China stays ahead of economic slump

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MARCO WERMAN: It's almost a year to the day since the collapse of Lehman Brothers and the start of the global economic crisis. It's been a rough 12 months but China has weathered it better than most. Chinese Premier Wen Jiabao said today China had more than 7% growth in the first seven months of the year and it didn't just fall in China's lap, he said, the government really worked at it. Other countries have noticed and some believe the center of economic gravity is shifting toward China. The World's Mary Kay Magistad reports from the World Economic Forum in the northern Chinese city of Dalian.

MARY KAY MAGISTAD: There were a lot of thinly veiled swipes at the United States today at the World Economic Forum in Dalian.

LUIS VILLEGAS: Fortunately Latin America is this time not blamed for being the source of the world crisis.

MAGISTAD: Luis Villegas is the president of the National Association of Industries in Columbia. He said not only did the United States cause the economic crisis, it didn't take the medicine it had prescribed to others.

VILLEGAS: Ten years ago the advice for the crisis in Latin America and Russia was first, you're going to have increase your public deficit. Two, you cannot print money. Three, you cannot increase your debt. And four, you cannot bail out anyone. Then you take ten years later the same recipe and look the most flourishing manufacturing industry in the United States is printing money.

MAGISTAD: Egypt's minister of investment, Mahmoud Safwat Moheildin, peddled more softly but still said the center of gravity is shifting.

MAHMOUD SAFWAT MOHEILDIN: Things are changing very fast and it is very much predicted by almost everybody including some European think tanks that within 20 years China is going to be number one, India number two, the United States and Japan number three or four. This is very much a changing world.

MAGSITAD: And the head of the World Economic Forum, Klaus Schwab, was effusive in his praise of Chinese Premiere Wen Jiebao when he introduced him to the forum audience. Schwab called Wen a patron of the forum and said the Chinese government had acted responsibly when others have not.

KLAUS SCHWAB: China's engagement [INDISCERNIBLE] in terms of stimulating the world economy or its role in enhancing international corporation and economic development uniquely confirms China's and Premier Wen Jiebao's active commitment to responsibility to the global community that is just equitable and stable.

MAGISTAD: Chinese Premier Wen Jiebao took the podium and more or less said hang on we're doing better than we were and we worked hard to get here but there's still a long ways to go.


MAGISTAD: Wen said the stabilization and recovery of the Chinese economy is not yet steady, stable, and balanced. He said it will take time to increase domestic demand, to make up for plummeting exports. But the government is increasing spending on healthcare, education, and pension plans so Chinese feel more comfortable saving less and spending more.
That's the right direction says economist Arthur Kroeber who heads the Beijing-based consulting group Dragonomics. But he says there's a reason why it's going to take time to convince people they don't have to save as much.

ARTHUR KROEBER: From the early 1990's until about three or four years ago the personal experience of almost every Chinese household was the government taking stuff away from them. We used to have that benefit and it's gone and we're on our own. So our expectation is every year we're going to be more on our own. And so they built that into their spending decisions. Now objectively I think things are going the other way and government is giving them more. But how long does it take people to reverse their expectations?

MAGISTAD: Meanwhile Kroeber says the government could spur more domestic demand by deregulating the services sector and promoting more competition in the private sector.

KROEBER: To my mind the next year is really pretty crucial because this tells us are they serious about domestic structural market reforms that can build a solid foundation for future growth or are they just pouring money into the system and hoping that the Americans will come back and save them.

MAGISTAD: No one in Dalian today seemed to be counting on the Americans to save them. Certainly not as a long term strategy. The buzz here is that a transition has begun. The reality is the transition may be rocky and far from linear, if it happens as predicted at all, but it seems China has started a serious effort to increase its odds. For The World I'm Mary Kay Magistad in Dalian, China.