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US-China ties could end badly: Scholar

Thursday, 27 Feb 2014 | 8:10 AM ET
US and China have 'co-dependent relationship': Expert
Thursday, 27 Feb 2014 | 6:35 AM ET
China's economy is on the ascendancy, while the U.S. needs to change or its economy will continue to decline, says Stephen Roach, "Unbalance" author, and Yale University senior fellow, discussing the economic relationship between China and the U.S.

The United States needs to break out of its co-dependent relationship with China before it's too late, the former chairman of Morgan Stanley Asia told CNBC on Thursday.

China is already taking steps to reduce its "unhealthy reliance" on the U.S., which has been slower to make reciprocal strides, said Stephen Roach, senior fellow at the Yale School of Management.

Exploring this relationship of economic superpowers in his new book "Unbalanced: The Codependency of America and China," Roach said in a "Squawk Box" interview that the two countries need to move in opposite directions for their mutual gain.

(Read more: Yuan to topple dollar as top reserve currency: Survey)

"China depends on the U.S. for exports … for the dollar to benchmark its currency. We depend on them for cheap goods to make life easy for American consumers, for saving, and buying Treasurys," he said.

China has been making a big push to try to become a more consumer-led economy.

"They are rebalancing their model to keep the growth and development story going, and that will certainly take them to a larger scale of their economy than ours in the next five to 10 years," he said.

Roach said the U.S. needs to alter its course to prevent China's resurgence from becoming a zero-sum game. "We continue to under-save, under-invest in people, infrastructure, and capacity."

(Read more: The 'Chinese dream' is … the US?)

That needs to change, he argued, because the U.S. doesn't have enough income to support consumption and doesn't have enough savings to support the expanding budget deficit.

In an eerie warning about the U.S., Roach reflected on the common themes that have precipitated the collapse of great powers throughout history. "The people who write about the rise and fall of great powers often look to nations that outstrip their capacity to save. They extend themselves militarily or economically. Ultimately it gets hard to sustain."

"We had a great century," he said, leaving open the question about whether the next 100 years will be as prosperous.

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.

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