spending does pick up, but not by enough, and meanwhile China's urbanisation investment increases. The two factors cause a sufficient fall in surplus savings and savings outflows. In the process, we can assume that urban infrastructure, housing and service facilities will develop significantly to support consumer spending and employment in future. This is also an acceptable option. But we have to reform the system for financing urban development investment, for instance, the issue of municipal bonds -- a problem that has been discussed for many years."
CHINA TRANSFERS PRODUCTIVE CAPACITY ABROAD
"U.S. households' savings rate increases and they no longer need so many Chinese imports. At the same time, as China expands its investment abroad, it transfers a portion of its productive capacity, including export manufacturing, to other developing nations. From the perspective of north-south relations, this will benefit the industrialisation of developing nations and their consumption will also rise. This scenario is also heading in the right direction. In this case, China's trade surplus would no longer be a major source of conflict. An important test would be whether the United States would then have a big trade deficit with other developing nations."
U.S. TRADE DEFICIT STAYS HIGH BUT IS SPREAD MORE WIDELY
"The rise in the overall U.S. savings rate is in fact neither smooth nor sustainable, including, perhaps, a reform of its healthcare system that is not smooth. And public consumption remains high without falling. However, China's adjustments are quite smooth, a portion of its productive capacity is transferred abroad, its external trade achieves reasonable balance, or its excessive savings that remain no longer flow to the United States and instead flow to other countries. In this case, the United States would maybe have imbalanced trade and savings inflow problems with other developing nations, such as Vietnam, and oil-producing countries."
WORST CASE
"What we want to see least of all is that everybody's adjustments are unsuccessful. Current international economic imbalances would continue and trade protectionism would become more and more serious." (Reporting by Simon Rabinovitch and Zhou Xin; Editing by Alan Wheatley)