Chinese services sector could expand by about $12 trillion US dollars between now and 2025

People’s Daily: For the medium to long term, as Chinese economy transforms and adapts to new normal, do you believe that such a transformation is good to China and good for the world as well? Is it going to benefit the US economy?

Roach: I believe that China’s coming transformation to a more of a consumer- and services-led economy is not only hugely beneficial to China but is also an extraordinary opportunity for growth starved economies elsewhere in the world.

For China, it is not just a new answer to the loss of support from external demand that is an obvious outgrowth of post-crisis aftershocks in the so-called advanced economies, but it is a much more sustainable growth recipe that solves for the unsustainable imbalances that have long been emerging from China’s hyper-growth of 10% that has been evident since 1980. Consumer- and services-led growth takes the pressure off excess resource and energy demand, thereby providing relief for environmental degradation and pollution. To the extent that such a transformation is also underpinned by ongoing urbanization, where in China per capita incomes are three times their counterparts in rural areas, it also helps address thorny issues of income inequality. But most importantly, by drawing on the potential of domestic demand, in creates a new and far more sustainable source of economic growth that should allow China to avoid the dreaded middle-income trap that has long ensnared most developing economies at income levels quite close to that which China is now nearing.

The emergence of the Chinese middle-class consumer, to say nothing of its services-led foundation, is an equally important growth opportunity for the United States as well as for the rest of the world. For example, in my new book, Unbalanced, I estimate that the Chinese services sector could expand by about $12 trillion US dollars between now and 2025. I go on to estimate that about $4 to $6 trillion of that increase could be tradable – offering the potential of a huge bonanza for the increasingly tradable services providers of the developed world. Who better than to tap that bonanza than the United States – the world’s largest and most competitive services economy?

A slow-growth, post-crisis world is desperate for new sources of economic growth. I believe strongly that the emergence of the middle-class Chinese consumer could well be the most important source of global growth in the first half of the 21st century. In a globalized world, this is not only China’s opportunity for a new and important source of sustainable growth and prosperity, but it could be equally beneficial to the rest of the world as well.

A lingering weakness in global trade underscores the need for rebalancing toward more self-sustaining internal demand

People’s Daily: US growth is strengthening. Do you think US economy is out of the woods? What are the major problems and risks in US economy that may slow down its growth? How will those factors in US impact China's economy?

Roach: The so-called strengthening of the US economy needs to be put in perspective. As I noted above, the consumer remains the wink link in the US recovery equation. And because of that persistent weakness, employment growth has been decidedly subpar, adding further restraint to economic recovery.

The astonishing shortfall in job creation together with persistent balance sheet pressures leaves the American consumer under enormous pressure. As the biggest consumer in the world, that creates powerful headwinds to global trade that are only exacerbated by comparable growth shortfalls of European and Japanese consumers. The net result is a lingering weakness in global trade that restrains the export-led growth impetus in nations like China which, in turn, underscores the need for rebalancing toward more self-sustaining internal demand.