China will avoid Japan’s errors: Roach
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Unlike Japan, China’s committed and able to change export-led model
Bloomberg
08 June 2011
China’s policymakers are positioned to extend the country’s rapid growth and avoid the mistakes made by Japan when its economy slowed in the 1990s, according to Morgan Stanley’s Stephen Roach.
‘There are a lot of similarities: the export-led model, the currency suppression, the rapid build-up of foreign currency reserves, the industrial policy run by an elite,’ said Mr. Roach, non-executive chairman of Morgan Stanley Asia Ltd, in New York in a radio interview on ‘Bloomberg Surveillance’ with Tom Keene and Ken Prewitt.
‘The main difference for me is China has a strategy to change the model, Japan did not, and they have the commitment to implement that change and wherewithal to do it, and Japan did not, as well.’
Mr. Roach, 65, returned last year from Hong Kong, ending a three-year stay, to work at Morgan Stanley in New York and take up a teaching post at Yale University.
China’s five-year economic plan calls for an expansion in services to 47 per cent of output from 43 per cent, according to Mr. Roach. Industries such as wholesale trade, retail trade, supply chain management, hospitality and leisure are poised to grow especially quickly, said Mr. Roach, Morgan Stanley’s former chief economist.
President Barack Obama’s policy of emphasising exports as a major component of the economic recovery is buttressed by an expected increase in Chinese demand for US goods, he said.
‘China is our third-largest and most rapidly growing export market,’ Mr. Roach said. ‘As they migrate from the export- and investment-led recovery to the consumer-led recovery, the demand for high-quality goods produced in the West, especially in the United States, will only grow. That’s the area that we need to look at as an opportunity for a growth-starved US economy.’ Canada and Mexico import more from the US than China, trade data show.
The decision by the Nobel laureate Peter Diamond to withdraw his nomination to the Federal Reserve is ‘a real tragedy’, Mr. Roach also said. ‘Here’s a guy who knows as much about the labour market as any living economist in the US today and yet is a victim of political sabotage,’ he said.