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Why China fears are overblown: Stephen Roach

Investor concerns in the U.S. stock market of a "crash-landing scenario" for the Chinese economy are misplaced, former Morgan Stanley Asia Chairman Stephen Roach said Thursday. "I think those fears are vastly overblown," he said.

Growth in China has slowed, Roach acknowledged in a CNBC "Squawk Box" interview, "but it's not going in for a crash … and that will present, I think, an opportunity for shares to re-evaluate the China threat, big time."

The influential Yale economist did fault the Chinese for poorly handling the turmoil in its financial markets. "They did not do a great job of handling the equity market bubble on the upside by encouraging it and fighting it on the downside," Roach said.

He played down last month's devaluation of China's currency, saying the more important development there has been the progress in transitioning from an export-led to a more consumer-led economy.

Read MoreRisk of big stock drops grows: Robert Shiller

Roach cited an August report from the International Monetary Fund. "They pointed out for the first time that domestic consumption is contributing more to overall GDP growth in China than investment. That is a big shift."

"Structural change ... is very, very hard to do and normally takes a much longer period of time," he said.

The transitioning Chinese economy was a theme Treasury Secretary Jack Lew, in an exclusive interview with CNBC, touched on.

"There needs to be a set of reforms put in place where the economy becomes much more market oriented, where consumer demand grows and there's a shift from a heavy, heavy emphasis on investor spending to more consumer-driven spending," Lew said.

Read MoreJack Lew: We're going to hold China accountable

In an IMF report released Wednesday, the group warned that China's slowdown, volatile financial markets, and tumbling raw-materials prices have raised the risks to economic growth around the world.

The assessment published as top finance ministers and central bankers meet this week in Turkey did not revise the IMF's forecasts for world growth this year, last updated in July. But the IMF did conclude that "downside risks have risen."

"The world has relied on China as its major engine of global growth," so the slowdown does pose a threat, Roach said. He added that critics who put Chinese growth at half the published government rate there of about 7 percent "don't have a shred of evidence."

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—AP contributed to this report.