At Davos, fear of economic hard landing for China, and Japan enmity

Foreign Minister Wang Yi vows reforms will positively impact 'the whole world', but for some there's too much talk and too little action

PUBLISHED : Sunday, 26 January, 2014, 5:29am
UPDATED : Sunday, 26 January, 2014, 5:29am

The risk of a hard landing for China's economy and the threat of military conflict with Japan were among the top concerns for experts gathered at the World Economic Forum in Davos.

Days after China's economy - the world's second-largest - registered its worst rate of growth for more than a decade, politicians and economists at the annual gathering of the global elite said the near-term outlook was bleak.

Li Daokui, a leading economist and former central bank official, said: "This year and next year, there will be a struggle, a struggle to maintain a growth rate of 7-7.5 per cent, which is the minimum to create the 7.5 million jobs every year China needs."

On January 20, Beijing said the economy had grown at 7.7 per cent in 2013, the worst rate since 1999.

"The risk of a hard landing in China has not been dispelled yet," added Nouriel Roubini, the economist who earned the nickname "Dr Doom" for predicting the collapse of the US housing market and global recession in 2008. He cited concerns over rising inequalities in China and the "vast challenge" facing authorities in Beijing as they bid to push through deep-seated economic reform.

President Xi Jinping has committed to transforming China's growth model to one where private consumption plays the leading role, rather than huge and often wasteful state investment.

In a speech in the Swiss ski resort, Foreign Minister Wang Yi said these reforms would " have an extensive and positive impact on the whole world" and would be "more sweeping, thorough and difficult than ever before." As the reforms took hold "enormous demand in China will be unleashed wave by wave", keeping growth at a fast pace for a long time, he said, adding: "A China committed to reform, enjoying growing prosperity, will bring a lot to the world."

But several delegates voiced concern that the reforms were not being carried out quickly enough.

British finance minister George Osborne said: "In China, I think the challenge there is that there's a lot of good talk about economic reform... we all now just want to see that delivered by the Chinese government."

Roubini was characteristically more direct.

"Talk is cheap. We have to see action and so far we have not seen a lot of action," he said.

"I worry that it's going to be a gradual process and it may not go fast enough," added the economist, saying that many of the reforms also did not go far enough.

Speaking on the sidelines of the meeting, the managing director of the International Monetary Fund, Christine Lagarde, said a slowdown in China would impact the global economy but played down the likely extent of the deceleration.

"We don't see a massive slowdown, we see a slightly reduced growth rate," she said.

Bank of Japan Governor Haruhiko Kuroda also predicted stable growth in China "because the government has understood the need to reform the economic system but also the need to keep a relatively high [rate of] growth".

A potentially explosive diplomatic row with Japan over islands in the East China Sea also raised economic fears.

Victor Chu, a Hong-Kong-based venture capitalist, said: "If there were an accident in the territorial situation, if there were accidents before politics and diplomacy can return things to the status quo... that could be serious for the economy."