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Why Nouriel Roubini Is Wrong on China's Economy
CNBC.com | April 19, 2011 | 12:52 PM EDT

Famed bearish economist Nouriel Roubini has been making waves for arguing China's economy will suffer a hard landing after 2013. He reasons its 47 percent fixed investment share of GDP, 30 percent savings rates, and low wages will cause a deflationary spiral much like in Japan. Roubini called the recession in America and is no lightweight economist.

However, Roubini is wrong about China because he surprisingly misunderstands basic trends on income, demographics, and investment there.

He argues the mainland has similar savings rates to Hong Kong and Taiwan. Consumers in all three economies save nearly 30 percent of disposable income, so Roubini trots out the cultural argument that Chinese save despite strong safety nets. Nothing can be done to spur consumption according to this reasoning. Digging deeper indicates Roubini needs to take out a bigger shovel and bury old stereotypes.

My firm interviewed 5,000 Chinese in 15 cities last year. It is true consumers over the age of 60 reported savings rates near 60 percent because they feared soaring medical and housing costs. After living through decades of upheaval and missing out on the recent economic boom, they remain thrifty. Little can be done to change decades of ingrained habits.

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