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Going Global, Thinking Local
China Seeks New Drivers of Growth

26 January 2006 - Davos, Switzerland

China, which grew by 9.9% in 2005, must stimulate domestic demand to reduce its reliance on exports to drive growth. "China needs to redirect its growth model more to private consumption," said Stephen S. Roach, Chief Economist, Morgan Stanley, USA, at a plenary session on China’s integration into the global economy at the World Economic Forum Annual Meeting 2006. "The process of reform, transformation and growth is now at a very important juncture. There’s potentially a very important turning point that is close at hand."

While many Chinese companies are going global by making strategic investments and acquisitions abroad, gaining essential management expertise in the process, they must balance this with an inward-looking approach aimed at increasing business and developing the home market. "This would be a more sustainable model," Roach argued.

The issue of the quality and sustainability of China’s economic growth is a major focus of discussion at the Annual Meeting in Davos. In a special address to participants, Zeng Peiyan, Vice-Premier of the People’s Republic of China, declared that China would stimulate domestic consumption to drive new growth over the next five years. In another session, Cheng Siwei, Vice-Chairman, Standing Committee, National People's Congress, People's Republic of China, said that China aims to bring down the domestic savings rate - currently at over 40% of GDP - by developing more direct investment channels including private equity and venture capital funds, offering more short-term bonds and promoting the concept of credit. At today’s session, Zhou Xiaochuan, Governor of the People's Bank of China, People's Republic of China, acknowledged that it would be difficult to convince Chinese people to spend more.

Chinese companies could match a global strategy with a domestic market focus through the acquisition of brands. Orit Gadiesh, Chairman, Bain & Company, USA; Member of the Foundation Board of the World Economic Forum, noted that Chinese companies have been trying to buy brands. While there are very few Chinese brands known outside of China, the Chinese are highly brand conscious. It would not be long before Chinese interests acquire a major brand that they could then introduce or develop in their home market and overseas. One sector where this could happen, she reckoned: high-tech.

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Last updated: 26 January 2006
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