China Resurgence Notes - Fall 2009

China Growth to Slow in Mid-2010 as Stimulus Fades, Roach Says
By Indira A.R. Lakshmanan

Oct. 19 (Bloomberg) -- China’s growth will slow in the middle of 2010 as its stimulus package fades and weaker U.S. consumer demand fails to support an export-led recovery, said Stephen Roach, chairman of Morgan Stanley Asia.

China cannot count on a surge in exports to sustain growth kick started by a $586 billion stimulus package “because external demand -- courtesy of what is likely to be a multiyear shakeout due to the overextension of American consumer -- is not going to come back,” Roach, who is based in Hong Kong, said today at the Council on Foreign Relations in Washington.

Roach estimates the Chinese economy will reach its 8 percent growth target by year-end, thanks to infrastructure spending “funded by an absolutely unprecedented binge of bank lending.” The world’s third-largest economy expanded at an average rate of 7 percent in the first half of this year.

China’s economy may grow 8.5 percent this year, with growth in the second half accelerating to more than 9 percent, Caijing Magazine reported on its Web site late yesterday, citing Yu Bin, head of the macro-economic research department at the State Council Development and Research Center.

The “investment share of the Chinese GDP is now a number north of 45 percent,” Roach said. “No country has ever experienced a number that large and gotten away with it for long.”

While a boom in exports reignited faltering Asian economies following the Asian financial crisis in 1997-98, “it’s not going to work this time,” Roach said.

Economic growth may accelerate to 8.9 percent in the third quarter from 7.9 percent in the second and 6.1 percent in the first three months of this year, according to a Bloomberg News survey of economists.

To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

Last Updated: October 19, 2009 16:57 EDT