The economic elite of the emerging markets is currently meeting in Dalian, China. This year, the mood is rather gloomy.
The emerging countries, with their hitherto high economic growth, are threatened with a crash. Picture: ap
Unmistakably Li Keqiang gives the attendees to understand: The US Federal Reserve is to blame. The Chinese premier does not explicitly mention the Federal Reserve (Fed), but complains in his speech about the monetary policy of "some countries" and its impact on the rest of the world. The recovery of the industrialized countries should not be at the expense of the others, he said.
Five years after the Lehman bankruptcy, which plunged the global economy into a severe crisis, some 2,000 entrepreneurs, government leaders and economists from around the world are currently meeting in the eastern Chinese port city of Dalian to debate the most pressing problems. While the global business elite traditionally meet in Davos, Switzerland, in the winter, they alternate between the megacity of Dalian and the even larger neighboring city of Tianjin in the summer.
China’s summer Davos of the "New Champions" has become the most important meeting, especially for the economic elite of the emerging countries. Brazil, Russia, India, China and South Africa (Brics) alone account for more than 20 percent of global economic output. This does not even include other booming emerging markets such as Turkey, Indonesia and Mexico.
But this year, the mood in Dalian is sour. For the past five years, the Fed has flooded the world with dollars at low interest rates. That’s how the economies of the industrialized countries didn’t plunge even lower. Because of the higher interest rates in the emerging markets, a lot of money flowed there. This boosted their markets.
Stock markets on a downward slide
Now the US economy is recovering and the Fed wants to change course. Promptly, international investors are pulling their capital out of emerging markets again. With dramatic consequences: Their stock markets are going down, currencies are losing value, and their previously high economic growth is threatened with a crash.
What? Currently, some 2,000 government and business representatives are meeting for three days in the northeastern Chinese port city. Since 2007, the "Annual Meeting of the New Champions" has been held in China in the summer, alternating between Dalian and Tianjin. At the offshoot of the Swiss World Economic Forum in Davos, "global growth entrepreneurs" meet.
Why? Dubbed "Summer Davos," the meeting addresses the region’s most pressing problems. Currently: flagging growth, currency collapse and capital outflows. This affects many emerging economies, especially Brazil, Russia, India, China and South Africa, the Brics countries. Together, they account for around 20 percent of global economic power.
At the forum, Turkey’s Vice Prime Minister Ali Babacan expressed understanding for the exit from ultra-loose monetary policy, but he criticized the timing and called on the U.S. to be more transparent. Russia’s Deputy Prime Minister Arkady Dvorkovich also railed against the rigid austerity policies of the EU, led by Germany. They should rather return to truly efficient and sustainable growth.
Only China seems to be exempt from the capital outflow: Admittedly, the Chinese economy is also no longer growing in double digits as in previous years, but is slowing down to 7.5 percent this year. But the financial sector in the People’s Republic is strictly regulated, and the national currency is not freely convertible. This means that money at least cannot flow out in the regular way. "Our foundations are stable," affirms Premier Li.
The special case of China
But for China, there is a consequential problem. The economy is not making any progress with the reforms. Because of a lack of competition and few investment opportunities, state-owned banks and large corporations are becoming richer, more powerful, but also more inefficient. Chinese savers are not getting any returns, and small and medium-sized businesses are finding it difficult to get loans.
Yet the representatives of the New Champions are certainly looking for solutions. "We have to focus on even more education and qualification," says the Turkish vice-governor. His Russian colleague promises to reduce his country’s dependence on raw materials. And the Chinese prime minister pledges to open up markets, including the financial sector. China’s top economist Li Daokui of Tsinghua University is skeptical: "The wave will still hit us hard in the near future."