Davos Man Finds Reasons to Be Cheerful: China, India, and East Asia

The Davos case for optimism in four words: "Thank God for Asia!"

Wednesday saw a new cautious optimism and an emerging consensus that the incontrovertible locomotive of global growth is now comprised of China, India, South Korea, and other southeast Asian countries.

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DAVOS, Switzerland - Well folks, the penny has finally dropped among the 2,000 top members of the global power elite attending the first full day of the World Economic Forum meetings here. Asia rules!  And thank God for Asia!

After the gloom and doom of recent years, Wednesday saw a new cautious optimism and an emerging consensus among bankers, business leaders and economists that the incontrovertible locomotive of global growth is now comprised of China, India, South Korea, and most of the ten nations that comprise the Association of Southeast Asian Nations (ASEAN) and especially Indonesia, Malaysia, Singapore, Vietnam and Thailand, plus, over in left field, buoyant Brazil.*
And even perennial pessimists such as Dr. Doom, AKA economist Nuriel Roubini, agreed that the glass is now "half-full."
While few in Davos bothered to comment on President Obama's State of the Union, dishing it as platitudes and cheerleading, everyone here, including export-oriented Asians, is hoping for a healthy America with three percent GDP growth in 2011.
Europe's woes were a much bigger topic, and the violence and protests in Egypt cast a long shadow over the proceedings here, but more on that in a moment.
Perhaps the most original new term to emerge during the opening economic debates here came from Zhu Min, the World Bank's Special Adviser, who predicted a "three-speed recovery in which the emerging markets would grow by more than six percent this year, the U.S. by three percent and the anemic and beleaguered euro-zone by less than two percent."  That about sums it up.
The cadres of Fortune 500 CEOs here were all busy hobnobbing with the Chinese and Indian delegations, nearly everybody was on the make, networking and speed-dating and everybody looking to get a piece of the action in these two nations, which will enjoy growth of eight to 10 percent in 2011 and which together comprise  consumer markets with a total of 2.4 billion people.  Add to India and China the  population of nearly 600 million consumers in the ASEAN nations and their average six percent growth rate, and you are looking at three billion people, and the driving force of the global economy.  And in my view, this is not just true for this year, but for many years to come.
But two key changes were apparent to me as I chatted around the conference center:  Firstly, the old provincial fears of China and Asia have been replaced by a pragmatic and mercantile opportunism, and a new sense of realism on the part of the American and European elites.  And secondly, it is not just the Chinese who are offering a more muscular and robust body language and rhetoric -- it is nearly all of the Asians who are beginning to push back.
Perhaps the single most interesting session on Day One was a debate called Insights on East Asia, chaired by the outspoken intellectual power of Southeast Asia, Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy in Singapore. He kicked off the day with a stinging op-ed in The Financial Times entitled "Asia has had enough of excusing the west" in which he argued it was time for Asians to stop being so polite and timid and a call for Americans to stop scapegoating China for its currency and admit that it was America that caused this crisis in the first place and America that needs to put its own house in order.
On the East Asia panel, the president of Thai Airways - Piyasvasti Amranand - did not mince his words when he said things like "Climate change? That is really a problem created by the West." Or take his remark that during the Asian financial crisis of 1997-1998, "We were taken advantage of and only China and Japan helped us.  But now we are taking advantage of the cheap dollar and cheap assets to buy up US and European assets."
A more moderate line was taken by the managing director of Khazanah Nasional, Malaysia's sovereign wealth fund -- Azman Mokhtar -- who stressed that "we want to work with America and the West in partnership."
But the chairman of Japan's external trade organization JETRO - Yasuo Hayashi - was blunt when he said that China, India, South Korea and Southeast Asia "are now the engine of world economic growth."
Not so much schadenfreude on the part of the Asians, just a new willingness to call a spade by its name.
Meanwhile, back in Europe, the same crowd that a year ago failed to predict the sovereign debt crisis that would bring Greece to its knees and then spread to Ireland and put Spain, Portugal and Belgium at risk, is now gripped by angst about the eurozone crisis.
George Soros, who made a fortune as a currency speculator before reinventing himself as a philanthropist and would-be philosopher, gave the starkest warning of all here when he claimed the eurozone crisis could tear Europe apart.  His reasoning was that the strong core economies of Germany and France would dominate the weaker periphery and create a two-speed Europe that becomes unmanageable.

"The euro was supposed to bring about convergence, and effectively it created divergence and that is now being perpetuated," Soros said. "You're going to have a two-speed Europe, and that is going to be politically very disruptive. Europe could potentially fall apart because of this two-speed Europe."
Soros clearly knows how to get himself a headline, but I think he was exaggerating to prove a point.  Europe is not going to fall apart, because Europe always muddles through.  Europe never really has a sharp decline or a sharp recovery.  It just muddles.  Europe's current 1.5 percent growth rate (except for Germany, which is growing at twice that rate), is really not so exceptional; it is pretty much the average of the last decade.  When GDP growth goes above two percent in Europe that qualifies as an economic orgasm.
Certainly the current situation, if latter-day versions of Soros have their way and speculators move from weak spot to weak spot, could make Europe an even weaker and more inward looking continent than it already is.  And yes, Europe cannot agree on foreign policy or economic policy or much anything these days.  And sure, the Euros 750 billion European bail-out fund will probably have to be used for other countries besides Greece and Ireland. But a full-scale implosion, or the demise of the euro strikes me as less likely than a prolonged period of malaise and uncertainty.
The real risk to the global economy is a weakened Europe that has less money to spend on buying Asian or American imports.
Next up on the euro-roster will be rhetoric from the volcanic Nicholas Sarkozy of France, who flies in on Thursday, and then the more level-headed Angela Merkel of Germany, who will no doubt make more sense when she speaks on Friday.
The other big issue emerging here at Davos is endless discussion and debate about the meaning of Tunisia's people-powered revolution and the long shadow of violence and protest that has been triggered across Egypt.  As the tear gas and water cannons multiplied in Cairo, Egypt's trade minister Rachid Rachid canceled his Davos appearance, and corridor talk was all about whether Egypt is about to go the way of Tunisia.
Amre Moussa, the affable Egyptian who is Secretary-General of the Arab League, was highly visible in the Davos Congress Center, schmoozing, mingling and warning that many Arabs were angry and frustrated.  "The name of the game is reform," said Moussa in lofty terms, but he did not go so far as to question the regime of his native Egypt.

The other commentator-of-the-day on the after-shock of Tunisia was none other than President Dimitri Medvedev of Russia, who first canceled his speech here because of the terrorist attack on Moscow's airport and then showed up anyway and delivered a rambling speech that veered from solemn and serious comments about the need to battle terrorism to less plausible passages.
On the Tunisian uprising Medvedev said he hoped "that the situation in Tunisia will stabilize and will not have a contagious effect across the Arab world."  Whether that meant he hoped there would not be destabilizing violence or whether he hoped democracy would not spread across the Arab world is hard to say because Medvedev peppered his opening address with a wide-range of curious comments.
The Russian president claimed there was no proof that Iran is building nuclear weapons and added that he even spoke recently to President Mohammed Ahmadinejad and urged him to demonstrate that Iran's nuclear intentions are peaceful.  Ah, that should work!
The nominal President of Russia called for "a more fair and just world of meritocracy" and "a world free of hypocrisy and double standards." (You can't make this stuff up, folks!)
And then, Medvedev suddenly started pitching for money from the monied set in the auditorium and ended his speech with a lengthy laundry list of initiatives Russia was taking to attract more foreign investment and become more modern and competitive.
Then he became somber again and said he would be flying straight back to Moscow to take charge of the situation caused by the terrorist attack and thanked the Davos crowd for its solidarity.  That should have been the end, but then he starting taking questions from the audience for another ten minutes, and his most memorable response was to tell the crowd that "in my job you have to keep going even when you are tired, even when you are stressed, and even when you are jet-lagged."
I won't embarrass the Nobel Prize winning American economist, the European Princess, or the famous CNN anchor who I was sitting next to, and who burst out in cathartic laughter when Medvedev uttered this last remark.  They shall remain nameless, at least for now.

*Update, August 25, 2011: The editor's note below was amended to more accurately reflect the period during which FBC represented the government of Malaysia.

Editor's Note, August 22, 2011: FBC Media, the public relations and communications firm chaired by Alan Friedman, was representing the government of Malaysia at or around the time Friedman wrote this post. According to our arrangement with Friedman, he should not have written about any clients of his company. After he did so, The Atlantic should have disclosed that relationship in a more timely manner. Recent media reports also suggest FBC may have been representing the government of Indonesia at the time Friedman wrote this post. We are reviewing Friedman's posts mentioning Indonesia. We will update this note with information regarding any business relationship we discover between FBC and the government of Indonesia.