“The next China will increasingly be about internal private consumption,” Roach said in a recent speech to the American Chamber of Commerce in Singapore. In his new book ‘The Next Asia’, Roach explains that China has become too dependent on exports and investments, which drove its economic success and accounted for almost 80 per cent of GDP. But with the end of the global economic boom, China experienced a sharp contraction in export growth late last year and its industrial output growth fell into the low single-digits.
This, says Roach, was a “wake-up call for Beijing,” as well as for the export-led Asian region. Roach notes that Chinese premier Wen Jiabao had cautioned that although China’s economy appeared robust on the surface, beneath the surface it had become increasingly “unbalanced, unstable, uncoordinated, and unsustainable”. The premier gave this warning as early as March 2007 at the conclusion of the National People’s Congress.
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China’s internal private consumption, which accounts for just 35 per cent of GDP, is currently declining, while its services sector, which accounts for 40 per cent of GDP, is also falling. Roach points out that no major economies in the modern history of the world have figures that low, but he believes they will rise “as China responds to the imperatives of the post-crisis world.”
And as China leads the rest of Asia in economic growth, it will provide “huge opportunities” for Singapore, Hong Kong, Japan, Korea and Taiwan to tap into China’s economic ascendancy through exports, says Roach.
Roach adds that as China drives the economic transformation of Asia, it will bring about several benefits. For starters, there will be a better economic balance in the global economy, as Asia becomes more self-sustaining. For China’s part, by broadening its macroeconomic drivers from investments and exports into internal private consumption, China can better deal with the significant inequities and disparities in income distribution, which will address potential social unrest.
And as China shifts towards internal private consumption, Asian economies will reduce their surplus in savings, current account and trade, and take structural steps to relieve some of the bubbling trade tensions, says Roach.
Lastly, the transition from capital-intensive and labour-saving manufacturing-led growth to a labour-intensive and increasingly services-based consumer growth model will help increase employment and reduce poverty.
‘Stephen Roach on The Next Asia: Opportunities and Challenges for a New Globalization’ is published by Wiley.
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