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Davos elite face cold reality of economic task

Visiting the Davos Congress Centre on Saturday, three days before the opening of the annual meeting, I saw workers busy making final preparations -in cold, heavy snow- to improve the infrastructure and logistics, reported China News. It's a good metaphor for the current condition of the world economy, which is trying to fill its loopholes amid chilly growth prospects and challenges such as segmentation and the development gap. The world economy has achieved significant growth in the past decades, with emerging-market economies gradually replacing developed ones to become engines for growth. However, growth seems to be an ever more daunting challenge, as most economies are short of solutions to sustainable growth at a decent rate. The year-on-year growth of the world economy in 2016 was 2.4 percent and, according to the World Bank, it could rise moderately to 2.7 percent this year. Despite the increase, it's obvious that the world economy remains trapped in a low-rate growth cycle eight years after the global financial crisis. In 2006, the world economy expanded at a handsome 4.4 percent. Worse is that decades of growth has improved the economic strength of some less-developed countries, but also widened disparity and income gaps among different groups of people, the root cause of the current surge in populism. The world's overall Gini coefficient, which measures income equality, has hovered at around 7 percent, well above the widely accepted warning line of 6 percent. If the world economy continues on such a growth mode, there will only be more voices of discontent. President Xi Jinping will call for "inclusive globalization" in his speech at the opening of the Davos forum on Tuesday. Such a philosophy, if truly embraced by world leaders, will serve to combat the protectionism that risks dividing the world economy and deserves the attention of elite political and business figures. The big shifts of 2016, such as Donald Trump’s election and the British vote to exit the European Union, known as Brexit, have propelled that prospect to the fore. Like an unexpected super-storm, anti-globalization populism has slammed through the West over the past year – and prompted much talk that the World Economic Forum in Davos and what it stands for are outmoded, reported CBS News. After all, the exclusive gathering in the Swiss resort, which begins Tuesday, is a celebration of trans-national thinking, which has been gospel among European and North American leadership since World War II. Free trade, barrier-less immigration, rule of law, sanctity of contracts, diversity of ethnicities, a variety of views welcomed: These principles have undergirded it, and now are under fire. Significantly, China’s President Xi Jinping will appear at Davos for the first time this year, promoting what he calls “inclusive globalization.” While that sounds benign, it really means a new order that China leads, pushing aside the U.S. and its European and Japanese junior partners. “There is a massive anti-globalist trend, against what the West has put together,” said political scientist Ian Bremmer, who heads the New York-based Eurasia Group consulting firm. “And China is taking the leadership role.” Harvard professor Kenneth Rogoff, the former chief economist at the International Monetary Fund, likes to say that “the conventional wisdom of Davos is always wrong.” Witness its smug assumption at the 2016 conclave that Mr. Trump, then sitting atop the polls for the GOP nomination, would never win the White House. No one doubts that China has the economic momentum to expand its role on the world scene. If current trends continue, China’s 2035 gross domestic product could be a third larger than that of the U.S, according to Karl Eikenberry, a former U.S. Army general who now is a professor at Stanford University. While the Chinese growth rate has slowed from double digits a few years ago, it still is formidable. Right now, China is growing at around 7 percent annually, more than three times the rate for the U.S. China’s GDP is $11.3 trillion, and the U.S.’s is $18.5 trillion. A possible Chinese hegemony strikes fear into many Western hearts. American and other foreign business executives complain bitterly, although often privately, about theft of their intellectual property by Chinese competitors. Doing business in China usually involves pairing with Chinese companies, which have the upper hand in the partnerships. Forget about seeking redress in court. Meanwhile, China is aggressively expanding its influence across the map, with investments and purchases of assets. With its “Silk Road” initiative, China is building massive transportation links and buying up oil and gas properties throughout Asia. China’s Anbang Insurance Group bought New York’s iconic Waldorf-Astoria hotel in 2014, and is buying more hotels. China’s rise is one part of the dynamic, and signs of Western retreat compose the other. Although the Trump administration’s overall international strategy is still taking shape, amid the formation of his cabinet, his rhetoric during the election campaign indicates a desire to withdraw from areas he thinks are not in America’s interest -– like free trade and opposition to an expansionary Russia. Mr. Trump is not going to Davos, although 46 heads of state are. The demise of the Trans-Pacific Partnership, a trade deal between the U.S. and many non-Chinese Asian nations, appears dead since Mr. Trump’s election (he thinks the TPP would harm American job creation). China is eagerly promoting its own trade consortium. But an America First stance, which China could exploit, has echoes among the U.S.’s European allies, which are feeling populist heat – and which are being felt in Davos. The possibility that Germany and France, the two stalwarts of the European Union, might opt out due to internal political pressures, is adding to jitters in Davos. Without them, the EU is not worth much.

Jan. 17, 2017, 10:57 a.m. EDITED
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Davos elite face cold reality of economic task