Russia and China blamecapitalists, but strike conciliatory note

ByCarter Dougherty and Katrin Bennhold

Thursday,January 29, 2009

DAVOS, Switzerland: The leaders of the former bastions of the Communist bloc took the stagehere on Wednesday to rebuke their capitalist brothers for dragging the worldinto crisis but also to assure them that, working together, they can rapidlyrestore the global economy to health.

In the official opening addressof the World Economic Forum, Prime Minister Vladimir Putin of Russia spoke ofa financial "perfect storm" that has decimated the old system,rendering it obsolete.

"A year ago, Americandelegates speaking from this rostrum emphasized the U.S. economy's fundamentalstability and its cloudless prospects," he said, speaking through atranslator. "Today, investment banks, the pride of Wall Street, havevirtually ceased to exist."

But the damage goes beyond WallStreet, he said. "The entire economic growth system, where one regionalcenter prints money without respite and consumes material wealth, while anotherregional center manufactures inexpensive goods and saves money printed by othergovernments, has suffered a major setback."

The Chinese premier, WenJiabao, left little doubt that Beijing blamedthe United Statesfor the economic breakdown. "Inappropriate macroeconomic policies,"an "unsustainable model of development characterized by prolonged lowsavings and high consumption," the "blind pursuit of profit" and"the failure of financial supervision" all contributed, he said.

Like Putin, he was upbeat aboutprospects for the future and expressed an eagerness to work with the West onsolving common economic problems.

Wen was eager to assureinvestors that Chinawas poised to rebound. "I can give you a definitive answer," he saidof the prospect that his economy would recover strongly. "Yes, it will; weare full of confidence."

He said that the Chinesegovernment had set a goal of 8 percent growth this year, which he called"an attainable target through hard work." He reeled off statisticsshowing that bank lending and investment, after slowing sharply in the fall,picked up in December and January.

"The harsh winter will begone and spring is around the corner," Wen said.

In his 30-minute speech, Putinportrayed Russia as a reliable partner in energy, trade and politics despitethe economic crisis, which has dragged down Russia's growth rates anddrastically reduced its revenue from oil, a major export. "We can't affordbeing isolationist or economically selfish," he said, adding, "We areall in the same boat."

As recently as December, Putinhad harsh words for the UnitedStates. On Wednesday, he struck a moreconciliatory note, saying he would not dwell on who was responsible and talkinginstead about "mutual interests" and "mutual dependencies."

"We hope that our partnersin Europe, Asia and America— and I'm also addressing the new administration, we wish them well — I hopethey will be willing to cooperate constructively," he said.

Some Russians in attendancehere said Moscow's dependence on Western investors — Russia's stock market isdown more than 70 percent from its peak, for example — might have played a rolein Putin's adopting a less combative stance.

Wen admitted that the Chinesewere feeling the ill effects of the economic downturn. "We are facingsevere challenges, including notably shrinking external demand, overcapacity insome sectors, difficult business conditions for enterprises, risingunemployment in urban areas and greater downward pressure on economicgrowth," he said.

Given the outlook for the year,financial experts said, the leaders' choice of accommodation over recriminationwas probably a wise course.

"We cannot underestimatethe challenges and dangers that the world economy faces in 2009," StephenRoach, chairman of Morgan Stanley Asia, said at the forum's traditional openingdebate on the macroeconomic outlook. "It will most likely be the firstyear since World War II when GDP actually contracts."

Roach cast doubt on some ofWen's sunny pronouncements about China'seconomy and noted that shipments from Taiwanand Japanwere also down. "As the Chinese economy has hit a wall, the rest of Asia has followed suit," he added.

The International MonetaryFund, in its new forecasts, also sketched a dire picture.

Global economic growth willreach 0.5 percent this year, the weakest pace since World War II, the monetaryfund said. That is down from a 2.2 percent prediction in November.

"Unless stronger financialstrains and uncertainties are forcefully addressed, the pernicious feedbackloop between real activity and financial markets will intensify, leading toeven more toxic effects on global growth," the monetary fund said.

Echoing a widely held view inthe global business community, Heizo Takenaka, director of the Global SecurityResearch Institute at Keio University in Japan, said fear had taken over asthe main driver of the crisis.

"The current situation issomething more than a financial and economic crisis," Takenaka said."We face a confidence crisis" requiring a strong government andcentral banks.

The most panicky of all, Roachsaid, are American consumers, who are retrenching after a decade-long binge fedby inflated housing prices. He predicted that they were only "20 percentinto a multiyear" adjustment that would leave them much more frugal.