China has responded to the financial crisis the way it has always responded to global problems, says Morgan Stanley Asia chair Stephen Roach — by using proactive fiscal stimulus that provide temporary support in the downturn until the global economy comes back.
"It worked in the 1997 Asian financial crisis and the 2000-2001 mild recession. But this is a different sort of problem," Roach told China View.
"Once the stimulus wears off and if there is no follow-through, the Chinese economy will weaken again. I don't think exports will recover in the weak global economy."
Roach advocates doubling the investment in social security immediately to $150 billion and establishing a goal of raising consumption as a share of the economy from 36 percent to 50 percent within five years.
"What I think is missing here is the social safety net, social security pension and unemployment insurance. Because of the absence of the safety net, China has seen a high level of precautionary saving," he says.
Roach also suggests that China develop a private pension system so total employee compensation could rise in tandem with productivity.
"Chinese companies need to partner with their workers and provide medical care (and]) retirement investing for their workforce. Chinese workers' total pay package should have both wages and benefits," Roach notes.
China's Finance Minister Xie Xuren says the government will continue to take "timely and effective measures" to boost economic growth, The Wall Street Journal reports.
Xie says that China's economy has performed better than expected.
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