Davos leaders focusing on China
Source: Agencies |
January 27, 2012, Friday
|
Print Edition
Print Edition
When the global economy nearly choked on toxic debt three years ago, China and its massive investment stimulus was hailed as a savior that helped avert a disaster.
Fast forward to 2012 and business and economic leaders gathering in Davos have a more sober take on the Asian juggernaut, now seen as a source of hope and opportunity but also possible unpleasant surprises.
The world's second-largest economy is still expected to grow this year at a pace that would make most of the world jealous, but concern that China may mismanage a soft landing gets mentioned in the same breath as other risks, such as the deepening of the eurozone crisis or weak recovery in the United States.
'Export-dependent'
"There is a mix of hope and concern. People worry on two fronts. One is that China is still far too export-dependent and that makes it very vulnerable," said Nariman Behravesh, chief economist at IHS Global Insight, about the prevailing mood of discussions about China in the Swiss ski resort.
"The second worry is the housing situation. It is tricky because there are very few countries that were able to deflate a housing bubble without creating some other damage."
Most economists expect China to grow at 8 percent or more this year, slowing from 9.2 percent in 2011 but in keeping with the Chinese government's aim to steer the economy away from double-digit export-led growth to more sustainable expansion.
Armed with the world's biggest foreign reserves, deep fiscal pockets and room for credit easing, China is uniquely placed to cope with possible European recession and downbeat markets.
But the relatively low-key Chinese presence at the annual gathering of the rich and powerful, mainly because it coincided with the Lunar New Year public holiday, may also be a sign that China's focus is on domestic challenges.
And the list of challenges China faces in the Year of the Dragon is quite daunting. For one, even as the Chinese government shifted its course from tightening to pro-growth policies it may have underestimated the scale of the slowdown engineered in the once red-hot property market and the dent to foreign demand from debt-ridden Europe.
The debt amassed by regional authorities during the property boom and massive spending on grand infrastructure projects is another worry.
"It's an 'unknown unknown,'" says John Quelch, dean of the China Europe International Business School in Shanghai. "Everybody knows it exists but no one knows exactly what the overhang is."
That debt overhang means China is unlikely to follow up its massive 4 trillion yuan (US$630 billion) spending plan that gave China and its Asian trade partners a boost in 2010 but raised concerns about bad debts and overcapacity with another stimulus on a similar scale.
However, for global businesses China remains a huge draw with its enormous population, continuing urbanization, growing middle class and rising incomes.
Hans Paul Buerkner, Boston Consulting Group's chief executive, said: "The biggest risk for Western companies is not to get engaged and worry too much about setbacks."
And Renault-Nissan CEO Carlos Ghosn said: "Six or seven percent growth of the car market will still add 1 million cars in China. It's good enough for us."
Fast forward to 2012 and business and economic leaders gathering in Davos have a more sober take on the Asian juggernaut, now seen as a source of hope and opportunity but also possible unpleasant surprises.
The world's second-largest economy is still expected to grow this year at a pace that would make most of the world jealous, but concern that China may mismanage a soft landing gets mentioned in the same breath as other risks, such as the deepening of the eurozone crisis or weak recovery in the United States.
'Export-dependent'
"There is a mix of hope and concern. People worry on two fronts. One is that China is still far too export-dependent and that makes it very vulnerable," said Nariman Behravesh, chief economist at IHS Global Insight, about the prevailing mood of discussions about China in the Swiss ski resort.
"The second worry is the housing situation. It is tricky because there are very few countries that were able to deflate a housing bubble without creating some other damage."
Most economists expect China to grow at 8 percent or more this year, slowing from 9.2 percent in 2011 but in keeping with the Chinese government's aim to steer the economy away from double-digit export-led growth to more sustainable expansion.
Armed with the world's biggest foreign reserves, deep fiscal pockets and room for credit easing, China is uniquely placed to cope with possible European recession and downbeat markets.
But the relatively low-key Chinese presence at the annual gathering of the rich and powerful, mainly because it coincided with the Lunar New Year public holiday, may also be a sign that China's focus is on domestic challenges.
And the list of challenges China faces in the Year of the Dragon is quite daunting. For one, even as the Chinese government shifted its course from tightening to pro-growth policies it may have underestimated the scale of the slowdown engineered in the once red-hot property market and the dent to foreign demand from debt-ridden Europe.
The debt amassed by regional authorities during the property boom and massive spending on grand infrastructure projects is another worry.
"It's an 'unknown unknown,'" says John Quelch, dean of the China Europe International Business School in Shanghai. "Everybody knows it exists but no one knows exactly what the overhang is."
That debt overhang means China is unlikely to follow up its massive 4 trillion yuan (US$630 billion) spending plan that gave China and its Asian trade partners a boost in 2010 but raised concerns about bad debts and overcapacity with another stimulus on a similar scale.
However, for global businesses China remains a huge draw with its enormous population, continuing urbanization, growing middle class and rising incomes.
Hans Paul Buerkner, Boston Consulting Group's chief executive, said: "The biggest risk for Western companies is not to get engaged and worry too much about setbacks."
And Renault-Nissan CEO Carlos Ghosn said: "Six or seven percent growth of the car market will still add 1 million cars in China. It's good enough for us."
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