WORLD ECONOMIC FORUM 2003
China Is Economic Bright Spot,
Topping U.S. as Investment Hub
By CHRISTOPHER RHOADS
Staff Reporter of THE WALL STREET JOURNAL
DAVOS, Switzerland -- Can China save the world economy?
Not yet. But the day may not be far off when the huge Asian country and its 1.3 billion people could become a major engine for global economic growth, according to international business and political leaders gathered here.
"China is still too small, but it is growing fast," said Zhu Min, a top official at the Bank of China. Though it accounts for just 3.8% of the world's gross domestic product, the country contributes more than 15% of global growth, Mr. Zhu said. In fact, sometime in the next 10 to 15 years, China may well surpass the economic might of Europe, predicted Gail Fosler, chief economist with the Conference Board, a New York research organization.
Talk about China provided the only ray of light in an otherwise dark outlook for the global economy this year and possibly the next as well. With growth in the U.S. coming to a standstill in the fourth quarter, and the chances of a war in Iraq growing by the day, the U.S. economy, and by extension the world economy, could be in for more sluggish growth -- or worse, economists here said.
An external "shock on consumer confidence could reverse it and lead to no growth in the U.S. and possible recession," said the usually more bullish Ms. Fosler. With Germany falling into recession again, Europe's prospects look even worse, economists said. And Japan is showing no real signs of pulling itself out of its decade-long economic mire.
The Chinese economy, by contrast, appears set to continue its 8% growth of last year, economists said. "If we didn't have China I would be suicidal," said Stephen Roach, chief economist with Morgan Stanley. "It's the only bright spot in the world economy." The economy sucked in $52 billion (€48.52 billion) of foreign direct investment last year, surpassing the U.S. as the No. 1 investment destination in the world. Domestic investment leapt by 24% last year, with most of that coming from the private, rather than public, sector -- a break from the past, Mr. Zhu said.
For the first time last year, China had a trade deficit with a number of neighboring Asian countries, suggesting that the country isn't only a low-cost exporter, but an importer as well, with an increasingly wealthy domestic market, Mr. Zhu said.
That prospect has foreign companies climbing over one another to get a piece of the market, at a time when growth has stalled in most other parts of the world. Malcolm Williamson, chief executive of Visa International, the credit-card company, said he sees "massive potential" in China. Credit cards became legal in China only a couple of years ago, and the market remains tiny. There are just 40,000 outlets that accept Visa in China, compared with more than four million in the U.S., he said. But a "watershed" in the Chinese credit-card business could occur in 2007, when the country will allow foreign banks to issue cards. That will be followed by the expected business associated with the 2008 summer Olympic Games that China will host, he said.
The country still has some major challenges. There is a huge social divide between cities and the countryside. While city dwellers earn about $850 a year, those in the country -- about two-thirds of the population -- earn just a third of that, said Cheng Siwei, vice chairman of the standing committee of China's parliament. Among other problems, the country's companies suffer from untrained management, he said. That has become more apparent since the country's recent admission to the World Trade Organization, which opened it up to more foreign competition, he said.
Mr. Cheng also pointed out that it took the U.K. 300 years for more than 70% of its population to become urbanized, and 100 years for the U.S. to do the same. "For China to get more than 70% in the cities will take us at least 20 to 30 years."
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