A 'spectacular' trend is transforming the world's second largest economy, Stephen Roach says

China's economy is a lot more resilient than the West thinks, according to one of Wall Street's most distinguished voices on the region.

Stephen Roach, who was chairman of Morgan Stanley Asia, believes the world's second largest economy is on the cusp of an even bigger growth spurt — thanks to new technological advances and a booming consumer.

"The wave of innovation in their private-based economy, anything from e-commerce to medical sciences, is really quite spectacular," Roach said Monday on CNBC's "Trading Nation."

During his 30-year tenure at the Morgan Stanley, Roach led a team of economists around the world. He continues to make several trips a year to China as a Yale University senior fellow.

"The Chinese economy seems to be making remarkable progress in transforming itself into more of a consumer-based model driven more by cashless e-commerce," Roach said. "Their e-commerce share of total consumption is more than double ours [U.S.], and that gap is rising."

The latest data show China's economy grew at a faster-than-expected 6.9 percent in the second quarter. The pace far exceeds where the United States is right now, with its economic growth rate at 1.42 percent.

"The Chinese have defied a lot of naysaying for close to 40 years, and I think that will continue to be the case," he said. "All the talk about a crash landing, a slowdown, a debt-induced Japanese-like end game, those fears are largely overblown."

But there appears to be at least one anomaly. The robust economic numbers haven't been reflected in the Shanghai composite index, which is up just 2 percent this year. Despite the sluggishness, he still says he's "pretty optimistic" and acknowledges that the Chinese stock market isn't as far along as he had hoped.

"With the economy performing better than expected, the stock market should conform to that. But I've long learned that the connection between the Chinese economy and the stock market is a tenuous one at best," Roach said.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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