Rana Foorohar Interviews Stephen Roach

Stephen Roach spoke with Rana Foroohar about China's future:

It's been a turbulent year in china, with the uighur unrest, but also the amazing second-quarter gdp figures (growth was up 17 percent), which inspired trust in beijing. what's the level of political risk in china at the moment?
The key issue is always employment, which was hit very hard this year due to the export crash in Guangdong province. More than 20 million migrant workers lost their jobs there, and this is a huge factor in social stability. Of course, the government knows that growth is the antidote, and that's why the fiscal-stimulus plan pulled out all the stops, and bank lending soared. While I'm not one of the people who believe there is major political risk in China at the moment, there could be problems longer term if growth slows.

And what's the risk of that?
China will keep its momentum through the first half of 2010, but after that, if the U.S. continues to be weak, exports in China will continue to lag, and then it's very possible you'll see more unemployment. When they released the ­second-quarter GDP figures, there were a lot of congratulations internally and externally. But then they started getting more critical feedback. I wrote a piece in the Financial Times saying that they'd sacrificed quality for quantity in terms of growth. To their credit, the leadership responded, both in terms of slowing bank lending and signaling that a cooling of the stock market would be fine. I'm encouraged by that.

Newsweek subscription offers >

Rana Foorohar Interviews Stephen Roach | News