Bernanke sees no risk of hard landing in China, bullish on U.S. economy

[May 27, 2015]  By Christine Kim

SEOUL (Reuters) - Former Federal Reserve Chairman Ben Bernanke said that China's economic slowdown should not worry markets as there was no risk of a hard landing, and emphasized that a move to raise U.S. rates should be viewed as a positive sign for the world's largest economy.

Bernanke, who participated in an open interview at a private-sector forum in Seoul on Wednesday, said the expected U.S. rate hike would be "anticlimactic" when it happens and that there would only be minor negative impact on South Korea.

"There may be some volatility. Countries like Korea are very well placed because it has very good policy, good institutions. It’s not weak or underdeveloped and doesn’t know how to handle capital flows."

A Fed rate hike, expected by markets before the end of this year, would be something to cheer about, said Bernanke, who now works at the Brookings Institution and advises bond giant Pimco and hedge fund Citadel.

"I don’t know when (the rate hike will come), but when that begins, that’s good news, not bad news because it means the U.S. economy is strong enough."
 

CHINA SLOWDOWN NECESSARY

Bernanke also said the economic slowdown in China is necessary as it needs to change its growth model to be more sustainable in the long term.

"China was growing 10 percent a year. And it was doing that through heavy capital investment, steel plants and so on. Very export oriented," he said.

"As the country gets more rich and sophisticated that kind of growth is no longer successful."

He added he was "optimistic" China's economy would not experience a hard landing.

Annual economic growth in the world's second-biggest economy slowed to a six-year low of 7 percent in the first quarter, prompting a range of stimulus measures from Beijing.

Bernanke said Japan was making progress on its "three-arrow" policy to shore up growth, adding that Tokyo's aggressive monetary policy was "necessary."

"I’m encouraged by what I’m seeing in Japan. But they have slow population growth and fundamental problems that will be hard for them to overcome. They will not grow at the pace they did in the 70s but it will be better than what they’ve seen in the past 20 years," he said.

Commenting on the China-backed Asian Infrastructure Investment Bank (AIIB), Bernanke said it would create an opportunity for more useful projects around the world.

"First of all we care that international institutions do a good job. We have the World Bank and now the AIIB," he said. "The more the better."

(Editing by Shri Navaratnam)

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