Thursday, January 21, 2010

Stephen Roach on China

Stephen Roach's comments on Asia and China are always worth noting. See "It's not yet Asia's world: Stephen Roach"
Once again I agree with this piece's argument that the jury is still out on whether all is hunky dory. Because commentators often like to imagine that tendencies are already established realities, China's rise is already seen as total victory over the US and the West. There is still a long way to go as I argue in Chapter 3 of The Vulnerable Country.

Roach argues that recovery will be weak:
"Headwinds linger in the form of write-downs by financial institutions, the breadth of the global recession, and chronic weakness in the demand side of the world — the American consumer — and the persisting imbalances in the supply side of the world — Asia, and in particular in China." ... "there’s a lot of complacency here, presuming that the post-crisis world is Asia’s for the asking"

He is not, however, overly pessimistic (neither am I) he just thinks that it's a big assumption to think that China can be the engine of global growth. It's just not there yet.

The real danger is a prolonged period of stagnation (or worse) in the US and a failure of China to adjust its growth model towards higher wages and greater domestic consumption.

All of this, of course, will affect Australia greatly.

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