Fri, Jul 24, 2009 - Page 11 News List

Morgan Stanley says PRC must boost consumption

‘NOT GOING TO CUT IT’: The company’s Asia chairman said that without a safety net, consumers will save a lot of their income, which will inhibit consumption growth

BLOOMBERG

China needs to move faster to stimulate its domestic consumption to support the global economy, Morgan Stanley Asia chairman Stephen Roach said.

“They need to put a much better balance into their stimulus package and their macroeconomic structure,” Roach said in an interview on Bloomberg Television yesterday.

China is spending 4 trillion yuan (US$586 billion) to boost growth, most of it on infrastructure such as roads and airports.

The IMF said on Wednesday that China’s low debt level gives it room to increase government spending to counter rising unemployment.

Fixed-asset investment accounted for 87 percent of China’s economic growth, Roach said, adding that the government needs to spend more on social security, which he estimated represents only about US$90 a worker.

“Consumers lacking a safety net save to excess — and that inhibits the growth of more broadly based consumption,” Roach said.

He said US$90 “goes a long way in China, but that’s just not going to cut it.”

Weak consumption means the nation can’t be the main driver of global growth, he said, estimating China’s population of 1.3 billion generates about US$2 trillion in demand, compared with the US$10 trillion in the US, which has about a quarter of the population.

“The difference between these two markets and what they can do for driving the global economy are like night and day,” Roach said. “China cannot lead the world out of recession.”

The IMF said that rebalancing China’s economy too rapidly toward domestic consumption “could raise unemployment as jobs are shed in export-oriented sectors.”

China’s unemployment rate is projected to rise to an annual average of 4.4 percent this year from 4.1 percent last year, the IMF report said. China’s official urban jobless rate, which understates unemployment because it excludes millions of migrant workers, was 4.3 percent in the first quarter.

IMF directors “generally saw further room for a targeted, additional stimulus aimed at increasing private consumption through near-term fiscal measures to raise household income,” the report said.

The IMF’s assessment contrasts with that of the World Bank, which last month advised China to delay any additional spending until next year.

China’s economic growth accelerated to 7.9 percent in the second quarter from a year earlier because of record lending in the first half of the year. It expanded 6.1 percent in the first three months of the year.

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