China Dialogue: A conversation with Stephen Roach on Chinese Dream
Ex-Chairman of Morgan Stanley Asia & Morgan Stanley Chief Economist Stephen Roach
Ever since Chinese President Xi Jinping championed the Chinese Dream concept at start of his tenure last
Having followed China’s economic scene for more than 30 years, the former Chairman of Morgan Stanley Asia
The American financial guru joined the China Dialogue show from the People’s Daily Online Business
Host: I know you’ve been following China’s political and economic scene for the last 30 plus years. So you must have noticed that China has now had a new guiding principle, a new political doctrine – the Chinese Dream put forward by Chinese President Mr. Xi Jinping. So what’s your understanding of the Chinese Dream?
Roach: I think they are trying to raise the expectation of the Chinese people about the future and the government’s commitment to that future. And I think that’s very important. But it’s also very important to recognize that this is more of a slogan than a concrete program.
But I think the combination of the slogan and a series of concrete policies as outlined in the 12th Five Year Plan as well as in the recently concluded Third Plenum, is a powerful message to China, to its people and to the rest of the world – that the new government is very serious about moving to a more balanced and sustainable economic model in China that will allow the growth miracle of the last 30 years to continue for quite some time. And I think that’s the dream that the last 30 years is not an exception, but in fact can be sustained for years to come.
Host: Then, based on your expertise, how attainable do you think is the Chinese Dream, really?
Roach: I think the government will be successful in rebalancing its economy and in dealing with the structural issues that have kept the economic growth focused too much for too long on external demands and not enough on internal demands.
In the same sense, I don’t want to underestimate how difficult it is for any nations to deal with the structural issues. We’ve seen time and again countries in the developed world, beginning with Japan over 20 years ago and continuing with the crisis with America and the crisis in Europe, struggle with the structural issues. It is very difficult to address these structural changes in a timely and forceful way that doesn’t put pressure on people and the citizens. The government has got to be able to work toward and be committed to these plans.
Host: The next question is about the global dimension of the Chinese Dream. You know, Chinese President Xi Jinping has emphasized that the Chinese Dream is connected to the beautiful dreams of the people in other countries. It will not only benefit China, but also countries all around the world. So how do you think the so-called Chinese Dream will affect the United States economically?
Roach: Well, I think there are two major channels of impact. One, the US does need a new source of growth, and the emergence of the Chinese consumer could provide a new important source of growth for US exports; you know, China is America’s third-largest and most rapidly growing export market. So, that’s a big opportunity that China offers, the transformation in China and the Chinese Dream will offer the US.
But it’s also a potential negative from an American’s point of view. And that is by consistently running a high-savings economy, China has every year for the last 15 years invested a sizable sum of its rapidly growing foreign exchange reserves into treasury securities and other dollar-based assets. As China becomes more of a consumer, the surplus savings will be reduced, and the government’s demand for dollar-based assets will also slow down. And that could be a problem for the United States who has become overly reliant on foreign capital especially Chinese capital to fund big budget deficits. So, there could be some pressure coming out of this, not really because of China, but because of America’s inability to deal with its own internal saving and budget deficit issues.
Host: Still on the Chinese Dream, President Xi also stressed that the Chinese Dream is a dream for peace, development, cooperation and mutual benefit for all. But some China doubters worry that the more the Chinese dream comes to fruition, the more aggressive, or expansionist, China will become. Have you heard of the “China threat” theory?
Roach: Yes, I’ve heard people talk about that: You know, China’s investment is an offense and some of the cyber issues that have been getting a lot of attention – they are hacking US computer systems. In recent years, there have also been charges about China’s currency and unfair trade practices. I think most of these concerns have been exaggerated.
Host: There is a view, which says, China was just an imaginary enemy. Taking China as an imaginary enemy can enhance crisis awareness. Some politicians use China threat as a “trick” to avoid domestic problems and win votes.
Roach: I don’t know if it’s a trick. Take the case of the United States. The US has a lot of serious economic problems. We tend especially during the political campaign to blame a lot of these problems on others, especially China, the big trade deficits we run with China. I have studied that particular issue a lot, and my conclusion is America’s trade deficit with China is more a function of our inability to save in the United States than it has to do with the Chinese currency, which of course has appreciated over 30 percent against the dollar since the middle of 2005, than anything else.
So, I think that’s an example of us using an imaginary threat as an excuse for failing to tackle our own problems like the low savings of households, and massive government deficits, here used for our politicians to blame China than seemingly to accept responsibilities for those problems for ourselves. And that’s too bad; it’s a very serious concern of mine.
Host: So, do you think some of the Western mainstream media are biased toward China?
Roach: I think there’s some of that. There are a lot of stories that get written everyday about the problems in China. The Chinese economy certainly has problems; every economy has problems. Yet the focus of the Western media is largely biased toward emphasizing problems rather than strengthening opportunities. That’s unfortunate, and you know, a lot of it has to do with the ideology of the Chinese Communist Party, which is something the West is not willing to accept or appreciate.