China “hard landing” stokes fear at Davos

China “hard landing” stokes fear at Davos

POSTED: 24 Jan 2014 20:38
The risk of a hard landing for the economy in China as well as the threat of military conflict with Japan stoked fears at the World Economic Forum in Davos on Friday.

DAVOS, Switzerland: The risk of a hard landing for the economy in China as well as the threat of military conflict with Japan stoked fears at the World Economic Forum in Davos on Friday.

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

Li Daokui, a leading Chinese 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 announced that its 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 consumers and other private actors play the leading role, rather than huge and often wasteful state investment.

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 stressed.

“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.

A potentially explosive diplomatic spat between Japan and China over islands in the East China Sea, which has been a major topic in Davos this year after a keynote speech by Japanese Prime Minister Shinzo Abe, also raised fears for the economic outlook.

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.

Everything rests on the success and pace of reform, several analysts said, with many predicting that Chinese growth could pick up after a relatively sluggish couple of years.

“It’s not easy, it’s a long and winding road but if you look at the long-term outlook, it has to be positive,” said Chu.

Speaking on the sidelines of the meeting here, the Managing Director of the International Monetary Fund, Christine Lagarde, said that a slowdown in China would have an impact on 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.