By David Whitford editor-at-large
FORTUNE -- Cai Hongbin, dean of the Guanghua School of Management at Peking University, has noticed a pattern in the way people respond to the stiff challenges -- social, environmental, and economic -- facing modern China: "Those who come often to China are pretty optimistic. Those who rarely or never come say China is collapsing."
Cai, needless to say, is optimistic, as were most of the panelists who took part in a conversation about China's changing economy at the 2013 Fortune Global Forum Friday morning in Chengdu. But none underestimated the enormity of the challenge that lies ahead.
"What hits me right smack between the eyes is the same thing the Chinese government knows," said former U.S. Treasury Secretary and former Goldman Sachs (GS) CEO Hank Paulson. "The current growth model is running out of gas. They're going to need to reinvigorate reform, it's clear."
China's growth rate, while still robust by global standards, has slowed dramatically since 2010; it was 7.7% in the first quarter of 2013, down from recent double digits. China is "too reliant on state-led investment and infrastructure and manufacturing," Paulson continued. "Too reliant on exports. There's not enough domestic-led growth. It needs more from the services industry."
Dominic Barton, global managing director at McKinsey, said he's "bullish" nevertheless, based on what he called China's "underlying force of growth" -- rapidly expanding cities. McKinsey has long predicted that China's urban population will reach one billion by 2030. The number is a "projection," not a certainty, Barton allowed; and the flood from the countryside may in fact be slowing somewhat. But China is still just at "the end of the beginning" of its urban transformation, he maintained. "This thing will still move." (See more from McKinsey on China)
How that growth is accomplished, Paulson warned, will have serious environmental implications. China has already paid a steep price for prosperity in dirty air and dirty water -- serious problems for China, and potentially catastrophic for the rest of the world unless China can somehow stop building coal-fired power plants and otherwise lessen its reliance on fossil fuels.
Paulson applauded China's new leadership for "both understanding the importance of the private sector and the need for reform" generally. But he said the government needs to be more involved, not less, when it comes safeguarding the environment. "You need to have laws, and you need to enforce them," Paulson said, adding that that's hard to do at the local level when "local leaders are focused on driving growth."
Paulson's conclusion: "The good news is that expectations [of the new leadership] are high. The bad news is that it will be almost impossible to meet those expectations. They're strong leaders. They're going to need to be very strong."
If you think our employment problem is bad now, consider this: the U.S. economy is on course for both a job shortage and a worker shortage.
So says McKinsey, the consultancy that just released a report on projected American job creation over the next decade. As you might expect, the outlook is not all that rosy.
A return to full employment, defined as 5% joblessness, "will occur in only the most optimistic job growth scenario," MOREColin Barr - Jun 23, 2011 11:50 AM ET
How would YOU defend yourself from insider trading charges? You can go the Raj Rajaratnam route or the Steve Cohen one. I'd take the latter.
If a man is known by the company he keeps (or has kept), then these are tough times, reputationally speaking, for hedge fund kingpins Raj Rajaratnam and Steve Cohen. While neither has been convicted of a crime, hardly a day goes by in which we MOREDuff McDonald, Contributing Editor - Feb 2, 2011 11:10 AM ET
CEOs see some light at the end of the hiring tunnel, though they remain nervous about the economy over all.
Three in eight top managers expect to hire more workers by year-end, McKinsey said Friday in its latest quarterly survey of global executives. That's the highest level since the end of 2007, the consulting firm said.
The improved hiring outlook comes even as the 2,056 respondents show increasing ambivalence about the strength MOREColin Barr - Sep 17, 2010 12:46 PM ET
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