Stephen Roach on the Next Asia

As Morgan Stanley's chief Asia specialist, getting Asia right is Stephen Roach's personal obsession, and this in-depth compilation represents more than 70 of Roach's key research efforts not just on Asia, but also on how the region fits into the broad context of increasingly globalized financial markets. The book argues that the "Asia factor" is not a static concept, but rather one that is constantly changing and evolving. Broken down into five parts–Asia's critical role in globalization; the coming rebalancing of the Chinese economy; a new pan-regional framework for integration and competition; and a frank discussion of the biggest risk to this remarkable transformation–this book will help readers understand and profit from the world's most dynamic region.

Acknowledgments ix

Introduction xi

CHAPTER 1 A WORLD IN CRISIS 1

A Subprime Outlook for the Global Economy

Save the Day

Coping with a Different Recession

Davos Diary: 2008

Double Bubble Trouble

Even When the Worst Is Over—Watch Out for Aftershocks

Pitfalls in a Postbubble World

Panic of 2008: Enough Scapegoating

Global Fix for a Global Crisis

Changing the Fed’s Policy Mandate

An Early Leadership Opportunity for Barack Obama

Dying of Consumption

Uncomfortable Truths about Our World after the Bubble

A Postbubble Global Business Cycle

America’s Japan Syndrome

Whither Capitalism?

After the Era of Excess

Same Old, Same Old

Depression Foil

CHAPTER 2 THE GLOBALIZATION DEBATE 89

Open Macro

The Battleground of Globalization

The Global Delta

Beggars Can’t Be Choosers

Perils of a Different Globalization

Bad Advice and a New Global Architecture

Doha Doesn’t Matter

Global Speed Trap

Hitting a BRIC Wall?

Global Comeback—First Japan, Now Germany

Labor versus Capital

Global Lessons

From Globalization to Localization

Unprepared for Globalization

The Currency Foil

The Shifting Mix of Global Saving

CHAPTER 3 CHINESE REBALANCING 169

China’s Rebalancing Challenge

A Commodity-Lite China

Scale and the Chinese Policy Challenge

China’s Great Contradiction

Soft Landing Made in China?

The Great Chinese Profi ts Debate

China Goes for Quality

Heavy Lifting

Two Birds with One Stone

Unstable, Unbalanced, Uncoordinated, and Unsustainable

China’s Global Challenge

Consumer-Led Growth for China

China’s Macro Imperatives

Manchurian Paradox

CHAPTER 4 PAN-ASIAN CHALLENGES 261

The Next Asia

Rebalancing Made in Japan?

From Beijing to Dubai

A Tale of Two Asias

Kim’s Boost to Globalization

Japan’s Missing Link

India on the Move

The Cranes of Dubai

Asian Decoupling Unlikely

The Korea Test

Asia’s Policy Trap

Complacency Asian Style

The End of the Beginning

Another Asian Wake-Up Call

India’s Virtuous Cycle

Risks of an Asian Relapse

CHAPTER 5 U.S.-CHINA TENSIONS 327

A Slippery Slope

Past the Point of No Return

Debating U.S.-China Trade Policy

Who’s Subsidizing Whom?

Protectionist Threats—Then and Now

The Ghost of Reed Smoot

China’s Pace, America’s Angst

The Politics of Trade Frictions

A Wake-Up Call for the United States and China:

Stress Testing a Symbiotic Relationship

Afterword 395

Sources 403

About the Author 407

Index 409

"As Chairman of Morgan Stanley Asia and a renowned economist, Stephen Roach has a solid macroeconomics background, in-depth understanding of the region, rich knowledge of various industries, and an open mind. In this book, Steve vividly describes the changes of Asia -- and the driving forces behind those changes。Furthermore, he brilliantly points out the challenges Asia is facing, as well as its impacts on the global economy. Asia is reshaping the global economy in this post-crisis world, and I believe this book provides us with unique insights as to how this reshaping is playing out."
—Dr. Zhu Min, Group Executive Vice President, Bank of China

"Stephen Roach has for many years been a uniquely independent voice among international economic commentators. He was one of the few who warned that the debt-fuelled 'casino' economy was unsustainable. His prophetic warnings came to pass in 2008. In his latest book he issues another warning. Asia's explosive growth has been based on a 'bet' upon deep integration with the global economy. Stephen Roach argues that this growth is unsustainable in the face of the global recession. The region needs comprehensively to re-balance its economic model if it is to maintain its remarkable growth. He warns that this will not be easy. Stephen Roach's book is essential reading for those who hold the comfortable belief that Asia has 'de-coupled' from the world economy."
—Prof Peter Nolan, CBE, Sinyi Professor, Judge Business School, and Chair, Development Studies, University of Cambridge, UK

"... Roach besticht durch eine klare Analyse und verfügt über spannende Insiderkenntnisse..."
Welt am Sonntag, 11.10.2009
Stephen S. Roach has been a thought leader on Wall Street for over thirty years. Currently the Hong Kong based Chairman of Morgan Stanley Asia, for the bulk of his career he served as the firm's chief economist, heading up a highly regarded team of economists around the world. His recent research on globalization, the emergence of China and India, and the capital market implications of global imbalances has appeared widely in the international media and in testimony before the U.S. Congress. Prior to joining Morgan Stanley in 1982, he worked in senior capacities at Morgan Guaranty Trust Company and the Federal Reserve Board in Washington D.C. He holds a PhD in economics from New York University and was a research fellow at the Brookings Institution. He is a jet-lagged resident of multiple time zones, splitting his time between eight Asian countries and his family home in Connecticut.

As the most dynamic and rapidly growing region in the world over the past decade, Asia has attained a new level of prosperity. Yet Developing Asia's newfound economic ascendancy remains precarious. As 2008 came to an end, every economy in the region had either slowed sharply or tumbled into outright recession. Far from having the autonomous capacity to "decouple" from weakness elsewhere in the world, export-led Developing Asia had become even more tightly tied to foreign markets than was the case a decade earlier. The once-bright future is now uncertain. Investors, business managers, policymakers, and political leaders all need to dig more deeply to uncover the challenges, opportunities, and risks that lurk in this critical region.

In Stephen Roach on the Next Asia, Morgan Stanley's Asia Chairman offers his views on where the Asian economy has been and where it is going. This collection of essays, written by Roach over the past three years—three of the most tumultuous years in modern economic history—tells how the Asia story has played out to this point and what that saga portends for the future. Roach looks at the global economic crisis and the debate over globalization. He details China's challenges in rebalancing its economy and examines U.S.-China tensions over trade policy. And he analyzes the additional challenges facing Japan, India, and Korea. Drawing insight from what went right and wrong, the author attempts, in a concluding chapter, to paint a picture of what it may take to realize the hopes and dreams of the Asia Century. Macro risk assessment, he reveals, is critical to understanding the forces that will shape the Next Asia.

And the Next Asia is already coming into focus. Consistent with the region's penchant for change, it looks to be very different from the Asia of the past thirty years. The transition from old to new will need to be driven by a major rebalancing of its economy—with export- and investment-led growth giving way to a more balanced macro structure, increasingly supported by internal private consumption. For all those who want to deepen their understanding and capitalize on these changes, Stephen Roach on the Next Asia provides an invaluable guide.

Praise For Stephen Roach On The Next Asia

"Stephen Roach's penetrating insights into the linkages between Asia and globalization—past, present, and future—should be required reading for policymakers, economists, and anyone else who has an interest in the future of the world economy."
—Jeffrey E. Garten, Professor and former dean, Yale School of Management, former Undersecretary of Commerce for International Trade, Clinton Administration

"Stephen Roach warned us about the global financial crisis years before it exploded in 2007. Now, based on decades of experience, he offers a book full of penetrating insights about the mistakes we've made and the opportunities that await us in the New Asia. If policymakers from the United States and China heed his words, the world will be a safer, more prosperous place."
—Bill Bradley, former United States Senator

"This book presents a fresh Asian perspective in understanding the root cause of the global financial crisis. Its panoramic and penetrating analyses are adding value to the existing debate on the future of Asia."
—Liu Mingkang, Chairman, China Banking Regulatory Commission

"Stephen Roach's articles on Asia give the reader an authoritative and highly readable overview of the many fascinating aspects of Asia's new emergence on the global scene. Based as he is in Asia, he has produced a must-read volume for anyone wanting to get a flavour of a mega trend that is already evident and one that is expected to continue."
—Montek Ahluwalia, Deputy Chairman, Planning Commission, Government of India

"Debate rages over whether Asia has become the new engine of growth in a post-crisis global economy. Stephen Roach challenges this presumption and provides timely insight as to what China and the rest of Asia need to accomplish in order to step into thisimportant role."
—Laura D'Andrea Tyson, Professor, Haas School of Business, UC Berkeley and former chair, White House National Economic Council, Clinton Administration

"Roach has enjoyed a ringside seat in Asia through the crisis. The combination of economic and business analysis gives him a unique perspective. His warning that globalization is fragile and that we run the risk of a retreat to localization deserves to be taken veryseriously indeed by policymakers and business people alike."
—Howard Davies, Director, London School of Economics, former executive chairman, UK Financial Services Authority

"Stephen Roach’s prescient collection of insights and analyses, from his many years in Asia as one of the most experienced decoders of China’s political and economic trends, are cogent, valuable, and immensely helpful."
—Henry A. Kissinger