Thanks for reference to Stephen Roach he pretty well succinctly covers many points here as well in a good interview . We see the beginnings of the end of the great "made for export" companies like Foxconn giving way to domestic producers as part of the shift . But still for the plan to continue to undergo successful phases that fragile dependence on our market continues . ( our own focus has been wrongly turned outwards towards external threats when should have been turned inwards )
* Gold was the original "Austerity Plan" with golden results... had i been myself more the "Realized Self" than looking for self realization 15yrs ago when in jewelry manufacturing , looking back would have looked harder at parking more assets into that languishing metal somewhere near $280oz . One always finds the greatest discoveries in the end were sitting always right under our noses .
Manufacturing 'not sustainable' for China growth
abc.net.au
STEPHEN ROACH, MORGAN STANLEY, ASIA: Thank you, Ali, Pleasure to be with you.
ALI MOORE: The world economic forum is focusing on East Asia at its current summit in Jakarta and on the sustainability of regional growth. And I guess that question probably applies to China more than any other country. It's a government that's trying to turn its economy from one that's been driven by exports to one that hopefully will be driven by the domestic consumer. How confident are you that China can make that transition and not fall off a cliff?
STEPHEN ROACH: I'm very confident, Ali. I think the 12th five-year plan that was enacted in March of this year lays out three very important building blocks for this transition. Number one: focusing on new sources of job creation and services; number two: boosting wage income by very aggressive urbanisation, moving tens of millions of people each year from the countryside to the cities; and number three: boosting the social safety net, especially by investing in social security, private pensions and medical insurance. You do that and the consumption share of the Chinese GDP will rise from very low levels up to about 43 per cent of GDP over the next five years.
ALI MOORE: I want to ask you about that - I suppose that savings ratio in a minute. But how pivotal is this moment in China's economic history?
STEPHEN ROACH: Well I think it's very important. The Chinese miracle has been unprecedented over the last 30 years, but it's mainly been driven by a producer society that depends on vigorous growth in external demand. And in the post-crisis world, external demand that originates in the United States, Europe and especially Japan will be unusually weak. And so China knows this and has figured out it's got to draw much more support from the internal demand of its 1.3 billion consumers. It's got the strategy and I think the commitment and the wherewithal to deliver on that plan.
ALI MOORE: At the same time though of course, inflation is becoming a real problem. How do you encourage people to spend more when prices are going up?
STEPHEN ROACH: Inflation is a problem. The Chinese authorities put a very high priority on this in their public statements, but they need now to deliver on those concerns and I think they need tighter monetary policy. Monetary policy is too easy in China right now and short-term interest rates need to go higher.
ALI MOORE: Is there a question mark over that delivery?
STEPHEN ROACH: Well they've raised short-term interest rates four times since last October, but the benchmark short-term lending rate of 6.3 per cent is only about one percentage point above the headline inflation rate and it needs to be higher than that and I've publicly urged the Chinese authorities to do that. I'm headed to China in the next few hours to once again reiterate my own concerns in that regard.
ALI MOORE: If they don't, what are the risks to the path that they're on?
STEPHEN ROACH: Well, look, I'm confident that they will move aggressively to fight inflation. Obviously inflation is historically a difficult issue for China and if they don't move now, they'll have to move later and it will take a tighter monetary policy than otherwise might be the case which would be problematic for their growth momentum.
ALI MOORE: You've stressed a great deal of confidence that China is on the right path, but getting back to that question of building a social security net which is vital if you're going to reduce that savings ratio that sits at something like more than 50 per cent, which is extraordinary in Western terms, how quickly can they do that? Because building something like that from virtually scratch takes a very long time.
STEPHEN ROACH: Well, keep in mind about 11 years ago they did establish a national social security fund, so the infrastructure is in place to do it; it simply needs more funding. They also need to move aggressively in the area of private pensions and in beefing up the local government social security fund. These plans are in place and the coverage has increased dramatically, especially in the last five years in terms of the number of people or workers that are covered. The really I think challenge now is to boost the assets under management by these plans, and China with its massive reservoir of over $3 trillion in foreign exchange reserves, the domestic savings rate in excess of 50 per cent as you indicated, certainly has the wherewithal to fund these plans. It's just now time to step up and inject public money into these plans.
ALI MOORE: It's often said that the legitimacy of the Chinese government is based on economic growth and that would keep a lid on any dissent. Do you think that that argument still holds with the growth in social media, the growth in information flow? Do you see any prospect of an Arab Spring-style uprising in China?
STEPHEN ROACH: The key challenge in China is to absorb surplus labour and to continue to maintain enough growth that boosts employment. And that's why I'm very much in favour of a shifting the sources of employment away from manufacturing, which really doesn't generate enough jobs per unit of GDP, to more of a labour-intensive services model in areas like wholesale and retail distribution, domestic transportation, supply chain logistic, hospitality and leisure. If China does that, they can then slow the growth rate and still maintain rapid employment growth. And I think the Chinese government is very focused on services in their 12th five-year plan and they'll be able to stay the course.
ALI MOORE: So you don't really see any prospect for unrest?
STEPHEN ROACH: No. I think these fears of the Jasmine Revolution in China are overblown. I think the Chinese authorities are, again, very focused on social stability and job creation as the means to keep the social instability concerns at bay.
ALI MOORE: Well let's look at the US, and of course China funds the massive debt of the US. It's been a very grim month for economic statistics including more dismal numbers on the employment front and we've already had unprecedented stimulus. Are the latest numbers, do you think, a bump in the road or something more serious?
STEPHEN ROACH: Look, I think the US is in a very difficult and tenuous post-crisis recovery. Job creation is lagging in large part because businesses are not confident on demand prospects for American consumers. And I think American consumers are the weak link in the chain. So much is focused on getting businesses to hire. They're not going to hire given the shaky prospects for consumer demand. Consumers are overly indebted, short of savings, lacking in income and not having the support from property and credit markets and facing 24 million of them either unemployment or under-employment. This is a very difficult environment for the United States.
ALI MOORE: So a slide back into recession?
STEPHEN ROACH: I hope not. But in a post-crisis recovery you certainly cannot rule out a relapse. The US economy lacks the cushion to be able to withstand a blow and certainly we're heading into a season where that blow could come from our own making given the dysfunctionality and the polarisation of our political debate in Washington right now.
ALI MOORE: Well that raises the question, I guess: do you see a possibility that congress would not raise the debt ceiling very, very quickly needing to be increased?
STEPHEN ROACH: Well, look, we all sort of cavalierly say that the congress will obviously do the right thing, it'll be difficult, but this is a congress that repeatedly has done the wrong thing over the last several years. The ability of the congress to oversee the financial system has certainly not been one of its more shining moments. That's not to say that the financial services firms don't bear responsibility for that as well. But unlike China, where there's a strong commitment to a very well-articulated strategy, the concept of strategy in Washington has become something of an oxymoron.
ALI MOORE: I suppose also of course a very different government system. What are the options here for president Obama and also for the federal reserve? I mean interest rates have realistically really been at zero for some two years now?
STEPHEN ROACH: Well I think key point for Washington is to recognise that the strategies that worked in putting a bottom in the US economy during the depths of crisis are not the same strategies that are needed to foster sustainable recovery in jobs and economic activity and competitiveness. And we seem to be stuck in the same quagmire believing that what we did in the depths of 2008 and 2009 is exactly the right recipe to deal with our long-term growth agenda and that is not the case at all. We need to get much more creative in thinking about strategies for recovery rather than containment of economic and financial crisis.
ALI MOORE: Such as?
STEPHEN ROACH: Such as focusing on the victims of this post-crisis period, the 24 million workers who are either unemployed, who are under-employed, who need re-training, re-skilling and long-term transitional assistance to get their balance sheets and economic conditions back in order.
ALI MOORE: Can Obama win a presidential election with employment while it's currently at 9.1 per cent, but even the best estimates say next year it'll be 8 per cent.
STEPHEN ROACH: I think it's going to be very challenging for the president, but of course it obviously depends on what the Republicans put up in terms of a candidate. An extreme candidate from the Republicans will make it a lot easier for president Obama.
ALI MOORE: When you look at the outlook for the US as you paint it and also for China, what does that mean for countries like Australia, and other countries in this region, which are I guess so very much tied to China?
STEPHEN ROACH: Well I think Australia is well-positioned to sustain the current growth model in China, but it needs to recognise that the Chinese are sending a very clear signal that the current resource-intensive, manufacturing-led growth model is not a sustainable one for China as well. That's not to say that China's going to capitulate in this manufacturing-led, resource-intensive growth model, but over the next five to 10 years it's going to be a very different mix of economic output for China than Australia and other resource exporters are used to, and I think Australia needs to be certainly mindful of that important shift in the mix and composition of GDP growth going forward.
ALI MOORE: Does that mean that Australia needs to start finding - and quickly finding other markets for our raw materials?
STEPHEN ROACH: Well, I think Australia certainly needs to be more diversified in the sources of its external demand as well as the sources of its own GDP growth. It's always risky for any economy, whether it's Australia, the United States or China, to put too many of its eggs in one basket.
ALI MOORE: Stephen Roach, much food for thought and many thanks for joining Lateline this evening.
STEPHEN ROACH: Thank you, Ali. Always a pleasure. |
