A new report from Morgan Stanley Asia CEO Stephen Roach suggests that China's only way out of U.S. consumption-based growth is producing it own consumer society.
China, Roach says, has no choice but to abandon the growth model driven by U.S. consumption because U.S. deleveraging will crush export demand:
The Asian giant will have to respond with a new five-year plan, centered on the construction of a services economy, based upon the Chinese consumer, the Business Insider reports.
China’s service economy will have to make up a massive consumer-spending gap if it is going to fill the void left by the declining growth of the U.S. consumer that has propelled China's development, Roach notes.
And while China could choose to become more competitive, that could easily lead to protectionist responses from Western governments.
Moves will be made on three fronts to spur domestic demand, Roach says: Aid to rural areas, creating a new services economy and creating a stronger social safety net.
“All of these, in concert, will push Chinese citizens to spend,” Roach notes. “There is quite a consumption gap to be made up.”
China's consumers continued to spend modestly, even in the face of a severe global recession last year, channelnewsasia.com reports.
And, according to research firm Capital Economics, the spending power of the Chinese consumer should be tapped as a means to support China's economic growth.
The company also advised China to boost domestic demand by importing goods and services from abroad instead of keeping the value of the Chinese currency, known as the yuan or renminbi, low, which will hurt the interests of Chinese consumers.
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