STEPHEN ROACH: 5 Key Things Will Tell Us If China's Economic Model Is Changing

Despite concerns about a Chinese economic slowdown, Yale professor and former chairman of Morgan Stanley Asia, Stephen Roach continues to be optimistic on the Asian giant.

During a debate with Jim Chanos of Kynikos Associates at Asia Society, Roach said he differs with Chanos on one key thing: China's ability to change its economic model.

Roach believes that China is rebalancing its economy and moving away from exports and investment, to consumption and services-led growth. Chanos on the other hand argues that China is unlikely to change its economic model, and if it does, it isn't imminent.

For proof of such change in the next two or three years, Roach is looking at 5 key things:

1. Reform of Hukou of the residential permit system.
2. Urbanization - The urbanization rate is expected to rise to about 70 percent in 2030, and they're building 100 new cities with a population of 1 million each. The urban city count will rise to 225 over the next 17 years. This is a capital intensive endeavor.
3. Reforms that will help consumer spending.
4. Liberalizing interest rates.
5. Shift in dividend policy of state owned enterprises (SOEs) who are piling up cash that needs to piled back into other objectives.

Chanos of course disagreed and said, "I don't believe that with or without an 18-year plan, that seven guys in a room can manage the economy and get it right. ...Central planning light is still central planning and it sows the seeds of its own demise. The model is fundamentally contradictory in the 21st century."