Business leaders dispel doubts about China despite slowdown

Chinese President Xi Jinping speaks at the opening ceremony of the China International Import Expo (CIIE) in Shanghai, China, 05 November 2018. The country announced it will import more from third countries. [EPA-EFE/Stringer]

China’s lowest growth in three decades was a hot topic at the opening of the Davos forum on Tuesday (22 January), but experts and business leaders are confident about the future of its economy despite its high indebtedness.

The mood at the start of the World Economic Forum was rather gloomier than last year. 

The trade war, the prospect of the UK departing the EU without a deal, the predicted slowdown of the global economy confirmed by the IMF on Monday, and political instability in many corners of the planet have darkened the horizon for the leaders of the public and private sector.

China is seen as a big potential risk for the future financial instability, as some Davos attendees already pointed out in 2018.

On Monday, the world’s second largest economy announced that its GDP grew by 6.6% in 2018, down from 6.9% the previous year, the lowest growth in three decades.

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Pessimism is growing among CEOs, noted the latest global survey published on Monday by PwC, a consultancy firm. In an interview with EURACTIV.com, the global chairman of PwC, Bob Moritz, recommended companies and governments to focus on execution in order to truly turn risks into opportunities.

China must prepare for difficulties this year as the economy faces increasing pressure, Chinese state radio quoted Premier Li Keqiang as saying last week.

Despite these warnings, a choir of voices responded in Davos with a rather upbeat tone about the prospects of the Asian country.

In a panel discussion about financial risks that focused almost entirely on China, Fang Xinghai, vice-chairman of China Securities Regulatory Commission, said that the slowdown is “not a disaster”.

Even if the forecast has worsened, he confirmed that the country has “a lot of room to act” as the public debt is not high, compared with the credit in the private sector’s hands.

He recalled that the Chinese macroeconomic policy has been “very responsive” in the past depending on the data that was registered. 

He said that authorities will respond if the situation worsens, and they have the capacity to do it, but “we shouldn’t overreact”.

Ray Dalio, founder and chairman of Bridgewater Associates, said that the long-term perspective of the country looks “good”.

“You have to be very optimistic about China”, he said, even if GDP growth falls to 5%.

Long-term 

Dalio stressed the difference between the short-term picture and the long-term perspective. 

In the long run, the situation looks healthier because of the measures adopted by the Chinese government to reduce indebtedness.

“In terms of policy, it is a very effective state”, he added.

Jin Keyu, professor of Economics at the London School of Economics, agreed that the economic slowdown registered is the result of the “successful” effort made by Beijing to cut its debt pile.

For her, even the trade war represented a “benefit in disguise”.

The trade dispute would add external pressure on China to make important reforms, including opening up ifs financial sector, she argued.

Chinese president XI Jinping last November confirmed the country’s willingness to facilitate the access of foreign companies and investors to the local market. 

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One of the beneficiaries of the openness process was the Swiss bank UBS.

Its chairman Axel Weber explained that UBS became the first bank who was offered the possibility to hold a 51% stake in a joint venture with a local player. 

Now the Swiss bank has management control, but Weber said that they are looking into ways for raising capital. 

The arrival of foreign investors will only help the country to increase its competitiveness.

“What China needs is competition,” he said.

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EU Commissioner for Health and Food Safety Vytenis Andriukaitis told EURACTIV.com that China should deliver on its promise to open up its market, as European companies complain about the difficulties they face in the country.

Although some have expressed doubts about the commitment of the Chinese leadership to the reform process, Weber signaled that the direction is “very clear”.

“Don’t mistake speed with direction,” he commented, adding that he was “very confident” about the ongoing “constructive dialogue” with the Chinese authorities.

More imports

China is not only facilitating the arrival of investors, but also buying more from third countries’ companies, Jin Keyu said, noting that for the first time, the country is importing more than exporting. 

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Chinese president Xi Jinping promised on Monday (5 November) to continue opening up his nation’s economy and to increase imports by fuelling citizens’ spending power, as a response to growing protectionism and unilateralism.

This has “major implications”; she commented, as the country is becoming a source for the global aggregated demand. 

In her opinion, the question is whether the world is “ready” for China’s weight in the world economy and the financial system.

She warned that the volatility still within the national system could be transmitted to the planet. “China is still a developing country”, she recalled.

Against this backdrop, she pointed out that China should consider addressing its domestic financial vulnerabilities before the ties with the global system become “much stronger”.

Weber opined that the arrival of foreign investors will help to strengthen the standards and improve the resilience of the financial system.

“There is a point of no return, once you open up”, Weber said.

“The main reason why the process of opening up crossed a point of no return is because it is good for China”, added Xinghai.

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But the opening up process and the trade balance are not the only concerning issues for Western players.

The protection of intellectual property, the forced transfer of technology and theft of corporate secrets are a source of tensions with the US and Europe.

Xinghai insisted that the Chinese authorities are willing to talk with the US on “every issue” and have a “cooperative” approach.

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China and the EU are “in the same boat” when it comes to preserving multilateralism, China’s ambassador to the EU, Zhang Ming, stressed in an exclusive, wide-ranging interview with EURACTIV.com, which also addressed next week’s ASEM summit and China’s relations with its Asian neighbours.

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