Rebalancing of the economy(2)

The US, for its part, relied on cheap goods made in China to stretch hard-pressed consumers' purchasing power. It also became dependent on China's savings surplus to finance its own savings shortfall (the world's largest), and took advantage of China's voracious demand for US Treasury securities to help fund massive budget deficits and subsidize low domestic interest rates.

In the end, however, this codependency was a marriage of convenience, not of love. Frictions between the two partners have developed over a wide range of issues, including trade, the renminbi's exchange rate, regional security, intellectual property, and cyberattacks, among others. And, just as a psychologist would predict, one of the partners, China, has decided to go its own way.

China's rebalancing will enable it to absorb its surplus savings, which will be put to work building a social safety net and boosting Chinese households' wherewithal. As a result, China will no longer be inclined to lend its capital to the US.

For a growth-starved US economy, the transformation of its codependent partner could well be a fork in the road. One path is quite risky: If the US remains stuck in its under-saving ways but finds itself without Chinese goods and capital, it will suffer higher inflation, rising interest rates, and a weaker dollar. The other path holds great opportunity: the US can adopt a new growth strategy-moving away from excess consumption toward a model based on saving and investing in people, infrastructure, and capacity. In doing so, the US could draw support from exports, especially to a rebalanced China-currently its third-largest and fastest-growing major export market.

Compared with other emerging economies, China is cut from a different cloth. China emerged from the late-1990's Asian financial crisis as the region's most resilient economy, and I suspect the same will be true this time. Differentiation matters-for China, Asia, and the rest of the global economy.

The author, Stephen S.Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China. Project Syndicate