A good question. And who's asking it? Why Stephen Roach of course. He's fresh back for Morgan Stanley's annual global investment conference held this past week in Nassau. Among other observations about the international economic environment, his post yesterday contained the following insightful comment on China:
China finally made it to center stage this year. I have been pushing the bull case for China consistently at this conference over the last three years. The response has been lukewarm, at best – an interesting story but one filled with innumerable short-term risks (i.e., banks, rising unemployment, and still too many unprofitable companies) and an all-too-distant long-term payoff. This year, China was ubiquitous – present in virtually all aspects of our discussions. China’s deflationary influence was stressed by many as a powerful depressant on profit margins of western industry. China was also perceived to be unstoppable in any market-share battles in Asia or the broader global arena. In our session entitled "Search for Growth," no one wanted to consider Europe, Japan, or anywhere else in the world as a potential replacement for the stalled American growth engine. China was thought to be the only viable candidate.
China’s ascendancy at this year’s conference was indicative of the ultimate paradox that came out of the debate – the notion that the Authorities actually have the answer in an increasingly deflationary world. Not only is China a growing source of macro tension in the world from the standpoint of pricing and market share, but its impacts tend to overwhelm the traditional stabilization policies of other major economies in the world.
Source: Morgan Stanley Global Economic Forum
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