Tags: Yale | Roach | US | China

Yale’s Roach: US Should Push for More China Access

Monday, 30 April 2012 07:28 AM

Economist Stephen Roach says the U.S. fixation on the Chinese renminbi’s exchange rate is misplaced; we should be focused on pushing for more market access instead.

"Rather than vilifying China as the principal economic threat to America, the relationship should be recast as an opportunity," Roach writes at The Business Insider.

China, Roach notes, is now America’s third largest and most rapidly growing export market. “There can be no mistaking its potential to fill some of the void left by U.S. consumers,” says former Morgan Stanley economist Roach, now a lecturer at Yale University.

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The key is realizing that opportunity lies in access to Chinese markets, which are all the more significant in light of China’s upcoming pro-consumption rebalancing,” Roach says.

“Historically, China has had an open development model, with imports running at 28 percent of GDP since 2002 — nearly three times Japan’s 10 percent import ratio during its high-growth era (1960-1989),” he says.

With U.S. households focused on repairing severely damaged balance sheets, inflation-adjusted private consumption has expanded at an anemic 0.5 percent average annual rate over the past four years, says Roach, and consumer deleveraging is likely to persist for years to come, leaving the U.S. increasingly desperate for new sources of growth.

"The largest component of U.S. aggregate demand — the consumer — is on ice," he says.

In contrast, as the Chinese consumer emerges, demand for a wide variety of U.S.-made goods — ranging from new-generation information technology and biotech to automotive components and aircraft — could surge.

“The same is true of services,” Roach says. “At just 43 percent of GDP, China’s services sector is relatively tiny.”

“There is enormous scope for America’s global services companies to expand in China, especially in transactions-intensive distribution sectors — wholesale and retail trade, domestic transportation, and supply-chain logistics — as well as in the processing segments of finance, health care, and data warehousing.”

Roach says America’s major threat is from within. “Blaming China merely impedes the heavy lifting that must be done at home — namely, boosting saving by cutting budget deficits and encouraging households to save income rather than rely on asset bubbles,” he says.

The New York Daily News reports that sport utility vehicles (SUVs) are now all the rage in China, for which sales are up five-fold in the last five years and expected to keep growing,

Editor's Note: Google Banned This Video But You Can Watch it Here

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