Tags: roach | stimulus | china

Roach: China Might Need Second Stimulus

By Julie Crawshaw   |   Monday, 10 Aug 2009 12:09 PM

The impact of the investment-led stimulus will fade and China’s growth rate will start to slip again towards the middle of 2010, Morgan Stanley Asia CEO Stephen Roach said in recent TV interview.

That suggests that “slowing growth could lead to increased layoffs and thus social instability," Roach warned, which means the Chinese might need second big stimulus package later.

Roach expresses concerns about what he sees as China’s excessive emphasis on investing in infrastructure instead of private consumption or bolstering health care and social safety nets for Chinese.

“Bottom line is they are creating a very unbalanced macroeconomic structure,” Roach says.

He figures China’s investment spending in the first half of the year as a share of gross domestic product exceeded 45 percent of the economy.

“This is a ratio unheard of in the annals of a modern, large developing economy,” he notes.

China will maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession, Premier Wen Jiabao said in a statement.

The effect of some of China’s stimulus policies will weaken over time, and the economy is still under pressure from declining demand for exports, the Chinese leader said.

“The reason that we are sticking to the proactive fiscal policy and moderately loose monetary policy is because we are facing many difficulties and challenges,” Wen said.

China’s $586 billion stimulus plan is funding the construction of roads, railways and airports.

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The impact of the investment-led stimulus will fade and China’s growth rate will start to slip again towards the middle of 2010, Morgan Stanley Asia CEO Stephen Roach said in recent TV interview.That suggests that “slowing growth could lead to increased layoffs and thus...
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