01/01/2013 World Business Report

Welcome. The epicentre of the financial crisis, at least at the

moment, maybe in Europe, but its effects are being felt as far away

as China. The world's second- slowest pace in three years. Can

the new political line-up to live that a prosperous and stable

Sachs management. And the chairman of a research company.

Has a soft landing be achieved in China? What China? Whatt mean?

whole soft versus hard is very simplistic. Given al

in the future. To think of China and landing is probably a mistake.

It will keep travelling. A soft landing is broadly seen as an

economy slowing down. But sustainable at a lower rate of

growth. There is more evidence to support the soft landing crowd

rather than the hard landing crowd. But I would also add that one of

the reasons China has slowed, the slowest in many years, is because

the policy makers deliberately slowed it. Their biggest battle has

been inflation. Would you agree with that? We should not worry

about it? And it has very little to do with the European financial

crisis. Not really. We calculate Chinese GDP. Many do not believe

the official figures, in terms of real growth. Last year, it was 4%.

By Chinese standards, he is a hard landing. That sounds quite

ambitious, measuring the growth. Reduce their numbers and

recalculate the inflation rate. -- we used their numbers. Let's

address this issue for the needs of China to be balance is economy if

it is to move forward. What is the main priori main priorimore

domestically generated. It is funny how I get two people to look as

something and they have such different views. For a long time, I

was leading a group are calculated China's GDP. We have had this one

for 15 years, it is somewhere between six -8. I do not agree much

with what Charles has said. Chart - - consumption has started to rise.

This need to rebalance the economy, is it something a new political

line-up can achieve? Prices have come down a long way. Wages have

come down a bit, but not enough. The difference between the two, it

has gotten wider. Why do you one wages to go down? The businesses

compared compared to where they were before.

Labour costs are up 2% but the prices are down to present. There

is a squeeze on margins. They are paying much higher interest rates.

It is 6% but the inflation rate is -3 %. That is plus 9%. People do

not want to spend. Businesses will go into it a burn mode. It means

reducing wages as well as everything else. China has to

become an economy which has more value anywh value anywhannot just be a

cheap manufacture. Is it going see that as a problem. The days of

China been the low-value producer of the world is behind us. It is

the natural stage of evolution and development. He see it relocating

to other pa to other pae world. Mexico is a big winner of it. And because

of the leaked -- the low energy costs, the US is showing some

modest signs of benefiting as well. I do not worry about that from a

Chinese perspective. That was inevitable. The rise of income is

wide the consumer is already starting to do better. One it comes

to the leadership, their job is to sort of make sure it does not steal

off course too much. Luckily for them, the incoming leadership

appeared at a time when there is evidence of this adjustment taking

place. They have a nice deck of cards that has been given to them.

Let's talk about some of the obstacles, notably banking. Some

people say they are highly liquid. hidden. I take the bad loan view.

where commission mac income is earned a half of the total output.

It is unusual. Business and government income is much higher.

Half of up port in the government income and just under half of up

are being invested. Yet, the money does not get there it easily. It

has to go through the banking system. It means China is taking

away money from the probable places, inside the corporate state, and

giving it to a bunch of provincial people who set up plants that do

plagued other plants. A low was the return of capitals. -- it results

in a low return. Shine that engages in a state capitalism. -- China

engages. Dame did not have the a way

a democracy can. -- des do not. How long can that model sustain China?

It former's -- it forces a limitation. It is very tricky. You

look at some of the dilemmas in the West at the moment. Alternative

energy and energy efficiencies, for example. By the end of this decade,

China may have made of progress and some of these areas than in the

to give the capital that is needed. In some areas, it is a distinct

advantage. Battery-operated cars, for example. They have a much

better chance of getting somewhere dead than elsewhere because it is

not private capital having to deal with stock market risks. If you

listen carefully to what those close to the leaders are saying,

dismantling the degree of dominance corner. It is part of the

implementation of this five-year These

These big organisations will not be quite as dominant. I think it is a

distinct advantage. Dr Gray, Charles? -- do you agree. I like to

hear companies like Goldman Sachs explaining the advantages of state

capitalism. No, is the short answer. They need better allocation of

capital. If the look of the growth rate of China, which is 10%, it

depends more and more on capital employed and less and less on

genuine productivity. Jim is right in the centre of the stability.

But they want to reduce the capital input. You have to raise the growth

of real productivity and that means proper allocation of capital, and

that is what you do not get when you get the government telling you

what to do. Corruption is a big is that capital spending pops the

economy up. We are looking backwards again. It is quite clear

in the econ in the econ weakened significantly. That is

part of the reason why the economy has closed. The consumer has

accelerated. Winup get -- we cannot tomorro

tomorrow. It is something that takes time, but we are moving in

deep right direction. One of the spend any time with the leaders of