Emerging Countries Called Key to Global Recovery

The New York Times
By TOM REDBURN
Published: November 18, 2008
BARCELONA — The United States may have plunged the world into a sharp economic downturn, but it will take the combined efforts of China and other emerging nations to lead the global economy out of what is likely to be a long and painful recession.
That was the view of several business executives, government officials and economic experts gathered Monday and Tuesday for a conference on China’s role in the global economy.
“China alone may be only 6 percent of the world economy,” said Josep Piqué, chairman of Vueling, a budget airline based in Barcelona. “But together with India, Brazil and other big emerging nations, they represent about 30 percent of global G.D.P. The emerging countries are the solution to the overall global slump.”
That point of view was echoed by Claude Begle, chairman of Swiss Post, which runs Switzerland’s public savings bank, who predicted that Asian emerging nations would be the first to recover from the slump, followed by the United States and then Europe.
But not everybody was so confident in the ability of China and Asia’s other fast-growing countries to spur a global recovery.
“China cannot replace the U.S. economy as the engine of global growth,” said Chang Dae Whan, chairman of Maeil, a South Korean newspaper company. “We’re going to need a huge stimulus package from the United States, on the order of $2 trillion, to get the global economy out of the financial crisis. So far, we’ve only seen about $700 billion. As a result, next year I expect to see more pain and fear.”
The Global China Business Meeting here, sponsored by Horasis, a consulting organization based in Geneva, and supported by several business and government organizations in Spain, China and elsewhere, is the fourth annual gathering of the group, whose goal is to encourage more trade and business contact between China and Europe.
The Chinese economy, for all its success since emerging from economic isolation in the 1980s, is at a major turning point, participants here suggested, that will require a fundamental adjustment in its approach to development.
Timothy Beardson, chairman of Albert Place Holdings in Hong Kong and a leading adviser to companies doing business in China, said that China had lost a number of advantages that powered its phenomenal double-digit growth rates of recent years.
“For the last 10 years, China had it good,” Mr. Beardson said. “For the next 10 years, it won’t have it so good at all.”
He pointed to several factors that are going to make it far more difficult for China to rely on booming exports to power its growth and to improve the nation’s standard of living at a rapid pace.
He said that China spends far less on research and development, as a share of its economy, than Japan, the United States and most other advanced economies, making it difficult to upgrade China’s industrial structure.
He also said that China has a weak system of higher education, and lacks any substantial social safety net, which makes its citizens fearful about their future and encourages them to save to excess rather than spend.
The most immediate challenge, he said, was that China’s currency, while rising only modestly against the dollar, has strengthened significantly against the currencies of its Asian competitors and against most European currencies, making its exports far less competitive in global markets.
“If Chinese companies are to succeed in the future,” he said, they will have to recognize that “their comparative advantage lies in the domestic market, not the export economy.”
Chinese officials here, while acknowledging many difficulties, made clear that they were convinced that the nation would weather the first real test of its economic resilience since Beijing adopted a market approach to economic development. But they said that China would need to work more closely with other economies, including the United States and Europe, to overcome the current financial crisis.
“Confidence and cooperation,” said Xu Kuangdi, chairman of the China Federation of Industrial Economics, “are worth more than money and gold.”