by Waz Up Bozz
Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization
October 15, 2009 in Asia by Waz Up Bozz
- ISBN13: 9780470446997
- Condition: NEW
- Notes: Brand New from Publisher. No Remainder Mark.
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Product Description
As Morgan Stanley’s chief Asia specialist, getting Asia right is Stephen Roach’s personal obsession, and this in-depth compilation represents more than 70 of Roach’s key research efforts not just on Asia, but also on how the region fits into the broad context of increasingly globalized financial markets. The book argues that the “Asia factor” is not a static concept, but rather one that is constantly changing and evolving. Broken down into five parts–Asia’s critic… More >>
Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization
The book is a collection of essays written by Roach over the past three years reporting how the Asia story has played out to date, and how it looks for the future. Most of the book focuses on China, providing a wealth of background for understanding Roach’s recommendations for the U.S. and China, and the direction of China’s leadership.
Nearly 80% of China’s GDP goes to exports (30%) and fixed investment (50%). Since the early 1990s its per-capita income has increased 5X+. America accounts for about 4.5% of the world’s population and about $10 trillion of spending in 2008; China and India together account for 40% of population and only $2.5 trillion on spending. America’s economy has grown nearly 4%/year in real consumer demand over the past 15 years – 3X the growth in Japan and Europe. Seventy-two percent of the U.S. GDP in 2007 was consumer spending (a record), falling only to 71% currently.
China’s leadership recognizes the need to reduce reliance on exports – partly because of the sagging U.S. and world economies, and partly to reduce the likelihood and severity of any anti-China trade actions by the U.S. Congress (45 such bills were introduced in the U.S. Congress between 2005-07). Other challenges include improving resource consumption efficiencies (eg. cutting oil consumption per unit of GDP by 4%/year – now 2X that of the world average), as well as reducing pollution and environmental degradation. (China’s carbon emissions per person are less than 10% that of the U.S.)
China’s high savings rate (50% in 2005, with 65% believing that their savings are too low) is traceable two factors – the first is massive layoffs via 15 years of reforming state-owned enterprises (SOEs – now 30-40% of the economy) that involved 60 million layoffs from 1997, and continuing reductions of 2 million/year. The second is the lack of an institutionalized safety net. (India’s savings rate is in the high 30 percent range.)
American writers sometimes allege that Chinese labor costs will soon begin a rapid climb, damping increased exports. Roach, however, points out that even after six years of double-digit increases, average hourly compensation for Chinese manufacturing workers was only 3% that of the U.S. average in 2004. Meanwhile, productivity in its industrial sector surged nearly 20%/year from 2000-2004. Finally, its 745 million rural population is by far the largest pool of surplus labor in the world; there also have been 20 million layoffs in Guaydong Province resulting from the export slowdown. Obviously the Chinese leadership is not concerned about a possible shortage of labor, else its latest Five-Year Plan would not have emphasized expansion of labor-intensive services.
Private consumption in China accounts for only about 35% of its GDP, trending downwards from 65% in 1952. China’s National Social Security Fund totals $80 billion – less than $100/worker. Roach suggests it be increased, thereby reducing self-imposed pressures for consumer savings and allowing increased consumer spending.
Roach strongly opposes anti-China trade measures for several reasons. 1)U.S. purchases of foreign-made products vs. consumption of domestic goods has risen from 22% in the early 1990s to about 38% in 2007. Roach contends this provides a strong anti-inflation influence. 2)Only about 20% of the value of Chinese exports to the U.S. reflect domestic Chinese content – the rest comes from China’s partners, mostly other Asian nations. Ergo, China is more of an assembler than manufacturer. Banning Chinese exports will simply shift this assembly etc. work to other nearby nations. 3)The U.S. trade problem is not China, but almost all nations. We have trade deficits with one hundred other nations. 4)The ‘answer’ is not revaluing the Chinese currency – that has increased 20% since 2005, and is only about 10% undervalued now. 5)The ‘real’ problem is that U.S. profits are at a fifty-year high – 12.4%, vs. labor at 56.3% – the same as in the late 1960s. 6)Antagonizing China could lead to that government shedding its U.S. investments, driving the dollar down and interest rates up, causing a major U.S. recession.
Bottom Line: Roach believes Chinese consumers should spend more and save less, while U.S. consumers save more and spend less. The ‘bad news” is that he believes there’s a 25-33% chance of anti-China protectionist legislation passing in the U.S. during the next 15 months.
Ratings: 5 / 5