China takes centre-stage
Davos World Economic Forum, this year, is buzzing with discussions about China – with the trade war, concerns over economising loom large
China is now in fashion in the global circuit. The Davos Man, as the elite and the glitterati of the world is referred to, is only chattering about China and what is happening there.
Under Xi Jinping, China had suddenly burst upon the world like never before. Since assuming the supreme leader's role, Xi has taken the country out of its former shell and, now, wants to make the world dance to its tunes. It has inevitably brought on clashes with the United States and this is an important topic of conversation at Davos.
The World Economic Forum's annual meet in the Swiss village at the lap of the Alps has become an extended committee for managing the world economy. In the five days of confabulations among the world's rich and powerful, the fate of the world economy is as if decided over formal panel discussions, informal chats, official and unofficial dinners and lunches.
If one single person is dominating the show at Davos this year, it is Chinese vice-president Wang Qishan. Wang has been the close confidant of Xi Jinping and supported him on his anti-corruption drive. At Davos, he made the main Chinese presentation, which has been most minutely interpreted by congregated economic and political leaders. In the absence of Donald Trump, who cancelled his trip, Wang's observations would give a clue into the inner workings of the US-China spat.
But, for his speech, Wang did not mention the US president even once, though his entire presentation was a refutation of the US position and putting forth the alternative version.
In one such dinner meet, as reported by Bloomberg, hosted by one of China's most powerful government economic managers, CEOs of the cream of Chinese companies and another set of some 20 of world's biggest corporates had a brainstorming session on the current realities of China's economic policies. Many international corporations had reportedly complained of policy shortfalls and consequential distress. It has been unheard that such grievances could be aired in meetings with government higher-ups if the meeting was being held in the mainland.
But then, there were other points of view as well. In an open interview, the chairman of PIMCO, one of the largest investment funds, dispelled all fears about the Chinese economy getting into a slump. It was stated that China was one of the best-run countries in the world and each one of its leaders and high officials had invariably gone through rigorous training and exposure. Their experience would be rich and their collective wisdom could guide the country to its desired destinations.
One can, at some time, detect the underlying objectives of interlocutors at different kinds of interactions. Corporates have to do business and China is a massive market which few can eschew. Open fora can, thus, be useful for solicitations. At the same time, the players need to air their pains when arms are twisted on the ground.
Three distinct notes are discernible in the babble. First, is the ramifications of the US-China tussle; the second is the fear of China slowing down drastically and, its consequences thereafter; third, the chances of striking a deal. The so-called Davos Man is deliberating on all three of these this year.
China had been growing at a fast clip, sometimes at 9 per cent to 10 per cent a year, for many years. With its size of economy, China cannot any longer grow at that rate. The country has to slow down to remain stable. The economic managers of the country were acting feverishly to bring out such an outcome. This is the process of a soft landing for the economy as opposed to a collapse or crisis, what is commonly called a hard landing.
Now that China is slowing down, concerns have mounted over whether the slowdown is a managed process or the slackening of the pace could gather its own momentum and result in a sort of a crash. This is a classic conundrum: because you either grow or else collapse. The Chinese managers have to prove that western binary options could be avoided and a softer landing with gradually slowing growth rates can still be managed.
No doubt then that the trade tiff is already starting to bite the Chinese economy hard. Being export-oriented, it is no easy task to reset to a model that is based on a domestic consumption economy. In fact, this year, the Chinese are buying far fewer automobiles and this itself is providing an additional jolt. The government is pushing incentives and concessions to cajole the Chinese to buy more cars. But that is not easy.
Other kinds of fiscal stimuli are also being introduced, but some of these can, in fact, backfire. On earlier occasions, faced with a slowdown, Chinese economic managers would kick in a process of massive infrastructure building, which could create demands for sectors like steel or cement. But that also has its limits. Infrastructure facilities are so extensive that you really have to invent where to build fresh ones. It is being said that this time around, the Chinese are again expending their railway network.
Given the weak economic data and increasing pressure that the dispute is bringing on in China, is it likely that a quick resolution might be on its way. At least, going by the rhetoric of the Chinese leadership at Davos, indications are to the contrary. They are faring their views of not cowing down any more before neo-imperialist forces. But then, you never know. Behind the closed doors, concessions might be in order, even if that means a prop for supreme leaders. After all, Xi is playing out over a very long period while democratic countries have only limited playtime.
(The views expressed are strictly personal)