DUBAI, United Arab Emirates (AP) — China is facing a trust deficit as its economy undergoes massive transformation and concerns grow over the ongoing housing crisis, a senior banking executive said on stage at the World Governments Summit in Dubai.
“For me, China’s biggest problem is a lack of trust. Outside investors lack confidence in China and domestic savers lack confidence,” Bill Winters, CEO of emerging market-focused bank Standard Chartered, told CNBC’s Dan Murphy during a panel discussion on Monday.
“But I think China is going through a major transition from the old economy to the new economy,” Winters added. “If you go to the new economy, which many of you have – I have – it is booming, absolutely booming, with well into double-digit growth rates and in everything to do with electric vehicles, the entire supply chain, everything to do with sustainable finance and sustainability has to do, etc.”
Investors are closely watching China, whose stock market fluctuations, deflation problems and real estate woes cast a shadow over global growth prospects. According to an International Monetary Fund report completed at the end of December 2023, demand for new housing in China is expected to decline by around 50% over the next decade.
Lower demand for new housing will make it harder to absorb excess inventory, “prolonging the adjustment in the medium term and weighing on growth,” the report said. Real estate and related industries account for about 25% of China’s gross domestic product.
IMF Managing Director Kristalina Georgieva, speaking to CNBC in Dubai on Sunday, stressed that she believes reforms are needed from Beijing to address its economic challenges.
The international lender has discussed with China “longer-term structural issues that the country needs to address,” Georgieva said. “Our analysis shows that growth in China can fall below 4% without deep structural reforms. And that will be very difficult for the country.”
“We want the economy to really be more focused on domestic consumption and less reliant on exports…but for that [they need] “Consumer confidence is improving,” she said, echoing Winter’s views on domestic confidence. “And that means renovating the real estate, setting up the pension system and achieving these longer-term improvements in the fundamentals of the Chinese economy.”
Meanwhile, Standard Charters’ Winters is optimistic overall about the world’s second-largest economy, noting that any society that has undergone major economic change inevitably experiences some degree of turmoil and growing pains.
“They are trying to manage this transition without disrupting the financial system, which we have never been able to do in the West,” the CEO said. “Every major industrial change has been associated with a Great Depression or a global financial crisis. They try to avoid it, which means it drags on. I think they’ll come through the end okay.”
— CNBC’s Evelyn Cheng contributed to this report.