WEF Davos 2016 LIVE: “There is a communication issue (about China) which markets don’t like” Christine Lagarde, Managing Director of IMF stresses from Davos

DAVOS/SWITZERLAND, 21JAN16 – Christine Lagarde, Managing Director, International Monetary Fund (IMF), Washington DC, speaks during the session ‘Where Is the Chinese Economy Heading?’ at the Annual Meeting 2016 of the World Economic Forum in Davos, Switzerland, January 21, 2016. WORLD ECONOMIC FORUM/swiss-image.ch/Photo Jolanda Flubacher

At the second day of the World Economic Forum 2016 in Davos the world was anticipating very much the session on China’s outlook and how its growth slowdown affects the entire world. This issue was addressed in a session called “Where is the Chinese Economy heading?” which took place in Sanada room of the Davos Congress Hall.

The panel was moderated by Francine Lacqua, Editor-at-Large and Presenter of Bloomberg Television and among the guests were Jiang Jianqing, Chairman of the Board of the Industrial and Commercial Bank of China Limited, Ray Dalio, Chairman and Chief Investment Officer of Bridgewater Associates LP, Zhang Xin, Chief Executive Officer and Co-Founder of SOHO China Limited, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Fang Xinghai, Director-General of the International Economic Department in the Office of the Central Leading Group for Financial and Economic Affairs and Gary D. Cohn, President and Chief Operating Officer of the Goldman Sachs Group Inc.

China’s economic outlook

The discussion began by Jiang Jianqing who stated that there is no problem in the Chinese economy which contributed to the world’s economic growth by 6.9% in 2015. Ray Dalio said though that there are four major challenges that are causing volatility in the second largest world economy. Debt, economic, capital market and balance of payments are the challenges that have to be dealt with reforms by the Chinese leadership in order for the economy to flourish. Ray Dalio also commented on this issue like this: “it is a new China”. These adjustments will need two to three years to be fully absorbed by the system and it will have a serious impact on the whole world, not just China. However, he expressed his positivism since China knows the mechanisms to deal with it and succeed in restructuring its economy.

Christine Lagarde then said that China is undergoing a transition period when relying more on consumption and less on investments. It is logical to have a financial noise when the world is not aware of the policy that China is undertaking. “There is a communication issue which markets don’t like”, the Managing Director of IMF argued.

Economic strategy change drags growth down

Fang Xinghai underlined three main reasons behind the current sluggishness of the Chinese growth. Mr Fang agreed with Christine Lagarde on the communication issue and added as reason the economic strategy followed to swift the economy from an investment-led to a consumption-led one. As a last concern, the Director-General of the International Economic Department mentioned the doubts that exist today regarding its implementation.

His personal view though was that the economy is strong and patience is needed in order to allow the system to fully communicate with the market. “We have the strongest leadership in the world; Fang Xinghai stated showing that there is nothing that China cannot overcome.

Zhang Xin remarked that the Chinese economy is doing well in comparison to the stock market and pointed that this is happening because “investors are not getting the right messages”.

Chinese companies

The Chief Executive Officer and Co-Founder of SOHO China Limited stated that the power to increase China’s growth is the private sector. Especially, Ms Zhang said that the undergoing reforms must support the Small and Medium Enterprises (SMEs) and that those companies have to get more funding without necessarily producing profit.

Gary Cohn from Goldman Sachs supported that access to the Chinese companies must be given to people and that it should be the market to decide which enterprises will be public and which are not.

Will China’s policy succeed to overcome market instability?

There was a clear positive view between the participants of the panel that China will succeed in the execution of the necessary reforms and implement the right policies to bring back economic growth and market steadiness. Christine Lagarde noted that patience is necessary during eras of volatility and made three points to be able to help the markets and the economy revive; “clarity of communication, clarity of purpose and implementation of the reforms identified”. Last but not least, Mr Fang urged major economies to cooperate and communicate better and more in order to bring the desire outcome, economic growth.

All in all, the main outcome of this intriguing session is that the Chinese economy is growing (6.9% in 2015 and 6.5% according IMF prediction in 2016) contributing largely to the global economic growth. However, a better communication is mandatory in order to be able to express which policies are going to be undertaken to achieve the economy’s transition from investments to consumption.

Stay tuned from 20 to 23 January as the Sting will be once more producing top class critical LIVE media coverage from the Congress Centre in Davos, Switzerland. 

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