Davos Notebook

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.”

- 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.

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.

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.

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.

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.”

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.

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?

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.

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.