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DAVOS, Switzerland — Chinese Premier Wen Jiabao said Wednesday that his nation had been affected by the global slump, but he remained confident it could still grow this year by 8 percent.
This story first appeared in the January 29, 2009 issue of WWD. Subscribe Today.
While Jiabao admitted such growth would be a tall order, his upbeat delivery went against the prevailing sentiment of doom and gloom here among business executives and economic experts who say the recession and the banking crisis in the U.S. and other major Western economies could get worse.
Wen told a packed auditorium of business and political leaders in a keynote address at the opening session of the World Economic Forum that “China’s economy is in good shape on the whole…our confidence also comes from the fact that the advantages contributing to China’s economic growth remain unchanged.”
China’s massive savings of 46 trillion yuan, or $6.73 trillion at current exchange — including 20 trillion yuan, or $2.92 trillion, belonging to individuals and households — the functioning of its banking system and the fact the nation is still in the midst of rapid industrialization and urbanization were factors to consider.
The premier told delegates that in the first 20 days of this year, bank loans had increased, prices of major industrial goods had picked up, inventories held up in Chinese ports had declined and growth in consumption was maintained at between 2 and 21 percent.
The premier revealed that at the start of the Chinese New Year, the Year of the Ox, consumption rose 21 percent compared with the same period last year.
He said despite two major natural disasters, the economy managed to grow by 9 percent last year and generate 11.1 million new jobs.
But Wen admitted that in the fourth quarter of 2008, China’s growth slowed to 6.8 percent.
In contrast to Wen’s bullish outlook, the International Monetary Fund predicted Wednesday that China’s economy would grow by only 6.7 percent this year, shaving 1.8 percent off its earlier forecast in November.
The IMF also predicted the world economy will grow by only 0.5 percent, but with most Western economies actually seeing declines. The U.S. economy alone, the IMF said, is expected to contract by 1.6 percent this year.
Victor Chu, chairman and chief executive officer of the Hong Kong-based First Eastern Investment Group, a leading China-focused investment group, said in an interview that “China is one of the few countries that has the capacity to respond [to the downturn] — at least in the short term — because two-and-a-half years ago it introduced macroeconomic reforms and also tightened credit and bank.”
Chu said in the short term, massive public sector spending should help boost demand.
However, prior to Wen’s message, the consensus here among business executives and experts has been that darker clouds are still gathering on the horizon and more hardship lies ahead on the economic front.
Stephen Roach, chairman of Morgan Stanley Asia, said, “We cannot underestimate the challenges and the dangers that we face in 2009.”
Roach said contraction in U.S. consumer demand may be far from touching bottom, and noted China’s expansion is slowing.
Rupert Murdoch, chairman of News Corp., said in the last 12 months, $50 trillion to $100 trillion of wealth had disappeared.
“People are in shock, depressed, traumatized,” said Murdoch, co-chairman of this year’s forum. “The crisis is getting worse, real economic values are still going down.”
His assessment was that it will take “drastic action” to turn the global economy around, but that it would take a long time as world financial markets remain in disarray. His prediction is that the crisis could be around for another one to five years.
Former United Nations secretary-general Kofi Annan said the issues of the financial crisis are urgent, but stressed the need not to forget the poor. “The issue of one billion people who do not have enough to eat, that also is an urgent issue. And any solution we come up with has to include measures to protect the welfare of the individuals and individuals’ dignity.”
On Wednesday, the International Labor Organization said the recession could see the number of unemployed increase this year by between 18 million and 30 million people and by up to 50 million in a worst-case scenario.
The Chinese premier also indirectly criticized the U.S. for the economic meltdown. “This crisis is attributable to a variety of factors and the major ones are inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption, and the excessive expansion of financial institutions in the blind pursuit of profit,” he said.