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Nov 07, 2008
China's Agenda at the World Economic Forum in Dubai
Howard Balloch speaks with CNBC 's Guy Johnson about China's agenda at The World Economic Forum's summit in Dubai.
Howard Balloch was a council member at the inaugural Summit on the Global Agenda in Dubai from November 7th to 9th.
To watch Howard Balloch's interview with CNBC during the Summit, please visit http://www.cnbc.com/id/15840232?video=922230497&play=1.
Transcript of Howard Balloch's interview with CNBC
The World Economic Forum kicks off its summit on the Global Agenda in Dubai Friday. Howard Balloch, president of The Balloch Group previews China's agenda at the meeting, with CNBC's Guy Johnson.
Guy Johnson (GJ): The global agenda is really obviously focused on one thing today and that is obviously the financial crisis. We’ve got the European leaders gathering and they are going to talk about how they are going to focus on the G20 but there are going to be plenty of other G20 players there as well. China is obviously going to be playing a huge role. Howard Balloch is here at this meeting to talk about that and to also talk about what is happening in the minerals and mining sector. So let’s discuss with him and see how he sees the Chinese role.
GJ: You’re a former ambassador to China and the status, you could argue, is being enhanced as a result of what is happening right now on the ground. How does china see this upcoming G20 meeting?
Howard Balloch (HB): Well, they look at the G20 meeting as very seriously both in global terms and domestically, you must understand that while they are relatively inoculated to this crisis than they have been in the past but they are not immuned from its impact. They are concerned about the domestic impact as well and of cause they are very concerned about their important export markets so they have a self interest in playing a role in G20 and helping find their role in solving the economic crisis.
GJ: So far though China has played a cautious role. It’s not going to come cross in this meeting as a white knight.
HB: That’s correct. They don’t see themselves as core to the solution. They see themselves as buttressing the solution. They see themselves as a stabilizing role on the capital flow side. They do have a significant role in global capital flows. They will stabilize to the extent that they can. They won’t sell American debt. They will put their muscle to help to remove some of the volatility in it. They see their role going forward very importantly as an engine of global growth, largely with the domestic market built around it.
GJ: You talk about the engine of growth, how strong is that growth going to be, that is one of the key questions that everyone is asking right now.
HB: They are a lot of people that says that Chinese growth is much reduced. I think that the financial crisis happened in a bad time in the Chinese economy, in a time of industrial overcapacity and a time of significant oversupply in real estate sector. That is an important sector.
So certainly Chinese growth is going down and will go down. But the motors of domestic demand, which is latent demand and entrepreneurial energy are still there and high savings rate and you're going to watch China engage in high stimulus efforts, well you have already seen some of it we are going to see more of it. We are going to see significant stimulus.
And the Chinese economy can get back to 9%, 8 or 9%, which I believe is a fairly significant growth rate. You must understand that still the Chinese economy compared to other economies such as the US, is relatively small. So it’s not a huge engine of global growth.
GJ: What is your view on the commodities, which is your other area of specialty? We have seen prices tank, nosedive in recent weeks. Is that a short term phenomenon or are the upside blips a short term phenomenon?
HB: I think the huge upside blip is not a long term trend line, nor is the precipitous collapse which we have seen now. I think we will be somewhere in between. China is and will continue to be the largest importer of copper, nickel, iron ore. They are working through over supply and they have great piles of iron ore on their wharves but that won’t take long for them to work through. The concern is as this financial crisis is basically putting a significant break on investment in new supply, whether we are talking about copper projects, oil projects, iron ore, Canadian oil sands or marginal fields elsewhere. And the impact of that in relatively supplied constrained markets is that it won’t take long for us to return to marginal supply pricing and high prices. Next year we are going to be there.
GJ: Howard Balloch, thank you for joining us. Howard Balloch from The Balloch Group.
GJ: You’re a former ambassador to China and the status, you could argue, is being enhanced as a result of what is happening right now on the ground. How does china see this upcoming G20 meeting?
Howard Balloch (HB): Well, they look at the G20 meeting as very seriously both in global terms and domestically, you must understand that while they are relatively inoculated to this crisis than they have been in the past but they are not immuned from its impact. They are concerned about the domestic impact as well and of cause they are very concerned about their important export markets so they have a self interest in playing a role in G20 and helping find their role in solving the economic crisis.
GJ: So far though China has played a cautious role. It’s not going to come cross in this meeting as a white knight.
HB: That’s correct. They don’t see themselves as core to the solution. They see themselves as buttressing the solution. They see themselves as a stabilizing role on the capital flow side. They do have a significant role in global capital flows. They will stabilize to the extent that they can. They won’t sell American debt. They will put their muscle to help to remove some of the volatility in it. They see their role going forward very importantly as an engine of global growth, largely with the domestic market built around it.
GJ: You talk about the engine of growth, how strong is that growth going to be, that is one of the key questions that everyone is asking right now.
HB: They are a lot of people that says that Chinese growth is much reduced. I think that the financial crisis happened in a bad time in the Chinese economy, in a time of industrial overcapacity and a time of significant oversupply in real estate sector. That is an important sector.
So certainly Chinese growth is going down and will go down. But the motors of domestic demand, which is latent demand and entrepreneurial energy are still there and high savings rate and you're going to watch China engage in high stimulus efforts, well you have already seen some of it we are going to see more of it. We are going to see significant stimulus.
And the Chinese economy can get back to 9%, 8 or 9%, which I believe is a fairly significant growth rate. You must understand that still the Chinese economy compared to other economies such as the US, is relatively small. So it’s not a huge engine of global growth.
GJ: What is your view on the commodities, which is your other area of specialty? We have seen prices tank, nosedive in recent weeks. Is that a short term phenomenon or are the upside blips a short term phenomenon?
HB: I think the huge upside blip is not a long term trend line, nor is the precipitous collapse which we have seen now. I think we will be somewhere in between. China is and will continue to be the largest importer of copper, nickel, iron ore. They are working through over supply and they have great piles of iron ore on their wharves but that won’t take long for them to work through. The concern is as this financial crisis is basically putting a significant break on investment in new supply, whether we are talking about copper projects, oil projects, iron ore, Canadian oil sands or marginal fields elsewhere. And the impact of that in relatively supplied constrained markets is that it won’t take long for us to return to marginal supply pricing and high prices. Next year we are going to be there.
GJ: Howard Balloch, thank you for joining us. Howard Balloch from The Balloch Group.
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