By  on May 22, 2007

GENEVA — A hard landing of China's economy, along with a global asset price collapse and a sharp fall of the dollar are singled out as high-risk scenarios in a new report from the World Economic Forum.

Such an adverse turn of events would also negatively impact the textile and apparel industries in developing countries, notes the report, "Middle East at Risk."

A sharp slowdown of China's economy, under the risk scenario, could come about through a rise in protectionism among its trading partners or internal political and economic difficulties in the nation of 1.3 billion people.

The report, compiled ahead of a three-day WEF Middle East meeting that starts today at the Dead Sea in Jordan, points out that, in the event of a slump, "should China decide to revive its economy by export dumping, aspiring Middle East manufacturing industries would be particularly hit, already under pressure from Asian competition in sectors such as textiles."

The report outlines that perhaps a bigger risk for many countries that have their currency pegged to the dollar or with large holdings of dollars, such as some rich Middle Eastern states, would be if China, in a bid to limit the downturn at home, sold part of its large dollar holdings. Of China's estimated $1.2 trillion holdings of foreign reserves, about 70 to 75 percent are dollar-denominated, the WEF report said.

The large U.S. current account deficit also is identified as a risk that could set off a major fall in the dollar. Moreover, the slump in the housing market in the U.S. and other countries could lead to a blowup in global asset prices.

Geopolitical risks, such as the Iran nuclear issue standoff and the sectarian tensions in Iraq that could result in the "disintegration" of the country or the formation of a radical Islamic state, would increase the volatility in world oil prices, the report said.

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