Asia Economy

China plays dangerous stock market game: Summers

China market's confidence boost

Comparing the Greece debt drama and the recent meltdown in the Chinese stock market, the situation in China represents a "greater source of financial risk to the world," former Clinton Treasury Secretary Larry Summers said Monday.

"I thought the strategy of manipulating the market upwards that the Chinese were pursuing was quite a dangerous one," said Summers, who also was an economic advisor to President Barack Obama.

The short-term goal to halt the market slide may have been achieved, but in the long term such intervention often proves troublesome to manage, he told CNBC.

"The historical experience is that it's very, very difficult in markets which people are able to speculate," Summers said on "Squawk Box."

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Chinese stocks added another 2.4 percent overnight, after recovering 6 percent last week on the back of Beijing's recent market boosting measures, which included suspending initial public offerings and relaxing margin lending and collateral rules. The Shanghai Composite has fallen about 23 percent since hitting seven-year highs in mid-June. But over the past 12 months, the market has nearly doubled.

"The Chinese stock market is small relatively to the Chinese economy," Summers said. "But I think it's hugely important psychologically as kind of scoreboard ... on the government's ability to keep control."

'Prudent' to keep euro zone together: Larry Summers

Likewise, he said, Greece is only a small part of the euro zone economy. "[But] people are failing to recognize ... the magnitude is the output losses that Greece has suffered."

"What some of the commentary has not emphasized is sheer magnitude of the funds that have already gone into Greece" is far in excess of past crises, he said. "At a certain point, you just can't have all the flow of funds one way."

While saying the framework of the Greek deal offers "the best prospect" for success, and keeping the euro together was prudent, Summers warned the situation still warrants "substantial concern and there's a lot that could go wrong down the road."

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But overall, he said he was "relieved" to hear an agreement had been reached.