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Morgan Stanley Chief Economist: Why RMB Not to Be Revalued
Despite his report on the sluggish European economy, Morgan Stanley chief economist Stephen S. Roach set the ball rolling by saying that China had become a whipping boy of a world of disorders, and he personally believed that complaints from the comparatively enfeebled countries were not right.

After his two-week-long Europe tour, he came to China to deliver his report, Roach said, wherever he went in Europe he met with people talking about China. And most of them were saying that the country was gaining advantages in an unfair way in competition since RMB is pegged to the US dollars that was on dropping.

The question is, Roach believed that it's difficult to say whether other countries could get more opportunities should China revalue its RMB, because China's competitiveness was chiefly rooted in its labor cost, technology, infrastructure facilities, personnel capital and its enthusiasm and perseverance for reforms. Only when greater progress is achieved in the reform of financial industry can capital account be opened to the outside world and RMB to float freely. The world must learn how to co-exist with China. The continuous criticism to a scapegoat like China from Europe and Japan only reflects how disappointing their own economy is, held Roach. And he reminds people of a fact that the world is centering too much on the US, while the latter is altering its role engendered by the world economic growth to a source of unsteadiness for global economy.

Moreover, a Newsweek article recently points out that China is likely to become the fourth biggest engine in salvation of the would. China still needs a few years to reasonably become a strong source of world economic growth, pointed out Roach. With a GDP growth accounting for 17.5 percent of the global figure last year, China's contribution to the world GDP growth ranks only next to that of the US. But China's GDP takes up only 4 percent of the world total, and the country remains a competitively small economy in overall scale as compared to many other countries. Now China is depending rather heavily on external demands, infrastructure construction investment and direct foreign capital. China has still to wait for a few years to see the rising of consumption groups.

Morgan Stanley made three adjustments in a couple of months on the estimation of China's economic growth this year, from 7 percent at year beginning to 6.5 percent after the outbreak of SARS, and further to a recent 7.5 percent.

Roach admitted earnestly "we are wrong" when explaining the matter. He said that when SARS was rampant Morgan Stanley was too pessimistic about China's economy, but later facts proved that the impact of the epidemic on economy was not so serious as imagined and many manufacturing industries were not touched. What's more, the speeding up of production and increase of export have made Morgan Stanley to add another 0.5 percent on its estimation at the year beginning.

(People's Daily July 9, 2003)

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