Fears about China’s economy fester at Davos

AT the World Economic Forum in Devon, chief executives and investors are blaming China for a slump in global markets. Fears about the country's downshift, as its official growth slowed to a quarter-century low, have dominated high-level discussions, both during public debates and in smaller, private meetings. The financier George Soros said at a dinner on Wednesday night that a "hard landing is practically unavoidable," adding that China is the root of the current financial crisis. But behind the gloom and doom a more complex picture is emerging among the global elite in this Alpine ski resort. Some of it is coming from those who have lived or worked in China. China's most influential executives could be seen this week in Davos, including Zhang Xin, the chief executive of the real estate developer SOHO China; Ya-qin Zhang, the president of the search engine giant Baidu; Jiang Jianqing, the chairman of the Industrial and Commercial Bank; and Jack Ma, the founder of Alibaba. These leaders have stepped in to argue for a more nuanced view on China. Some have defended China's potential for growth as Western participants voiced concerns and doubts. Neil Shen, a veteran venture capitalist and one of China's most successful entrepreneurs, told one panel discussion about the evolution of Chinese industry, that Chinese companies were already competing in their own right in industries like smartphone manufacturing.

Within the arena of financial markets, Chinese and Western leaders alike argued that the fears demonstrated in rocky markets were overstated. Last week, stocks moved into bear market territory - which occurs when stocks are down more than 20 percent from a high - in large part on the news of Yet many cited the larger concerns that remained over China's slowing economy and whether its government will manage its transition from an economy focused on industry and exports to one that derives most of its growth from consumption. And many worried that an unintended consequence of President Xi Jinping's anticorruption campaign would be continued disruption of the financial markets.

Christine Lagarde, the managing director of the International Monetary Fund, touched on these points during a debate at the start of the conference. China's biggest problem today was how its government communicated with the rest of the world, Ms. Lagarde said. "I would say also that given those massive transitions that are undertaken pretty much at the same time and accepted as such, there is a communication issue," Ms. Lagarde said, adding, "It's something that markets do not like." Last summer, unexpected actions by the Chinese government started a global sell-off in the markets. Some of those measures nearly brought the market to a standstill. At one point in July, a third of the stock market was frozen. Investors with big stakes in stocks were prohibited from selling those stakes. Hedge funds were raided and shortsellers investigated for what the government called "malicious" activity, according to state media reports. The government even organized large-scale purchases of stocks by government-linked brokerages and investment funds to prop up the plunging market. Many of these interventionist actions in the market were "the exact replicas that many other countries, including the United States, have done in certain parts of their modern history," Gary D. Cohn, president of Goldman Sachs, said.

"The communication is really what's important here; communicating what the Chinese market is going to be and sticking with that theory no matter how painful it is in the transition," Mr. Cohn added. Speaking at the same event, Fang Xinghai, the vice chairman of the China Securities Regulatory Commission, told a packed room, "We are learning. We are doing it." Mr. Fang, whose regulatory commission was responsible for much of the stock market intervention last year, added: "We should do a better job." This message, however, was still lost on some of the more cynical China watchers. Kenneth Rogoff, a Harvard economist who has long warned of a potential financial crisis in China, remained skeptical. "There is a big propaganda push to say everything is good, everything is fine." Earlier in the week he told attendees at the forum that China's large accumulation of government debt would one day be a shock to a financial system that "amplifies shocks." Others with bearish views on China have kept their claws out. Jim S. Chanos, who once said China was "on a treadmill to hell," said he remained deeply concerned. His hedge fund, Kynikos Associates, estimated that China's nominal gross domestic growth in 2015 was 5 percent compared with 15 percent just five years earlier. "China's debt problems still lie ahead of it," Mr. Chanos said on Thursday, referring to concerns about the extent to which China's seeming economic growth is actually fueled by borrowing.