There but for the pres­ence of China …

China Daily (Canada) - - ANALYSIS - By AN­DREW MOODY

The Amer­i­can econ­o­mist Stephen Roach in­sists it is vi­tal for the world econ­omy that China con­tin­ues to grow solidly in 2017.

The se­nior fel­low at the Jack­son In­sti­tute for Global Af­fairs at Yale Uni­ver­sity says that even with its “new nor­mal” lev­els of growth its econ­omy re­mains the en­gine of the world econ­omy.

“If there is a dra­matic slow­down in China there would be a pe­riod of weak­ness we have not seen at any pe­riod since the end of World War II,” he warns.

Roach, also a for­mer chair­man of Mor­gan Stan­ley Asia, was speak­ing be­fore giv­ing a pre­sen­ta­tion on “A World With­out China”, look­ing at what would hap­pen to the global econ­omy with­out China’s eco­nomic mo­men­tum, at a lunch or­ga­nized by the Cen­ter for China and Glob­al­iza­tion, a think tank in Bei­jing.

In the talk at the Park Hy­att Ho­tel in Bei­jing, he ar­gues that world an­nual growth be­tween 1980 and 2016 would have been just 2.7 per­cent — al­most 25 per­cent less than its present 3.5 per­cent — with­out China grow­ing at 9.7 per­cent dur­ing this pe­riod.

And that if China’s growth was to fall from the 7.6 per­cent achieved in the first three quar­ters of 2016 to 5 per­cent next year, global growth would al­most halve from 3.4 per­cent to 1.8 per­cent.

“With­out China’s growth the world will have fallen into a very deep re­ces­sion af­ter the global fi­nan­cial cri­sis, and that would ap­ply now,” Roach says.

He ar­gues that since 1945 the world has had a ma­jor growth en­gine with the US pow­er­ing the world econ­omy in the 1950s, Europe grow­ing strongly for much of the pe­riod and Ja­pan and South Korea emerg­ing be­fore China.

“If China is not there, I don’t think the US will pro­vide it. I don’t think Europe will or the rest of Asia or the re­source economies will. The world will en­ter a pe­riod of sig­nif­i­cant weak­ness.”

Roach says that among the worst hit will be the Euro­pean economies such as Spain, Greece and Italy, which al­ready have high lev­els of un­em­ploy­ment.

“There has been a lot of struc­tural un­em­ploy­ment since the end of the fi­nan­cial cri­sis, and the hope has been that rising global growth would be able to ab­sorb that. This, how­ever, will not hap­pen in a world with­out China.”

Roach, who was brought up in Bev­erly Hills, Cal­i­for­nia, be­gan his ca­reer as a re­search fel­low at the Brook­ings In­sti­tu­tion in the 1970s af­ter his doc­tor­ate at New York Uni­ver­sity.

He then went on to work for the Federal Re­serve be­fore join­ing Mor­gan Stan­ley in the 1980s.

He first got to know China well in the im­me­di­ate af­ter­math of the Asian fi­nan­cial cri­sis in the late 1990s when he chal­lenged him­self to visit the coun­try at least twice a month.

“For about five years I spent half my time there, and even now that I am teach­ing I still come four or five times a year.”

Roach, who fi­nan­cially backed the Demo­cratic pres­i­den­tial nom­i­nee Hil­lary Clin­ton in the re­cent elec­tion, is skep­ti­cal as to how Don­ald Trump as pres­i­dent can fol­low a fis­cal ex­pan­sion strat­egy while erect­ing trade bar­ri­ers against China.

He ar­gues that the US would only be able to fund the re­sul­tant in­creased bud­get deficit with Chi­nese sav­ings. US sav­ings are 2.3 per­cent of GDP com­pared with China’s 40 per­cent.

“Fis­cal ex­pan­sion in a low-sav­ings econ­omy just spells big­ger bud­get deficits and wider cur­rent ac­count im­bal­ances and trade deficits. This would put the US on a col­li­sion course with the pro­tec­tion­ist poli­cies that Mr Trump is also pre­scrib­ing.

“Right now it is all blue sky and op­ti­mism (with the Dow Jones in­dex hit­ting record highs in De­cem­ber) with lit­tle re­gard for some of the tougher is­sues which may be ev­i­dent down the road.”

Roach, also au­thor of Un­bal­anced: The Code­pen­dency of Amer­ica and China, fears the world sit­u­a­tion is now worse than it was even in the in­fla­tion­ary era of the 1970s.

“It is hard to say from a geopo­lit­i­cal point of view but I think it is worse. You have the pop­ulist back­lashes, the lack of ap­petite for trade lib­er­al­iza­tion and glob­al­iza­tion.

“At the end of the 1970s we had high in­fla­tion, slow­ing growth, the specter of in­fla­tion but we worked our way through that by eco­nomic means rather than geostrate­gic co­op­er­a­tion.”

Roach was en­cour­aged by the Chi­nese gov­ern­ment’s Cen­tral Eco­nomic Work Con­fer­ence in De­cem­ber, which placed em­pha­sis again on achiev­ing “new nor­mal” medium to high growth and supply-side re­forms.

“China’s push to­ward supply-side re­forms is wel­come and im­por­tant but it is not an ex­cuse for not re­bal­anc­ing the de­mand-side of the equa­tion.”


Stephen Roach ar­gues that world an­nual growth be­tween 1980 and 2016 would have been just 2.7 per­cent — 25 per­cent less than its present 3.5 per­cent — with­out China grow­ing at 9.7 per­cent dur­ing that pe­riod.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.