U.S., China Yuan Dealings May Turn ‘Contentious,’ Roach Says
The U.S. view that China is keeping its currency undervalued in order to boost exports will foster a “more contentious” relationship between the two nations, said Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong.
The convergence of mounting U.S. unemployment and next year’s Congressional elections will make it easy for both Republicans and Democrats to criticize China, Roach said in a Bloomberg Television interview aired today in New York.
“It will get more contentious as we move into 2010,” he said. “There’ll be a lot of cries on both sides of the aisle to do something about the plight of the American worker. China is, unfortunately, the whipping boy in many of these discussions.”
The U.S. Treasury Department yesterday criticized China in a semiannual report to Congress, saying “the recent lack of flexibility of the renminbi exchange rate and China’s renewed accumulation of foreign-exchange reserves risk unwinding some of the progress made in reducing imbalances.” The Treasury stopped short of branding China a manipulator of its yuan, also known as the renminbi.
Roach, author of the newly released book “The Next Asia: Opportunities and Challenges for a New Globalization,” said the U.S. must think “long and hard” about its relationship with China, which has financed America’s appetite for consumer goods by buying Treasury securities.
Less Influence
China may “move outside the sphere of influence of the U.S.” as its domestic demand rises and exports become a smaller contributor to growth, he said. “The time will come when they are less reliant on us,” Roach said. “We still need an international lender of last resort. Who’s going to help us out, it’s a fair question.”
China needs to boost investment in social security, private pensions, and insurance for unemployment and medical care, Roach said, to prompt its consumers to save less and buy more goods from overseas.
“Until they can address that key issue, the development of a broad-based consumer culture is still too far out in time,” Roach said.