DAVOS (Reuters Breakingviews) - The China outlook from Davos is a little off-piste. Compared to the unbridled optimism of a year ago, there has been plenty of fretting at the annual World Economic Forum this week. High on the list of concerns is a sharper-than-expected slowdown in the People’s Republic. For now, though, growth is cooling at a reasonable pace and Beijing has ammunition left.
Last year’s gathering in the Swiss Alps was among the most upbeat in years, helped along by synchronous global growth, rising markets and plentiful cash from ultra-loose monetary policy. The tone has darkened. World leaders who might have used the Davos soapbox stayed home, leaving room for others to worry, mainly about China.
The International Monetary Fund set the tone. It cut its global growth forecast and warned that China’s efforts to control its economic slowdown – with fiscal stimulus, big infrastructure projects and injecting liquidity – may be insufficient. The trade war cast a further pall. Financier George Soros finished the week off with a dire warning of the country’s “broad based economic decline” and its use of artificial intelligence, warning that a Cold War could turn hot.
There are legitimate grounds for unease. The world’s second-largest economy expanded last year in line with the official target, but fourth-quarter growth was a more modest 6.4 percent. Some trade pain is coming through and consumption is weakening.
There is enough room for encouragement, however, to pull Davos Man away from the mountain ledge. Commodity producers, among the first to feel the pain if China stops building, reported plenty of demand for copper, with physical inventories at record lows, and for high-quality steel ingredients. Unilever, which works with e-commerce giant JD.com, says the country is one of its most reliable sources of growth. Most executives and politicians agreed there would eventually be a deal on trade, too.
Vice President Wang Qishan, China’s envoy to Davos, said his country would deliver “modest prosperity” by 2020. His words should be at least a little reassuring. Beijing already has cut taxes and the amount of money banks need to hold in reserve. At the same time, officials have yet to clamp down on a deleveraging campaign or seriously turn on the stimulus taps. They still can.