Tags: Roach | US | relationship | China

Yale's Stephen Roach: US Must Change Course in 'Co-Dependent Relationship' With China

By    |   Thursday, 27 February 2014 12:27 PM

The United States needs to alter its "co-dependent relationship" with China or our economy will suffer the consequences, says Stephen Roach, senior fellow at the Yale School of Management.

"China depends on the U.S. for exports . . . [and on] the dollar to benchmark its currency. We depend on them for cheap goods to make life easy for American consumers, for saving and buying Treasurys," he tells CNBC.

"The unhealthy reliance of two people on each other often ends in disharmony, frictions and the ultimate break up," Roach explains.

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Both countries must act to change this unhealthy codependency, says Roach, former chairman of Morgan Stanley Asia. China already is doing so by seeking to make its economy more consumer-driven, he argues.

"They are rebalancing their model to keep the growth and development story going, and that will certainly take them to a larger scale of their economy than ours at some point in the next five to 10 years."

Now the United States must step up to the plate, Roach contends. "We continue to undersave, underinvest in people, infrastructure and capacity. And if we don't get that together, their [China's] ascendency will coincide with our decline."

Our income isn't high enough to finance our consumption, and our savings isn't high enough to finance the budget deficit, he notes.

Last week, China's Finance Minister Lou Jiwei put the onus on the United States.

"They have always been saying that China should boost its consumption ratio and the U.S. should boost its investment ratio, but that structural change is not happening in the United States," he tells Bloomberg.

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The United States needs to alter its "co-dependent relationship" with China or our economy will suffer the consequences, says Stephen Roach, senior fellow at the Yale School of Management.
Roach,US,relationship,China
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2014-27-27
Thursday, 27 February 2014 12:27 PM
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