China Must Accelerate Reform to Avoid Hard Landing, Roach Says
China’s new leaders must act now to accelerate changes to the world’s second-biggest economy or risk heightened vulnerability to an external shock, said Stephen Roach, former non-executive chairman for Morgan Stanley in Asia.
“The message to China’s new leadership is unmistakable: There has never been a more urgent time to get on with the heavy lifting of rebalancing and reform,” Roach, a senior fellow at Yale University, wrote in an article dated yesterday on the Project Syndicate website. “Now is the time to implement the measures that will accelerate the transition to a more consumer- led economy.”
Roach’s remarks mark a shift from his previous less- reserved optimism on China, including an August piece saying that the nation’s slowdown would remain contained “for the foreseeable future” and that concerns were “overblown” that expansion would run out of steam. Now China’s economy has become less stable and the balance of investment to consumption has worsened, Roach wrote this week.
“Without rebalancing and reforms, the days of the automatic Chinese soft landing may be over,” wrote Roach, 67. “I have been an optimist about China for 15 years. I still am. But the clock is ticking.”
Chinese leaders have pledged since at least 2006 to reorient the economy toward consumer spending and reduce the reliance on exports and investment to make expansion more sustainable. Growth picked up for the first time in two years in the final quarter of 2012, marking what Roach called the second “soft landing” in less than four years.
Authorities must address issues such as developing services industries, funding the social safety net and altering the residential-registration system, Roach wrote. “Failure to act quickly on this program would leave China far too vulnerable to the inevitable next shock in a crisis-battered world,” he wrote.
--Zheng Lifei, with assistance from Kevin Hamlin in Beijing. Editors: Scott Lanman, Andrew Joyce
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