Consumption Junkies?

By Candyce Torres and Suzia Van Swol, University of New Mexico-Talk Radio News Service.

“In terms of diagnosing what’s happened to the Chinese economy, it
doesn’t take a rocket scientist to figure out what’s going on. Of all
the major sectors of the Chinese GDP, the one sector that has by far
increased the most since the turn of the century is exports. (from 20%
in 2001-36% in 2007)” said Stephen S. Roach, Chairman of Morgan
Stanley Asia at a hearing on “China’s Role in the Origins of and
Response to the Global Recession”.

U.S. consumption is the main driver of the external demand that China
faces, and if the U.S. is amidst a consolidation, it raises challenges
for Chinese policy makers. If China experiences slow consumption and
their export drive doesn’t come back, it creates tough challenges for
the bilateral trade and financing relationships between the two
countries. “You have to be very careful about pointing the finger at
China in causing problems in the United States, whether its through
trade or funding America’s consumption binge. No one forced American
consumers to live beyond their means. The Chinese certainly didn’t,”
said Roach.

Roach warns that America ran trade deficits with a hundred countries
last year, so if China is held responsible for currency manipulation,
the Chinese part of our trade will just go somewhere else, and it will
most likely be a higher cost producer which taxes the middle class
Americans.

Also present at the hearing was International Trade and Services Professional
Mr. Robert Cassidy. He indicated that there are some distortions in trade.
Cassidy stated that what we need to do from a policy perspective is to focus on
aspects such as the continuation of China appreciating its currency. He expressed
that there should be no diversions from the US dollar holdings to others because this would
cause the dollar to depreciate further resulting in greater foreign
exchange reserves. “We tend to look at things in a short term
perspective when i think that it would improve us to look at a some
what longer term perspective and I think this is where China’s role
comes in.” concluded Cassidy