Yuan Issue Completely Overblown: Stephen Roach
CHINA, ECONOMY, INFLATION, TRADE, EXPORTS, IMPORTS, SURPLUS, YUAN, CURRENT ACCOUNT, ROMNEY, OBAMA
Posted By: Deepanshu Bagchee | Supervising Digital Editor, CNBC Asia
CNBC.com
| 18 Mar 2012 | 11:00 PM ET
The value of China's yuan and its impact on global economic imbalances have been completely overblown, according to Stephen Roach, the former non-executive chairman of Morgan Stanley Asia.
Roach, currently a senior fellow at Yale University's Jackson Institute of Global Affairs, argues that China's current account and trade balances with the world are much closer to equilibrium than they've been in a long time. The country's current account surplus with the world fell to 2.8 percent of gross domestic product (GDP) last year from over 10 percent in 2007.
According to Roach, the problem lies with the U.S., which has trade deficits with 87 other countries.
"America has a multilateral problem that cannot be addressed by trying to put a lot of pressure on the Chinese currency, and we have a lot of multilateral problem in the U.S. because we don't save as a nation," he said. "Congress doesn't want to accept responsibility for the lack of U.S. savings, it's much more convenient for them to point the finger at China but that's not going to fix America's problems by any stretch of the imagination."
Trade with China and the value of the yuan have surfaced once again as hot-button issues with Republican Presidential Candidate Mitt Romney. Accusing China of cheating, Romney said he would label the country a currency manipulator for keeping the value of its currency artificially low, if he became President.
The Obama administration has also been talking tough on trade with China, creating a new government unit to investigate and counter unfair trade practices after the U.S. trade deficit with China rose to a record $295.5 billion in 2011.
According to the World Bank, exports made up 30 percent of China's GDP between 2007 and 2011, making the country especially vulnerable to external economic shocks. China's policymakers have been trying to rebalance the economy away from exports and towards domestic consumption and a services-based economy.
Roach said the shift would help China ease the pain from a global downturn because the services sector generates about 35 percent more jobs per unit of GDP, compared to the manufacturing and construction sectors.
"They can have slower growth but actually more labor-absorption per unit of output and maintain the social stability concerns and objectives that have long been at the heart of the Chinese model."
Roach said that despite Europe's debt crisis, he expected China to grow between 8 and 9 percent this year, which is higher than the government's official target of 7.5 percent.
He added that Chinese leaders needed to take the "opportunity" created by the second global slowdown in three years to move even faster to rebalance the economy.