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China Hard Landing Concerns Vastly Overblown, Roach Says

Morgan Stanley Asia Former Chairman Roach
Stephen Roach, former chairman of Morgan Stanley Asia. Photographer: Jin Lee/Bloomberg

Concerns that China will enter a so-called hard landing are “vastly overblown” even as economic growth becomes more unbalanced, according to Yale University Professor Stephen Roach.

China’s government has done a terrific job in controlling inflation, Roach, former non-executive chairman for Morgan Stanley in Asia and chief economist, said at a conference in Shanghai yesterday. The greatest risk to economic growth is the increasing reliance on fixed-asset investment and the declining contribution of private consumption, he said.

China, the world’s second-largest economy, pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, according to a state-of-the-nation speech that Premier Wen Jiabao delivered to about 3,000 lawmakers at the annual meeting of the National People’s Congress that started on March 5 in Beijing. Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, it said.

“I don’t think the banking system will collapse and the property bubble will burst,” Roach said in Shanghai. “These are all exaggerations.”

This year’s reduced growth target signals that the nation’s ruling Communist Party is determined to shift the makeup of growth toward consumption and away from exports and investment. Gross domestic product expanded 8.9 percent in the last three months of 2011, the least in 10 quarters.

Consuming Need

China needs to boost jobs and increase wages in order to stoke consumption, Roach said yesterday. The nation’s property bubble and banking issues also remain problematic for its economy, he said.

The government reported today consumer prices rose 3.2 percent in February from a year earlier, the slowest pace in 20 months and lower than the median estimate of 3.4 percent in a Bloomberg News survey of analysts. The government is also scheduled to release fixed-asset investment and retail sales figures later today.

The yuan strengthened 0.13 percent, the most since Feb. 8, to 6.3080 per dollar today, after the inflation data suggested China has room to support growth in the economy.

The currency may continue to appreciate 3 percent to 5 percent over the next couple of years, Roach also said, adding that he doesn’t think it’s undervalued.

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