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China Likely to Avoid Japan’s Mistakes, Roach Says: Tom Keene

June 06, 2011

June 6 (Bloomberg) -- China’s policy makers are positioned to extend the country’s rapid growth and avoid the mistakes made by Japan when its economy slowed in the 1990s, according to Morgan Stanley’s Stephen Roach.

“There are a lot of similarities: the export-led model, the currency suppression, the rapid buildup of foreign currency reserves, the industrial policy run by an elite,” said Roach, non-executive chairman of Morgan Stanley Asia Ltd. in New York, in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The main difference for me is China has a strategy to change the model, Japan did not, and they have the commitment to implement that change and wherewithal to do it, and Japan did not, as well.”

Roach, 65, returned last year from Hong Kong, ending a three-year stay, to work at Morgan Stanley in New York and take a teaching post at Yale University.

China’s five-year economic plan calls for an expansion in services to 47 percent of output from 43 percent, according to Roach. Industries such as wholesale trade, retail trade, supply chain management, hospitality and leisure are poised to grow especially quickly, said Roach, Morgan Stanley’s former chief economist.

President Barack Obama’s policy of emphasizing exports as a major component of the economic recovery is buttressed by an expected increase in Chinese demand for U.S. goods, Roach said.

China Outlook

“China is our third-largest and most rapidly growing export market,” Roach said. “As they migrate from the export- and investment-led recovery to the consumer-led recovery, the demand for high-quality goods produced in the West, especially in the United States, will only grow. That’s the area that we need to look at as an opportunity for a growth-starved U.S. economy.”

Canada and Mexico import more from the U.S. than China, trade data show.

The decision by the Nobel laureate Peter Diamond to withdraw his nomination to the Federal Reserve is “a real tragedy,” Roach said. Diamond’s withdrawal was announced in his opinion article posted on the New York Times website, citing Republican opposition.

“Here’s a guy who knows as much about the labor market as any living economist in the U.S. today and yet is a victim of political sabotage,” Roach said. “The polarization, the dysfunctionality of our political process in Washington right now is in a league of its own. It’s a real tragedy for the need to get talent into running the government at all levels. I don’t know anybody who wants to subject themselves to this process.”

--Editors: Dennis Fitzgerald, Greg Storey

To contact the reporters on this story: Daniel Kruger in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Dave Liedtka at

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