China’s economy absent from concerns on Davos panel
If policymakers and financial markets outside the Swiss alps are concerned about China’s economic outlook, those worries were missing from a panel discussion at the World Economic Forum in Davos. While delegates to the meeting of the rich and powerful surfaced a host of challenges facing China’s new leadership later this year, the pace of growth wasn’t one of them.
The panel talked about political cronyism, pollution, and the need for a more robust safety net for migrant workers. But there wasn’t any talk of crisis or hard landing. Despite the fact that China is still very export dependent, defenders and critics at this session betrayed no concern about the impact that the euro crisis and slow U.S. growth could have on the Asian powerhouse.
Many economists expect China to grow at 8 percent or more this year, slowing from 9.2 percent in 2011, as authorities seek to avert inflation and ensure more sustainable expansion. China is comforted by having the world’s biggest foreign reserves, which lets it cope with weaker demand for its products. Li Daokui, Director of the Center for China in the World Economy in Beijing, and an advisor to the Chinese central bank, is sticking to his 8.5 percent growth projection this year and insists the economy, the world’s second largest, will grow by “at least 8 percent” in 2013.
Stephen Roach, Chairman of Morgan Stanley Asia and senior research fellow at the Jackson Institute for Global Affairs at Yale University, shared the optimism. The current five-year Chinese plan will be a “watershed”, he said. The shift from investment and exports to consumption leaves him positive further out into the future. “China has demonstrated it’s up to the task.”
Perhaps the biggest concern among panel members is the need to develop a safety net that can support the masses of migrant workers who head for China’s cities, struggling to make ends meet, and maintain social peace. Housing has been expensive, leading to a bubble, and rental costs are dear. Roach dismissed talk of ghost towns. He recalled Shanghai in the 1990s, relatively empty then, booming today. “Ghost towns are built in anticipation of the people who come.” Housing has spooked the markets. “They’re expecting the worst,” he said. “They will be pleasantly surprised.”
Other problems: pollution, which will impact health and be a burden on the state; and what Roach describes as “the financial repression” created by a gap between deposit and lending rates.
But there was not a word about the value of the yuan, and it took until question time for this to be raised. So how would Chinese authorities respond if Mitt Romney wins the U.S. election and declares China a currency manipulator? “You can expect a strong reaction from the government,” Li said. He, in turn, countered that the yuan was fairly close to “equilibrium”.
China and the future of the Internet
- Michael Fertik is the founder and CEO of Reputation.com, an online privacy and reputation management company. He is a member of the World Economic Forum Agenda Council on Internet Security and recipient of the WEF Technology Pioneer 2011 Award. The opinions expressed are his own. -
China’s Internet is, in fact, the world’s largest intranet. This is not news to anyone who follows technology in the Middle Kingdom. The Chinese government doesn’t make any real attempt to hide its complete control over what happens behind the Great Firewall. The regime is open about its intent to ensure what it calls “harmony,” which more or less means that it will squelch civil debate that moves beyond a certain pitch or further than a few degrees off the median line. As China’s power grows online and offline, these patterns, taken together with the Chinese government’s technical sophistication, will be of fundamental importance to the overlap between digital freedom and privacy.
The Chinese play hard. They mean to keep their intranet secure and the integrity of their “harmonious” public web discourse intact. They do not hesitate to use their considerable technical prowess to spy on machines that are operated on their network. As a friend of mine in U.S. intelligence circles says without hesitation, “If you go to China, there is a 100 percent chance that your equipment will be compromised.” Earlier this week here at the World Economic Forum (WEF) in Davos, I met a successful civil activist who routinely visits China for her work, and she casually reported a recent office visit from Chinese state security services who evinced specific and sweeping knowledge of her emails, calendar, and other information she keeps exclusively on her computer.
Astonishingly, despite its stated objectives of harmony and control, the Chinese have allowed or even encouraged an exploding Internet economy in their country. Of course, the user-generated web — comprised of online publishing tools, self-propelled video sites, and social media tools — is a potential powder keg for a government that cherishes conformity in its national conversation. But the Chinese government has adapted skillfully to the risks. They still sometimes resort to simple shutdown of antagonistic URLs. But their methods have become much more nuanced and powerful in recent years. They have effectively co-opted the power of user-generated content and distribution publication for their own interests.
Leaders of Chinese online media and commerce companies, including ones that have already gone public or filed for IPO in the U.S., have been fairly open about their relationships with their government. They describe the regime’s remarkably frank point of view: we want you to succeed, but not at the expense of harmony. In practice, that means that, if you play ball with Beijing’s running rules — if, for example, you remove user-generated content that criticizes the government’s response to an earthquake — you can survive and even become a billionaire. If not, you’d better move to the U.S. and try your business model again.
China is similarly aggressive in the rapidly emerging field of cyber warfare. A WEF person close to the issue told me that the IRS sustains thousands of cyber attack attempts every year from Chinese computers. This is a common topic among American government and business officials. I’m guessing that it’s similar in other Western countries. So far, the Chinese have taken cyber war more seriously than the rest of us.
At the WEF, China’s command-and-control regime is the elephant in many rooms. Participants see the situation clearly. They talk candidly about the challenges to shared values of privacy and freedom posed by the Chinese government’s approach to the Internet, as well as the emerging power of Chinese cyber-warfare tools. At the same time, the economic potential of doing business in and with China can be overwhelmingly alluring. How do you take a stand against the dragon when it will also buy a billion units of anything you can send it? It’s a hard question, and a sense of fear, opportunity, and optimism pervade discussions about China.
specific and sweeping knowledge of her emails?
Not so different than our CIA, NSA, FBI right now as all of our telecommunication companies are under their thumbs.
CEOs hoping that everything comes up roses
A few things struck me from the annual survey of CEOs that PwC (yup, PricewaterhouseCoopers likes big ‘P’, little ‘w’, big ‘C’) released at Davos this year.
The most obvious was that 48 percent said they were “very confident” of growth in the next 12 months – up from 31 percent last year. Pre-crash confidence again!
But I have to say, I wondered a bit about their crystal ball when 37 percent said they planned to shift sourcing to China — with cost being the most cited reason. With inflation looming and currency moves almost certain, that isn’t necessarily a bet I’d make. There are plenty of reasons to go to China — and I’ve staked my career on it since 1979 — but cost isn’t top of my list in 2011.
The other thing that caught my eye was that managing talent was top of the CEO agenda — higher even than managing risk, investment decisions, reputation or capital structure. But alas, for those hoping for a pay rise out of it — strategy number one was “use more non-financial rewards to motivate staff”. I’ll be sure to ask my CEO Tom Glocer for a pat on the head while we’re here together in Davos!
Will Goldman’s new BRICwork stand up?
Jim O’Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?
In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O’Neill told the Financial Times.
Hmmm. Doesn’t quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of “Bric ‘n Mitsk” (geddit?). But which ever way you cut it, it’s hard to see a flood of investment conferences and funds floating off under the new moniker.
Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by banks seeking to pique investors’ appetite for higher returns.
Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).
So far, none of them have really caught on. One thing you can bank on: the term BRIC will still score highly in any tally of the millions of words that will issue forth from Davos next week.
Groundhog Day in Davos
The programme may strike a different note — this year’s Davos is apparently all about Shared Norms for the New Reality — but much of the discussion at the 41st World Economic Forum annual meeting in Davos this month will have a distinctly familiar ring to it.
Last January, the five-day talkfest in the Swiss Alps was dominated by Greece’s near-death experience at the hands of the bond market and recriminations over the role of bankers in the financial crisis, as well as worries about China’s rapid economic ascent and a lot of calls for a new trade deal.
Fast forward 12 months and not much has changed.
Ireland has joined Greece in the euro zone’s intensive care unit and Portugal and Spain are getting round-the-clock monitoring. The annual round of bankers’ bonuses is once again stirring up trouble. China looms larger than ever on the global stage, after overtaking Japan in 2010 to become the world’s second-biggest economy. And trade ministers who signally failed to make headway last year say they really must get down to business when they meet on the sidelines of Davos this time round.
For a sense of the deja vu, take a look at the WEF’s latest hot-off-the-press report on Global Risks — a 50-page tome on the spider’s web of interconnected threats now facing the world. Not much progress in addressing them has been made, it seems. Government debt and the danger of sovereign default remains top of the risk hit-list, alongside macroeconomic imbalances, the fragility of the economic recovery and resource limits. It is a very similar litany as a year ago.
Worryingly, while the threats remain all too visible, the report’s authors conclude that the world is now uniquely vulnerable to any further shocks in the wake of the financial crisis.
Davos, Google and Chinese walls
One big item nowhere to be seen on the official agenda in Davos this year was the delicate matter of Google’s clash with China.
So was the censorship row censored in order not to offend the Chinese?
That’s not the way the Klaus Schwab, the founder of the World Economic Forum, sees it.
“We raise issues where we know we can make a positive contribution to them,” he told Reuters. “This is an issue that is still cooking and we don’t think we could have made a positive contribution on it.”
Of course, that didn’t stop Google’s future in China being a top topic for corridor chat — after banker-bashing.
And the few words on China that passed the lips of Google CEO Eric Schmidt during a session on technology were scrutinised for hidden meaning. In truth, it was hardly ground-breaking stuff.
“We love what they (China) are doing in terms of growth,” Schmidt said. “We just don’t like the censorship.”
Five themes for Davos
Top (L-R): Steve Clarke, Natsuko Waki, Gerard Wynn, Martin Howell Bottom (L-R): Peter Thal Larsen, Felix Salmon, Ben Hirschler, Krista Hughes
Reuters will have a multimedia team of 20 journalists plus editors and three columnists on site covering the Jan. 27-31 World Economic Forum annual meeting.
This year we are focusing our news coverage around five global themes that are shaping economics, politics and investment opportunities in 2010. Our in-depth reports will draw on the expertise of our specialist correspondents from around the world to help inform the Davos conversation. These reports will be complemented by on-the-ground coverage, exclusive text and TV interviews, as well as a live blog aggregating the best Davos coverage on the web and on Twitter. We’ll be exploring the probing questions behind efforts to rebuild the world economy and financial system two years after the credit crisis.
Look for these special reports:
China has emerged from the financial crisis emboldened with huge economic clout, vast FX reserves and growing diplomatic influence. To build its global presence, however, it needs brands, managerial expertise and technology. China Economics Editor Alan Wheatley asks – How will it muscle up? Will it be through internal growth or foreign acquisitions? And what are the political and industrial risks, rewards and pitfalls of each approach – for China and the world http://www.reuters.com/subjects/davos/china
My invitation must have gotten lost in the mail again this year…
Davos Man turns 40
Many happy returns or midlife crisis?
The annual talkfest in the Alps records its 40th birthday this year but the rich and powerful will hardly be in celebratory mood as problems pile up in the post-crisis world.
How to withdraw the trillions of dollars in stimulus that helped the world avoid a rerun of the Great Depression, without spooking markets all over again?
What to do in the face of the world’s lukewarm response to the hot topic of climate change?
How to deal with an ascendant China striding out with a new confidence on the world stage and ready to clash with the West over issues such as Google?
For ‘Davos Man’ — and 85% of participants at the World Economic Forum are still men — these are testing times.
The forum certainly embraces debate but at its heart is a belief in market economics, individualism and power of globalised business to be a force for good. In the wider world, though, the grumbles are growing louder and the WEF’s own research suggests public patience with big business is running out.
U.S. – They’re skint, they’re frugal, get used to it
Good session on the “Frugal American,” an as yet undiscovered species that is coming to a global economy near you.
You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That’s called a recession, but how long will this frugal thing last?
Ian Davis, the MD from consultants McKinsey & Co was blunt:
“Americans have no option but to be relatively more frugal over the next 10-20 years.” This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.
So who is going to pick up the ball on consumption? From the sound of the panel, it looks like some kid took the ball and went home. China was candidate one, but even if consumption increased there, as it will, its not likely to become the next America, nor should it be.
“We have to live with the frugal American. Think about how much wealth has been lost, half of world market cap” said Zhu Min, executive vice president of the Bank of China.
“You don’t have wealth, you don’t have liquidity, how do you come back? After a very deep adjustment … the whole world will be a frugal world.”
Well, a lot of the news lately has been about rebounding and reviving our economic growth. How about if we just focus on being consistent for once? Pay off some of this debt that we’ve accrued as a nation (and as individuals) and start acting like responsible people.
It is sad that we’ve reached this point, but I kind of enjoy the vision of the future I keep imagining. Imagine Americans riding motorcycles and bicycles instead of Suburbans. I always try to think about what I could do without, and most of the time, I realize that most of the things I own are tangential to my life. I’m as guilty as the rest, but I’m ready to make some changes. I even look forward to it.
The shift in power from West to East
One news theme I’ve asked our journalists to be alert to this year is the shift in power and emphasis from est to East.
The rise of China’s economic power during 30 years of reform and opening to the world is just one manifestation of this; the knowledge and service powerhouse that India has come in a globalised world is another. At Davos this year I’m moderating a panel on Asian innovation that will surely highlight software advances in Japan, Korea and Thailand as well.
I’m convinced the current global economic crisis must lead to a fundamental reassessment of how power and influence is expressed through the world, from manufacturing and service oriented Asia through the oil-rich Gulf.
This isn’t because of “decoupling” – that notion so prominent in discussion circles a year or so ago that said things like China’s economic boom could make up for any economic weakness in the U.S. That idea has been well and truly discredited as trade and money flows have caused bank after bank, nation after nation and economy after economy to buckle and bend in the current crisis.
No, it’s precisely because of “coupling” that the world will have to rethink radically its governance and regulatory and influence structures.
I see today’s opening session at the World Economic Forum as emblematic of this shift. The two world leaders taking centre stage at Davos today are not from the United States or from the United Kingdom or from France or Germany or Italy or Japan or Canada.
The only power shift of any meaning and consequences is between US and China. Because of size and the nature of that shift.
While many East-West countries have traded during the past 20 years, these trades have benefited all fairly equitably when summed over this period. Except US-China.
The so-called globalized trades between US-China have benefited the principally the big corporations (i.e. their balance sheets and executives) in the US, and the state in China. Because that’s the way each country wanted.
When you sum up 20 years of massive US-China trade, the balance sheet shows:
a) Giant net benefits to major US corporations. US consumers also benefited, in the short term. But over a 20 year period, they actually lost much of value, except perhaps a very good time.
b) The Chinese state has gained tremendous net benefits, and since the state dominates so much, Chinese infrastructure, consumer and industries have also shared the very large net gain.
In short, globalization has produced reasonably good net gains to world countries. But the US comes out a loser and China the winner over the long term.
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Resident Davos Expert
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