subject: Chris Devonshire-Ellis on The Economist's China Summit [print this page] Chris Devonshire-Ellis on The Economist's China Summit
The Economist Magazine's China Summit was held today in Beijing, a major platform for senior business executives involved in China to get together, debate and participate in the pressing issues of China's future. Provocatively subtitled "China and the New World Disorder," the event was attended by some 150 senior level executives of most of the well-known MNCs operating in China today. Via a series of different sessions, a number of China strategic and development issues were raised and discussed.
The economists debate
The first session, in which Shen Mingguo, China chief economist for Citigroup, Arthur Koebler of Gavekal Dragonomics, Xiao Geng, a Colombia University professor, and Xu Sitao, chief economist for the Economist, debated China's development in light of the Global Financial Crisis, and made a variety of comments that gave rise to an expected slowdown in the Chinese economy. Stating that a change "from fast growth to sustained growth" was occurring, predictions were made that Chinese exports were set to slow by nearly 50 percent in the next decade, and that the inflation rate was expected to remain around the 5 percent mark for the period. An appreciation of between 4 percent and 5 percent of the RMB against the U.S. dollar over the next 12 months was generally agreed likely.
It was also noted that China needed to develop its own technologies as a result, as technology acquisition would fall as a result of a reduction in export growth. Noting that the government had tried to slow property speculation, it was mentioned that the problem with reining this sector in was that no incentive had been given by the government to realign domestic savings into expenditure elsewhere. Reacting to comments over China property concerns, opinions on the "acres" of vacant buildings in many Chinese cities varied. Some argued that the vacancies would be able to be taken up by migrant workers relocating to cities, while other stated that there was an underlying problem of China becoming massively overbuilt and there was nowhere else to put money, which has fueled concerns over a potential deflationary period as such assets would turn negative in value later. It was noted that a major dynamic would be the migration of labor from the rural to urban areas of China and that some 13 million farmers per annum would relocate into cities, and that this dynamic would change China's economy.
The issue over whether a link really existed between the one party state system and economic reform was judged "not yet proven" due to questions over whether such a system could provide more accountability. While the one party state system, it was noted, had pushed through significant reforms, much had been concentrated in infrastructure development and the real test, of consistently raising people's income levels, was still to be answered, as was a rebalancing of the economy. When asked which market sectors in China were to look out for as hot, automated machinery was mentioned as very much a growth area in China, with imports of such being second only to food in the past 12 months. As Chinese labor becomes more expensive, automation will result, and there are opportunities for both suppliers and China's own development in this sector. Market sectors deemed as poor prospects were any industry related to labor intensive production, which it was agreed have had their day and would be better off relocating to other Asian economies.
It was agreed that the export sector would increase in one key area: that of infrastructure services and development, and that China was already beginning to export its infrastructure development capabilities globally. China would develop more towards a provider of infrastructure related technologies and know-how, and less of a supplier to Wal-Mart type products globally. (That said, Wal-Mart is currently the largest MNC in China).
Concerning the development of Central and West China, it was stated that the development would remain on the eastern seaboard and that China's hinterland would remain relatively weak compared to the east (not a position shared elsewhere, as I shall come to). Urbanization would provide a flow of migrant labor to the east, and this would sustain eastern development.
The debate, while of use, failed to address core issues and made rather too many assumptions on growth figures while at the same time acknowledging inherent government distortion. I personally came out of the session none the wiser, and a more detailed explanation of why certain growth figures were made would have been more useful. In the absence of such, I felt the economists themselves relied too much on assumptions and less on fundamentals, which appeared rather woolly. The general outlook I would suggest was "cautious," and it was interesting to note economists' views on migration of the development of Central and Coastal China varied considerably from the manufacturing sector (which I review later).
