Chris Devonshire-Ellis on The Economist's China Summit

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Chris Devonshire-Ellis on The Economist's China Summit Powered By Docstoc
					The Economist Magazine 鈥檚 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 鈥檚 future. Provocatively subtitled 鈥淐
hina and the New World Disorder,鈥?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 鈥檚 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 鈥渇 rom fast growth to sustained growth 鈥?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 鈥渁 cres 鈥?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 鈥檚 economy.
  The issue over whether a link really existed between the one party state system and
economic reform was judged 鈥渘 ot yet proven 鈥?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 鈥檚
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 鈥檚 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 鈥檚 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 鈥 渃 autious, 鈥 ?and it was interesting to note
economists 鈥?views on migration of the development of Central and Coastal China
varied considerably from the manufacturing sector (which I review later).
  To read the rest of this article by Chris Devonshire-Ellis visit
  Chris Devonshire-Ellis founded China Briefing, India Briefing and the Asia Briefing
publishing house.