Stephen Roach says China banking crisis fears overblown

Date: Thursday 26 Jan 2012

The current investment backdrop has several critical pieces which are in constant motion, so it is sometimes not easy to pick out the most important variables. One of those however is quiet clear, the outlook for the Chinese economy.

If growth in the United States and China hold up then that would undoubtedly be positive for the global economy.

It is for that reason that remarks from Morgan Stanley’s ex-Chief Economist, Stephen Roach, to the effect that fears of a banking crisis in China are "overblown", have caught our attention.

Mr.Roach was being interviewed by Bloomberg TV at the World Ecoomic Forum now underway in Davos.

Also worth noting, he added that he “would not add much downside to that (referring to estimates for a slowdown in Chinese economic growth to below 8% to 8.5%).”

Nonetheless, this economist is worried by what seems to be the excessive recourse by central banks in the developed world to so-called ‘non-standard’ measures, as in his opinion they do not fix the underlying problem, the lack of real savings.

As well, he did mention the existence of ‘black swan’ risks for China, such as a disorderly break-up of the European Monetary Union (EMU). He does not expect such an outcome, but given the somewhat confused political leadership to date, he added that, ”you can never say never.”

Particularly worth noting, his reference to the recent 14 crises seen in Europe during the past 24 months, and how rising unemployment will complicate matters.

AB

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