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Business Insight

Discussing China Risk

Takafumi Terui

Business leaders from all over the world are getting to grips with some of the biggest issues facing the global economy. They're meeting at the annual World Economic Forum to discuss China's economic downturn and a host of other hot topics.

The Chinese city of Dalian is welcoming more than 1,700 people from 90 countries for the 3-day conference. They'll be attending talks on economic uncertainties, environmental challenges and other pressing issues.

But everyone knows the main topic at the event is China. People are keen to hear how leaders in Beijing plan to spur growth in the world's 2nd largest economy. They're concerned about volatility in stock markets, and many are worried about the impact on emerging Asian economies. Organizers have arranged a series of talks to address "China's New Normal," a phrase used by President Xi Jinping to describe a plan to diversify China's economy and embrace a more sustainable level of growth. In other words, the years of rapid, production-fueled growth are over.

World leaders want to know what the new plan will look like in practice and what the consequences will be for them. They're especially concerned after seeing new data showing China's exports have slowed at a quicker rate than expected. Chinese leaders used to respond to bad economic news by unleashing another burst of stimulus, but not this time.

Participants at one session discussed how China will adopt its new growth strategy. One speaker said it's natural that China's decision to shift gears would cause ripples in global markets and urged investors not to overreact.

Rich Lesser, Global CEO of Boston Consulting Group called on Chinese leaders to pursue more reforms for state-owned enterprises, or SOEs, and to leave the market to set its own course. "Looking at the decades ahead, the key element will be not the competition based on cost," Lesser said. "But rather on the ability to drive total fact of productivity, productivity of labor and capital and the ability to drive innovation in a very deep way in the economy. And SOEs play such an important role in the overall economy of China."

Zhu Ning of the Shanghai Advanced Institute of Finance said, "It depends on how we learn from this crash. The government has to control resources and risks so as to support the stock market, and allow it to set its own course. In my view China is about to enter a major phase of financial reforms."

Participants at the session agreed that Beijing is heading into turbulent and unchartered territory. Duncan Ivison, Deputy Vice-Chancellor at The University of Sydney said "the Chinese government has got the right general principles in place. It's an interesting question whether it can manage volatility that is coming from moving from one kind of economic reform agenda to another."

On Thursday, Chinese Premier Li Keqiang will address the forum and tell the world how his country plans to tackle its economic challenges.

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