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Anti-China protectionism could rise in the West

(Xinhua)
Updated: 2010-01-21 13:33

Export sector strongly driving China's economy since 2000 risks rising anti-China protectionism in the West, said Stephen Roach, chairman of Morgan Stanley Asia, at a forum in Hong Kong Wednesday.

"China's exporters are still competitive, but the external demand is not there in the post-crisis period," he said at the Asia Financial Forum.

Roach cited multi-year pullback of US consumption, the biggest consumption market in the world, and potential trade friction, or protectionism.

Meanwhile, the unemployment rates stand around 10 percent in the US and Europe, and there is large trade deficits between China and Europe, and between US and China, he said.

"I think there is growing chance that some of the product by product trade sanctions we have seen imposed by the US and the EU Community in the final months of 2009 could spread," he said, adding "This worries me a lot."

Over the three-year period of 2005 and 2007, the US Congress introduced 45 separate pieces of anti-Chinese legislation, but not one of them passed, he said.

"The reason is the unemployment rate in the US during the period averaged 4.7 percent. It is more than double today," he said.

As the US Congress faces mid-term election later this year, this is going to be an enormous political pressure, "to be aggressive on the trade agenda," he said.

"I worry that politicians both Democratic and Republican alike will take their frustrations on China. This is of course a huge mistake," he said.

Roach said that China's economy registered stronger growth than any other major economies in the world in 2009, but the growth is not sustainable as it is mainly stimulated by investment.

To sustain growth, China should focus on domestic private consumption market with 1.3 billion people, he said.

First, the government should fund the social safety net, including social security, medical insurance, private pensions and unemployment insurance, he said.

"Only then, will Chinese families reduce excess of fear-driven precautionary saving," he said.

Secondly, the government need to provide far more aggressive support to rural incomes, as 800 million people live in rural areas, he said.

Thirdly, China should improve service sector, which now accounts for only 40 percent of the country's GDP, much smaller than in any other major economies.

The chairman said that it is encouraging that in China's next five-year program, the country will change its development mode by focusing on domestic consumption market.