A severe economic slowdown in China is one of the biggest risks faced by the world this year, the World Economic Forum (WEF) has warned. The WEF report said a hard landing for China's economy could create domestic social tensions and put stress on the global financial system.
It also warned of the risks of high deficits, as governments worldwide try to spend their way out of recession. The report was almost simultaneous to revised data from Beijing indicating China's economy overtook Germany's to become the world's third largest in 2007. The WEF's annual meeting takes place in Davos, Switzerland, later this month. The five-day event attracts heads of state, business leaders, and academics, as well as trade unionists, campaigners and a smattering of celebrities. The financial crisis and resulting economic slowdown are likely to dominate the proceedings. "The global economy is still not in the clear as it continues to be prone to substantial volatility," said Daniel Hofmann, chief economist at Zurich Financial Services and an author of the report. "One of the biggest risks is that short-term crisis fighting may induce businesses and government to lose the long-term perspective on risk," he added. The report said there was a risk that Chinese growth could slow to 6% or below this year. This is much lower than the 7.5% forecast by the World Bank and would "significantly impact" the already weak global economy. The Chinese economy expanded by 11.9% in 2007, but economists say the rate could be half that in 2008. While this is much better than the recessions expected in the UK or US, it would be the weakest period of Chinese growth since 1990 and the aftermath of the Tiananmen Square crackdown. The report also said that global stock markets had fallen on average by around 50% last year, and warned that the slide could continue. It further noted that while there was a short-term risk of deflation inflation was a greater risk in the longer-term, as governments go all out to stimulate their economies. According to the revised estimates from the Chinese government, GDP in 2007 expanded 13% (from an earlier estimate of 11.9%) reaching the equivalent of 3.5 trillion US dollars. Growth rate is expected to have dropped to 9% in 2008. The figures underscore China's emergence as an economic superpower and the fact that the economy has grown tenfold over the past 30 years. Individually, most of China's more than one billion people remain poor. Germany's GDP per person was 38,800 USD in 2007 compared with 2,800 USD in China, which has wide disparities between rich and poor. Merrill Lynch economist Ting Lu predicted that it will overtake Japan as the world's second largest economy in "only three or four years".