Stephen Roach, Morgan Stanley Asia's non-executive chairman, urged China to take concrete actions to boost domestic consumption amid looming trade conflicts with the United States, but suggested against any shift in China's currency policy as a way to rebalance the global economy.
"China has to do more. The government has to demonstrate with great emphasis what concrete actions it is going to take to stimulate internal private consumption," Roach, who is also a professor at Yale University, said in an interview in Shanghai.
He argued that currency is not the reason, but merely a symptom of global economic imbalances, which should be addressed "by offering an alternative solution that is very much in America's best interest, which is to increase exports to China."
Roach's views echoed those of Chinese central bank governor Zhou Xiaochuan, who said over the weekend that fast yuan revaluation, demanded by U.S. politicians, was no panacea to global economic disparity.
The U.S. House of Representatives last month stepped up pressure on China to let the yuan rise more quickly, passing a bill just weeks before U.S. congressional elections on Nov. 2 that would provide new muscle to combat undervalued currencies by allowing the imposition of tariffs on goods.
"I think that's a very bad piece of legislation, and one that would have devastating consequences for China and the United States," Roach said.
"We talk about win-win, this is lose-lose. It's bad for everyone."
He argued that it is wrong for U.S. politicians to blame the yuan because the United States has trade deficits with 90 countries — a multi-lateral problem that cannot be solved with agreement on bilateral exchange rates.
"It's ridiculous for politicians to think that yuan-dollar relationship will make any difference to America's broad trading imbalance with the world," Roach said. "The China piece will go somewhere else."
The real problem is that export-reliant China has been under-consuming for 30 years while the United States has been overspending for too long, and that model has to change, Roach said.
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