China Development Forum

Stephen Roach of Morgan Stanley on latest China Development Forum. He is not expecting any near-term drastic changes in RMB policy.

"My bottom line for the markets: With China’s risk-reward calculus acutely sensitive to the all-important stability constraint, I read the message from this year’s China Development Forum as pretty much a green light on the growth front. 

As always, the highlight of this conference is a private session with the Premier in the Great Hall of the People.   Not surprisingly, this year’s discussions were framed around the hot topic du jour -- Chinese currency policy.  Our group of outside experts laid out both sides of the debate to Wen Jiabao.  He said nothing to tip his hand and simply reiterated that China continues to actively study the issue and is “now trying to select both the proper plan and timing for RMB reform.”  Here, as well, I suspect it will all boil down to stability.  In my own speech to the Forum, I stressed that the coming global rebalancing could have surprisingly important implications for Chinese stability -- especially for a dollar-pegged currency that gets caught up in America’s long overdue current account adjustment (see “China’s Rebalancing Imperatives,” presented to the China Development Forum, 20 March 2005).  Because of its rapid integration into the global economy and world financial markets, China may well find that its stability anchor is less secure than widely perceived.

At the end of the meeting, the Premier shook his head and exclaimed, “I cannot sleep well at night with this issue of the RMB.”   He then glanced at his watch and politely excused himself.  As we left the Great Hall, a noisy motorcade rolled up to the official entrance.  We went out one door, and US Secretary of State Condoleezza Rice literally went in the other door.  There was a lot on Premier Wen Jiabao’s plate that day.  The growth and currency debates are only one piece in the big Chinese puzzle.  But in the end, always think stability when it comes to China -- whether the issue is economic or geopolitical.  For that reason alone, and based on what I picked up at this year’s China Development Forum, I have little reason to doubt that China is once again going for growth."