West misinterprets Chinese economic outlook

In "China's Great Contradiction -- Part II" by Morgan Stanley's global chief economist, Stephen Roach, the author points out that it may be a serious mistake for a very long time for Western experts to use traditional macroeconomic concepts to analyze the Chinese economic outlook

In his article, Mr. Roach says that with China gaining power and increasing impacts on global economy, the Western experts still examine Chinese economy with orthodox macro framework, which causes misimpression about Chinese economy among the West. Mr. Roach states that the clearest example of this approach is related to the U.S. gaping trade deficit. In his opinion, it is not reasonable for the U.S. authorities and orthodox school in U.S. academic community to recommend a sharp appreciation of Renminbi relative dollar and to advice China to solve U.S.-China trade issues by self-examination since the bilateral imbalance with China accounts for the largest portion of the multilateral U.S. trade deficit.

Mr. Roach thinks the U.S. trade deficit as a multilateral problem caused by her unprecedented shortage of domestic saving. To "deal" with the Chinese piece of the problem simple means diverting one slice of the U.S. trade imbalance to other countries.

Mr. Roach does not deem appreciation of Renminbi as a panacea for the issue. He explains that an economy needs a well-developed market system to adjust quantities (i.e. trade flows) through changes in relative prices (i.e. foreign exchange rates), but China is still a blended economy with a still large state-owned sector and a relatively underdeveloped financial system. In order to address China's serious macro imbalances, Chinese authorities should hasten the pace of reforms in market economy while enhancing governmental management, he adds.

By People's Daily Online