At Davos, China's growth pains high on the agenda
China will again find itself in the spotlight at this year's World Economic Forum 2016 meeting in Davos, Switzerland -- and for good reason: The health of the global economy now hinges on what happens in the world's most populous nation.
The U.S. and other countries around the globe got an uncomfortable reminder of that this week when a sharp decline in ever-volatile Chinese stocks sent a shudder through financial markets around the world. The catalyst for the drop was another report highlighting the slowdown in China's factory output, which has been shrinking for months as Beijing seeks to steer away from manufacturing and investment toward consumer-driven growth.
Caixin Media reported China manufacturing purchasing managers' index was at 48.2 last month, down from 48.6 in November. A reading below 50 indicates a contraction in manufacturing activity. This is the 10th straight month below the all-important 50 number.
As a result, the Shanghai Composite Index dropped to a three-month low, plunging nearly 7 percent in one day and triggering an automatic halt to trade. U.S. and European markets also tumbled, highlighting investor concerns that the Chinese government may lack the fiscal and monetary firepower to bolster economic growth.
Brian Belski, Chief Investment Strategist at BMO Financial Group, thinks such volatility is likely to continue. "China grew too fast -- now [it] has to deal with overcapacity, aging demographics and wage inflation, all of which slow growth," he said, while noting that investors are already well aware of the country's growth challenges.
And despite China's financial turbulence, Belski expects its economy to keep growing. "China's GDP will likely be volatile, but positive. Remember, it is China -- numbers are always under deep scrutiny," he said.
Indeed, although China watchers have long suspected the government of inflating the country's growth numbers, by most measures the Chinese economy remains enviably strong. Its annual gross domestic product, while down from the double-digit pace of expansion of a years ago, remains a robust 6.9 percent, compared with just north of 2 percent for the U.S.
Questions surrounding the Chinese economy are certain to figure in many conversations when the World Economic Forum kicks off its 46th annual meeting on January 20, with three panel discussions focused on China.
Caixin will host a panel, "China's Business Context," on what the changes in the country's economy means for local and foreign business. Another session will focus on trade and regulation in the Pacific region, exploring how it affects global growth and considering its impact on business and investment opportunities. The third panel will discuss East Asia's role in global trends and national priorities and how that affects the future of the region.
Ian Bremmer, founder and president of Eurasia Group, a consulting firm that advises investors on political risk, has attended many Davos meetings in the past decade. "I'm worried about the outsized impact of China on the international markets, for good and bad. Less so China's domestic economy per se," he said.
"Chinese growth is slowing, and there is urgent need for deeper economic reforms," Bremmer added. "But this slowdown is not hindering China nearly as quickly as Beijing's impact on the rest of the global economy is expanding."
Although China will be an important part of the dialogue in Davos, Bremmer believes that much of the focus this year will be fall on other global hot-spots. "There will be so much crisis coming out of the Middle East and spilling into Europe. But of course they're on the agenda."
CBS News will speak with executives from Asia at the meeting and file reports throughout the week.
