Davos Agenda

Crash-landing for China? Roubini and Lagarde say probably not

China's stock market volatility has some analysts worried Image: REUTERS/China Daily

Stéphanie Thomson
Writer, Forum Agenda
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Since the start of the year, all eyes have been on China. Falling share prices, stock market closures and lower than expected GDP figures have many worried. “Chinese markets have begun the year with a lot of volatility,” explained Bloomberg's Francine Lacqua in a session in Davos this morning.

It’s a reflection of a wider trend across markets around the world. The FTSE, Britain’s benchmark index, had the worst start to the year since 2000. Over in the US, the Dow has had the worst start on record. It’s all being fuelled by the fear that China is heading for a “crash landing”.

But some of the top economists in Davos aren’t so sure.

For Nouriel Roubini, best known for his foresight in predicting the last economic crisis, stock market analysts have a tendency to veer from one extreme to the next, and this time is no different: “A year ago they were believing in this rhetoric of the Chinese government, that China could achieve a soft landing, that it could maintain growth at 7%, that the Chinese were a bunch of ‘super-heroic technocrats’ who can do no wrong. But now they’re going to another extreme, saying that policy-makers are incompetent.”

The truth is probably somewhere between both extremes, he said yesterday: “My view for the last few years on China is that we will have neither a hard or soft landing. I would say China is going to have a bumpy landing.”

Speaking in another session, IMF chief Christine Lagarde agreed that we might be reading too much into the situation in China: “Having a certain degree of volatility is OK. The market sorts out things eventually. There should be an acceptance that there will be volatility.”

And as two other economists noted, for all the talk of a market meltdown, the figures are still on the whole pretty positive. “We’re going through a cyclical adjustment, and that will last maybe two or three years. It comes at a bad time for the rest of the world…but we’ll get past this. A bad year in China is going to be a great year in any other country,” said Ray Dalio, founder of US investment firm Bridgewater Associates.

Jiang Jianqing, the chairman of the Industrial and Commercial Bank of China, one of the world’s largest banks, agreed that the doomsayers might be exaggerating: “China is still the locomotive of the world economy, accounting for a quarter of global growth.”

Whatever happens, one thing is for sure: the rest of the world will be following developments in China very closely.

The Annual Meeting is taking place in Davos from 20 to 23 January, under the theme “Mastering the Fourth Industrial Revolution”.

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