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Why Slower Growth Is GOOD for China: Stephen Roach

Daily Ticker

The former chairman of Morgan Stanley Asia says the conventional wisdom about China’s slowing economy is wrong. Growth may be slowing but there’s no crisis or hard landing looming, says Stephen Roach now a senior fellow at the Yale School of Management.

He tells The Daily Ticker that China’s economy had been growing at an “unsustainable blistering 10% annual rate for over 10 years” and is now in transition from an economy led by exports to one targeting domestic consumption and services, and that’s a good thing.

“Services generate about 35% more jobs per unit of GDP than manufacturing and construction,” says Roach, adding that China can grow a lot slower pace, 7% or 8% for example, and still achieve the same employment, labor absorption, poverty reduction goals.

Related: Plenty of Things to Worry About in China, Bird Flu is Not One

Perhaps, but a private survey on Monday showed that China’s services economy in April grew at its slowest rate in almost two years. The HSBC China Services Business Activity Index declined to 51.1 in April from 54.3 in March, the lowest level since August 2011.

“There will be bumps in the road," Roach acknowledges.

China’s GDP growth has been slowing steadily since it last hit double digits—at 10.4%--in 2010. By first quarter this year its GDP growth was 7.7%, but that’s still far higher than U.S. growth at 2.5% and negative growth in the Eurozone.

Related: China Has Been and Will Continue to Be a Bad Place to Invest: Jim Chanos

Roach tells The Daily Ticker that investors should view China as a growing consumer market and “one of the greatest opportunities they will see in the remainder of their lifetimes.”

Consumption in the second largest economy of the world currently accounts for 35% of China’s GDP compared to 70% in the U.S, leaving plenty of room for growth in China, says Roach.

Related: China vs The West: I'm Bullish on America in the Long-Term, Says Niall Ferguson

“When you grow with a services-based economy you do not need the hyper-growth that you do with manufacturing and construction," he says. "This is a conscious effort on the part of the Chinese leadership to relieve some of the pressures and imbalances that have building over the last 15 to 20 years.”

He advises investors “to seize the opportunity big time” by buying into companies that take advantage of surge in discretionary buying by China’s growing middle class—in stores and online.

He would not provide specific company names.

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