China’s Growth Puzzle

China’s rebalancing will enable it to absorb its surplus savings, which will be put to work building a social safety net and boosting Chinese households’ wherewithal. As a result, China will no longer be inclined to lend its capital to the US.

For a growth-starved US economy, the transformation of its codependent partner could well be a fork in the road. One path is quite risky: If America remains stuck in its under-saving ways but finds itself without Chinese goods and capital, it will suffer higher inflation, rising interest rates, and a weaker dollar. The other path holds great opportunity: America can adopt a new growth strategy – moving away from excess consumption toward a model based on saving and investing in people, infrastructure, and capacity. In doing so, the US could draw support from exports, especially to a rebalanced China – currently its third-largest and fastest-growing major export market.

Compared with other emerging economies, China is cut from a different cloth. China emerged from the late-1990’s Asian financial crisis as the region’s most resilient economy, and I suspect the same will be true this time. Differentiation matters – for China, Asia, and the rest of the global economy.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of .

Copyright: Project Syndicate, 2014.