At Davos, China and India Make Deals While Europe Reels

The Alpine talkfest begins with a surging China, a rising India, emboldened bankers, and very worried Europeans

DAVOS, Switzerland -- A year ago, when the annual conclave of the world's political, financial and business elite known as the World Economic Forum met in this Alpine ski resort, the mood was as gloomy and overcast as the weather.

Bankers were literally ducking for cover, fears of a double-dip recession were rampant, and distrust of China was palpable. Europeans brushed off the mounting Greek tragedy as a one-off debt crisis that couldn't possibly affect anyone else across the eurozone.

On Tuesday, the five-day forum begins with 2,500 participants -- including 1,400 top business leaders and 35 heads of state -- tackling (or at least talking about!) the world's problems. The weather and the overall climate of the meetings should be a bit sunnier for all involved. Except for Europe.

That, at least, is the forecast of seasoned Davos-watchers, who have begun trudging up the mountain again for a gathering that has taken as its theme this year the notion of "shared norms for a new reality."  Or, as Klaus Schwab, the redoubtable founder and executive chairman, said of the 41st meeting: "The shifts of political and economic power from west to east and from north to south, as well as the speed of technological innovation, have created a completely new reality."

CHINA AND INDIA RISING

The world's biggest shift of power was on display just a few days ago during the state visit to Washington by China's President Hu Jintao. So it is no coincidence that China is fielding the biggest delegation in Davos history this year. India is not far behind, and both of the world's new and rising economic superpowers will also dominate the cultural mood with soirees and entertainment as well as hard talk on and off stage.

The hundreds of Western business leaders, an army of middle-aged white guys who make up the majority of attendees here, now appear less interested in hand-wringing over China's rise, and more intent on scoring as many contracts as possible with Beijing. And China, armed with its $2.85 trillion of reserves and a 10% growth economy, seems keen to continue using its financial clout to buy friends and influence.

India, by contrast, has a more subtle approach to the Davos crowd, and the country is at pains to stress its message of "Inclusive India" -- a variation on the "Incredible India!" motto that won so many hearts when India made its first big splash here five years ago. Billionaire tycoons Mukesh Ambani and Anand Mahindra and veteran cabinet minister Kamal Nath are plugging their nation of 1.1 billion for both the go-go growth of their neighbor and rival China and a more rules-based system based on democracy.

In short, China and India see Davos as place to pitch the Fortune 500 crowd, while Americans and Europeans see Davos as a talky ideas conference.

EUROPE'S TALK THERAPY

The Europeans meanwhile, will be out in force, with big speeches from Germany's Angela Merkel, Nicholas Sarkozy of France and David Cameron, the new kid on the block from Britain.

Merkel -- the self-appointed guardian of the euro, paymaster of Europe, and disciplinarian of Europe's wayward PIIGS -- can be expected to be her usual stern, dry and impressive self. Europeans are very, very worried about the euro-zone crisis, and none of them can afford to be complacent. Their biggest macro-economic challenge is that Germany is roaring ahead at a growth rate of more than 3% (thanks of course to the fact that everyone, especially high growth Asia and Mideast customers, want their machine tools, and their Audis, Porsches, Mercedes and Volkswagens), but the rest of Europe is still in a fragile semi-recovery or non-recovery.

And that places the most talented central banker on the planet today, Jean-Claude Trichet of the European Central Bank, between a euro and a hard place. If he hikes interest rates to dampen inflation in Germany, he could kill other European economies' recovery. What to do? This is possibly the single most concrete issue that will be talked about at Davos this week.

While Mr. Cameron will make his Davos debut as prime minister with his usual intelligence, grace and clarity, the crowd up here is waiting with a mixture of foreboding and glee for the appearance of Sarkozy. Last year Sarkozy ranted and raved and yelled about the impending disappearance of the U.S. dollar as the world's key currency. This year he will be ranting and raving about commodity prices, about the need to tax global financial transactions and about all sorts of half-baked ideas that he will no doubt foist upon an unwilling world in his temporary glory now that France has the presidency of the G-20 in 2011. God help us all!

FRESH FACES AND BAD BOY BANKERS

The two most original appearances could be the shy but smart president of Indonesia, Susilo Bambang Yudhoyono (perhaps the most interesting and exciting new member of the G-20), and Russia's Dimitri Medvedev, nominally the president of his country.*

Yudhoyono, or "SBY" as he is known back in Jakarta, has been presiding over a formerly corrupt dictatorship that he is successfully steering along the path of its newfound democracy. With a strong anti-corruption program and a country rich in natural resources (gold, oil, gas, timber and bauxite, to name a few), Indonesia's 240 million-person economy is growing at nearly 6 percent a year. Indonesia is, as former Prime Minister John Major said recently, "an undiscovered gem" and it will be interesting to see how SBY comes across to the Davos crowd later this week.

As for Medvedev, he will likely have two main goals: to show that he is his own man, and to woo international investors. Watch this space for more as the week progresses.

Finally, the one-time bad boys of Wall Street, those bonus-grabbing, self-trading fellows who keep telling us that they are really and truly nothing like Gordon Gekko, yes the folks who are widely seen to have helped cause the world economic crisis of recent years, are back, and Davos has got them in spades. All of the All Stars will be here, from JP Morgan's Jamie Dimon to Morgan Stanley's John Mack, plus Credit Suisse's Brady Dougan, Deutsche Bank's Joe Ackerman, and the undisputed leader of The Unrepentants, Barclays Bank's Bob Diamond.

It was Diamond who recently pushed back against the critics, thrashing them for playing the "blame game," and telling a House of Commons committee that the period of "remorse and apology for banks ... needs to be over." (It may be no coincidence that even a year ago, when the bankers still wore sackcloth and ashes, the biggest champagne gala was thrown by Barclays.)

If all of this seems a trifle cynical, let me say that at its best, Davos really can provide serious intellectual stimulation and a sense of the global agenda. This year I am much more interested in watching how Robert De Niro (a Davos virgin) reacts to the crowd than in yet another nightcap with George Soros. And I feel snug in this Alpine perch, knowing that the perimeter is well secured by 5,000 machine-gun toting and ever-vigilant Swiss soldiers in a huge Davos lockdown that should discourage protesters, loonies, and even the most determined anti-globalization snowball thrower.

*Editor's Note, August 22, 2011: Recent media reports suggest that FBC Media, the public relations and communications firm chaired by Alan Friedman, may have been representing the government of Indonesia at the time Friedman wrote this post. According to our arrangement with Friedman, he should not have written about any clients of his company. We are reviewing these and other posts written by Friedman. We will update this note with information regarding any business relationship we discover between FBC and the government of Indonesia.