Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs and senior lecturer at Yale’s School of Management.

“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.” Stephen Roach, former Chairman of Morgan Stanley Asia told People’s Daily in an exclusive interview.

The renowned China economy expert says 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.

The following is a Q&A with Stephen Roach, who is now a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of the new book Unbalanced: The Codependency of America and China

China’s slowdown is largely attributable to a conscious shift to a rebalanced growth model

People’s Daily: Chinese leadership have urged focus on the quality of growth and on changing the structure of the economy, hence there is a consensus that China is adapting to ‘New Normal’ of Slower Growth. In USA, the recovery after financial crisis and great recession has been persistently weak. It seems both China and US are settling into a new normal. But by comparison, what are the differences between them?

Roach: There is nothing “normal” about the growth slowdowns now evident in China and the United States. China’s slowdown is largely attributable to a conscious shift to a rebalanced growth model – moving away from the hyper-growth long driven by exports and investment and underpinned by manufacturing and construction toward more of a consumer and services-led growth dynamic.

For any economy, a shift to services and consumption would entail slower underlying growth. But there is an important twist to this rebalancing of the Chinese economy: It need not imply a slowdown of labor absorption. To the extent that services continue to generate about 30% more jobs per unit of GDP than do manufacturing and construction, combined, the output slowdown need not be accompanied by weak employment and the attendant risks of such of an outcome for social instability.

America’s slowdown is more worrisome in that it reflects the aftershocks from the Great Crisis and the unusually severe recession of 2008-09. It continues to be impaired by the weakest consumption growth in modern history – a mere 1.3% average annual growth in real consumer spending since early 2008. This is an outgrowth of a wrenching balance sheet recession as consumers have pulled back from the debt-financed spending binge that was supported by two bubbles – property and credit – both of which have long since burst. In a balance sheet recession and its aftermath, deleveraging takes precedence over discretionary spending – and American consumers are following that script to a tee.

In short, China’s slowdown is a conscious outgrowth of a strategic rebalancing strategy whereas America’s slowdown reflects the outcome of a failed growth strategy. This points to an important asymmetry between the economies that must be addressed in the years ahead.