Aug 12, 2026 · 20 min · 10 segments
The Year of the Trojan Fire Horse: China’s imbalanced economy and unrelenting mercantilism While there’s plenty of evidence to support Stephen Roach’s thesis of unsustainable imbalances in China’s…
Michael CembalestHostSo Stephen Roach is, uh, used to be the head Morgan Stanley economist in Asia.
Soaring exports relative to imports, weak private sector and s- and state-driven, um, fixed investment, um, both of which look pretty poor, very weak retail sales.
China, uh, a well-publicized and, um, housing collapse that's been ongoing now for five years.
Uh, and on top of all that, a very high level of precautionary household savings.
And so one of the charts we have on the Eye on the Market looks at the domestic savings rates of the top ten economies in the world.
China's off the charts at about forty-five percent compared to anywhere from fifteen to thirty for the rest of the, um, largest economies in the world.
Um, and here's a chart that pulls some of those different strands together.
Home sales, fixed asset investment, reas- retail sales look weak or at best flat.
Um, exports are soaring and the parts of the industrial production segment that are supportive of exports is doing well.
And so Roach talks about how unsustainable that is and, um, you know, behind the scenes, a lot of Wall Street economists on China that I talk to agree in the long run.
We do track a lot of near-term contemporaneous data in China, and they're kind of bouncing up and down.
None of them are falling off a cliff, and so, for example, the China manufacturing and services sector surveys from the PMI are kind of going nowhere.
And then there are these things that people put together called China Monitors.
Uh, and the, the purpose of them is to avoid the official GDP and other data compiled by the government and look at more cleanly observable data.
Coal and electricity consumption, uh, traffic congestion, subway flow, air pollution, dry bulk freight.
These things are kind of indicators of what's going on in the pace of the economy.
And, uh, while one of them is rolling over, it's coming off a high level, and then the second one we looked at, um, is kind of flat, and many of the underlying components are, are very similar.
So Stephen Roach is, uh, used to be the head Morgan Stanley economist in Asia.
Soaring exports relative to imports, weak private sector and s- and state-driven, um, fixed investment, um, both of which look pretty poor, very weak retail sales.
China, uh, a well-publicized and, um, housing collapse that's been ongoing now for five years.
Uh, and on top of all that, a very high level of precautionary household savings.
And so one of the charts we have on the Eye on the Market looks at the domestic savings rates of the top ten economies in the world.
China's off the charts at about forty-five percent compared to anywhere from fifteen to thirty for the rest of the, um, largest economies in the world.
Um, and here's a chart that pulls some of those different strands together.
Home sales, fixed asset investment, reas- retail sales look weak or at best flat.
Um, exports are soaring and the parts of the industrial production segment that are supportive of exports is doing well.
And so Roach talks about how unsustainable that is and, um, you know, behind the scenes, a lot of Wall Street economists on China that I talk to agree in the long run.
We do track a lot of near-term contemporaneous data in China, and they're kind of bouncing up and down.
None of them are falling off a cliff, and so, for example, the China manufacturing and services sector surveys from the PMI are kind of going nowhere.
And then there are these things that people put together called China Monitors.
Uh, and the, the purpose of them is to avoid the official GDP and other data compiled by the government and look at more cleanly observable data.
Coal and electricity consumption, uh, traffic congestion, subway flow, air pollution, dry bulk freight.
These things are kind of indicators of what's going on in the pace of the economy.
And, uh, while one of them is rolling over, it's coming off a high level, and then the second one we looked at, um, is kind of flat, and many of the underlying components are, are very similar.
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