Morgan Stanley's Stephen Roach on China and India

by: Ezra Marbach

From Morgan Stanley economist Stephen Roach’s November 21st essay:

With the important exception of India, Asia remains very much an external demand story -- aiming its rapidly growing production platform at providing stuff for the overly-indulgent American consumer. Two numbers say it all: In 2004, Chinese consumption fell to a record low of 42% of its GDP, whereas America’s consumption share held near a record 71%. With 35-40% of Chinese exports going directly to the US, there can be no mistaking the dichotomy of the roles played by the rich and the wannabes. With the rest of Asia now increasingly integrated into a China-centric supply chain, the region remains far more skewed toward US-centric external demand than internal consumption. India’s consumption-led growth dynamic is encouraging, but with per capita spending of only about US$400 per year, the global impact remains trivial at this point in time.

As I speak with businesspeople, government officials, investors, and political leaders around the world, I am struck by one thing these seemingly diverse groups all seem to have in common -- they recognize the unexpected pitfalls of globalization but they have no plan as to how to repair the damage. The other day in Beijing, a senior Chinese government official threw up his hands in exasperation, when he nearly pleaded with me, asking, “What can China do to reduce the bilateral trade tensions with the US?