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Stephen Roach, chairman of Morgan Stanley Asia, said investors are wrong to bet that China will restrain its unprecedented stimulus after the economy accelerated in the third quarter.

“The Chinese really are fixated on one thing and one thing alone which is social stability — they don’t want to take a risk of another negative growth surprise” slowdown, Roach said in an interview today on Bloomberg Television in Hong Kong.

Roach’s view contradicts that of analysts at Credit Suisse AG and UBS AG, who are among those predicting that China’s authorities will raise banks’ cash reserve requirements as soon as by the end of December. Government figures last week showed gross domestic product increased 8.9 percent in the third quarter from a year before, the fastest pace in a year.

As the impact of the current stimulus wears off, China’s economy is at risk of a renewed slowdown, according to Roach. To combat the weakest expansion rate in a decade, policy makers enacted a two-year $586 billion stimulus package, and reduced the benchmark one-year lending rate to a five-year low. The efforts kicked off a record $1.27 trillion boom in new loans.

China may “go back to the well with bank-funded infrastructure-led spending programs” in the middle of next year, Roach said today. “I don’t think that’s feasible over the near term given their concerns about economic growth,” he said when asked about the prospects of the People’s Bank of China raising interest rates in coming months.

Yuan Convertibility

Roach also predicted that China will “ultimately” allow the yuan to be freely convertible to other currencies. While Chinese officials, including PBOC Governor Zhou Xiaochuan, have called this year for an alternative to the dollar as the world’s main reserve currency, they maintain controls on the yuan that prevent it for now from becoming a competitor.

The Morgan Stanley official added that the Hong Kong dollar’s peg to the U.S. currency “will relax” after China makes the yuan convertible. The unpegging of the Hong Kong dollar is out of the question for now, he said.

Russian Finance Minister Alexei Kudrin said on Oct. 24 that the yuan could become a global reserve currency in about 10 years should China make it convertible. A change in Chinese policy would make the yuan a “notable and weighty” reserve unit, Kudrin said in an interview on state-run Vesti television channel.

Contrast With Goldman

Roach’s view about the risk of the expansion weakening next year also contrasts with that of Goldman Sachs Group Inc. analysts.

“We do not share the view of some skeptics that China’s growth is mostly reliant on government-led investment activities and therefore when those stimuli eventually fade, we will experience a ‘double-dip’ in growth,” Goldman Sachs economists Yu Song and Helen Qiao wrote in an Oct. 22 note to clients.

The Goldman analysts added that “while not denying the importance of those government-led investments at the initial stage of the stimulus, we believe the recovery has been increasingly driven by stronger consumption, non-government investments and even exports.”

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