China: The New Champion?

Between September 10 and 12, 2009, the World Economic Forum’s (WEF’s) third annual meeting of the New Champions brought together in Dalian (China), CEOs, policy-makers, academics, and scientists from all over the world. The Summer Davos, as the Chinese insist on calling the conference, focuses on developing countries and fast growing companies although senior executives from multinational corporations don’t miss the opportunity to rub shoulders with counterparts from the developing world.

This year’s theme, Relaunching Growth, seemed almost redundant. The crowd at the opening session was less worried about the global economy than it had been a year ago. Even my banker friends stayed the entire evening without disappearing to put out fires over their handhelds &#8212 as they had last year.

The opening speech by China’s premier, Wen Jiabao, was triumphant rather than defiant. “This unprecedented global financial crisis has taken a heavy toll on the Chinese economy,” he said, adding that China has risen to the challenge. He reminded the audience of the size of the Chinese government’s stimulus, its new economic policies, the jobs created…. He assured us that China had halted the global downturn.

For many in the audience, the encouraging economic statistics on display proved once again the wisdom of China’s ways. Did anyone, other than WEF founder Klaus Schwab, doubt that China would meet its 2009 growth target of 8%?

The Dalian meeting also saw the unveiling of the WEF’s Global Competitiveness Report, a ranking of an economy’s business climate calculated from both publicly available data as well as an annual survey conducted by the WEF and its partners. The United States ceased to be number one; Switzerland took its place. China moved up from No. 30 to No. 29 and one participant boldly predicted that by 2030, China would become the largest economy in the world. Why not? Certainly champions both old and new have turned to China for growth. If you can’t beat them, join them, pointed out a friend of mine from North Africa, eager to do business in China.

Despite the celebratory air, I did hear one Chinese participant deviate from the party line. Perhaps investment isn’t the best use for fiscal stimulus. Perhaps excess credit isn’t such a good idea. Perhaps excess supply could potentially hurt China’s recovery and that of the world, he said. Perhaps I was the only one paying attention to his comments. Does it matter that, according to several estimates, 88% of China’s growth this year is because of fixed investment? Everyone assumes that China will keep growing–but that has never been true of any country.

Construction is costless in China. The lines of semi-finished buildings never seem to end. There is a surreal feeling of over-capacity everywhere. Once day, I visited a software company housed in a castle-like building that would have made Louis XIV envious.

In Dalian, a small, but beautiful coastal city, we wondered if the colossal conference center is used regularly and if the lights were ever turned on in the city’s innumerable skyscrapers. Apart from the city’s neon signs, nights in Dalian are oddly dark. Were its residents told not to turn on lights so the city’s poverty stayed hidden as long as the WEF was in town? We’ll never know. (Dalian’s karaoke bars were kept closed during the meeting, I heard. I will never understand why). Still, the world came together to pay its annual tribute to its new champion economy: China.

Laura Alfaro is an associate professor at the Harvard Business School in Boston