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China's economy may see strong rebound

By Michael Barris in New York  (China Daily)

08:42, March 19, 2013

China's economy "hit bottom" by late September, but a rebound by the end of this year isn't out of the question, economist Stephen Roach said.

The former non-executive chairman of Morgan Stanley in Asia also said he expects China to maintain an annual economic growth rate of about 8 percent - half a percentage point above the 2013 target set by former premier Wen Jiabao last week.

"The economy seems to have hit bottom in the third quarter (of 2012), and I expect progressive strengthening over the course of the year - especially if the external climate starts to improve on the heels of a gradual pickup in global growth," Roach told China Daily.

China's economy expanded 7.4 percent between July 1 and Sept 30, the seventh straight quarter in which the pace of growth was slower than the preceding three months, according to the National Bureau of Statistics. In the fourth quarter, China's GDP growth accelerated to 7.9 percent, slightly beating expectations and beginning what some observers see as a return to the high rates of past years.

Over the next five years, GDP growth in China should slow "toward 7 percent to 8 percent", as the nation transitions to a more services- and consumer-oriented economy, said Roach, a trained economist who left Morgan Stanley in February to take a position as a senior fellow at Yale University.

"A better-balanced Chinese economy," Roach said, "will be able to sustain slower underlying growth in trend GDP - especially if it draws support from labor-intensive services and thereby delivers more jobs per unit of GDP."

Whether China would be better off engineering slower GDP growth was heavily debated during the just-concluded annual session of the National People's Congress in Beijing.

A GDP-rate slowdown is a sensitive topic in the country, which equates growth with success, as defined by the ability to compete with mature economies of countries including the United States.

For all of last year, China's GDP growth was 7.8 percent - the slowest annual pace since 1999. In 2011, the rate was 9.3 percent.

According to Roach, China has experienced a "soft landing" despite his fears that the country was headed for a severe economic shock.

In an essay posted on the Project Syndicate website in January, the former Hong Kong-based executive urged Chinese leaders to move swiftly to accelerate their nation's transition to a more consumer-driven economy, to avoid a "hard landing".

Economists generally define a "hard landing" as a severe slowdown in growth that could push a country into economic recession, often as the undesired result of a government's efforts to curtail inflation by tightening the money supply.

A "soft landing" describes a rate of GDP growth that's fast enough to avoid recession but slow enough to prevent damagingly high inflation.

"The debate is over: China has now set its strategy on the shift to a consumer-led growth model," Roach said in an e-mail.

The challenge "now goes from strategy to implementation", he said, calling consumer-led growth "the only antidote" to Wen's concerns. Wen lamented China's reliance on an "unstable, unbalanced, uncoordinated and unsustainable economy".

"It will be up to the new leadership to implement the reforms required to pull it off," Roach said.

To maintain "stable economic-growth performance" for several years, China's new leaders, he said, need to lay out plans for "development of the services sector, funding the social safety net, liberalizing an antiquated residential permit system, reforming State-owned enterprises and lifting artificially low interest rates on savings".

Roach also said he hoped the new government would take aim at China's "endemic corruption problem".

Implementing tough new disclosure requirements for asset holdings of senior officials "would be an important step in that direction", Roach said.

Chen Jia in Beijing contributed to this story

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