The Chinese economy will grow more slowly than anticipated and the US is at a political crossroads that will determine its future, keynote speakers at the Fidelity Cayman Business Outlook said last week.
The event, with more than 300 attendees at the Ritz-Carlton, Grand Cayman, aimed to “provide Cayman with a global perspective”, Fidelity Group Chairman Anwer Sunderji said. In his introductory speech, he sketched a global economy in transformation with developing countries catching up compared to the US, and Europe facing a massive government debt burden, following the financial crisis.
Keynote speaker and former Financial Times and Economist journalist Clive Crook said the developed world is in “relative economic decline”, but added that this was just another term for “global economic convergence,” indicative of rising living standards in the developing world and staggering growth rates in countries like China and India.
Mr. Crook, who focused on the US economic prospects, as economically speaking the US and Cayman are “joined at the hip”, characterised the current situation in the US as a “chronic disability to govern” combined with economic problems.
In the short term, Mr. Crook advocated low taxes and a loose fiscal stance that would allow US debt to stand for one year. He believes the capital markets would let the US get away with it if this was combined with a long-term commitment to lowering debt. But he also warned that if the first US states went bankrupt, the shock to the financial system would affect federal debt as well.
Mr. Crook argued that political decisions, in particular Barack Obama’s ability to be the champion of political compromises, and the next budget would largely determine the path the US is going to take for the rest of the Obama presidency. He noted, in particular, US income tax reform as one example for such a potential compromise across party lines.
US at a crossroads
Michael Pettis, professor at Beijing University, agreed with Crook that the US finds itself at a crossroads, and its future direction will be determined by political consideration. The same applies to China, he said.
Contrary to common belief, China did not fare well through the crisis, he said. “It was disastrous.”
Mr. Pettis noted a growing recognition in China that the country needs to rebalance its economy, away from an overreliance on its trade surplus.
He said China’s trade imbalances have to be met by imbalances in other economies, such as the US and some European states. European trade deficit countries would have no other option than to cut their deficits, and the US has also shown some commitment to do so, but the options available to China to rebalance its economy all have certain drawbacks, he said.
The most important imbalance in China, a low share of domestic consumption of GDP, could be remedied by increasing the value of the currency, raising salaries or through higher interest rates, but these measures would either stifle economic growth, threaten the competitiveness of Chinese companies or increase the burden of government debt.
Because China waited too long to make the adjustments, these could now only be executed slowly and as a result, over the next eight to 10 years economic growth would be considerably slower than anticipated, Pettis said.
Focus on tourism
Bahamas Minister for Tourism and Aviation Vincent Vanderpool-Wallace advocated a need to focus on the strengths of tourism as an economic driver and development tool. Bursting some myths of the tourism industry, he said that the length and cost of travel to a destination are key, and targeting BRIC countries is a misstep, because the likelihood of true mass tourism from these far-away climes is low due to those metrics.
Low cost, high quality and high frequency air routes are crucial because studies have shown that tourists who have low-cost air fare will pay higher room rates. Inter-island transportation is also important.
Mr. Vanderpool-Wallace emphasised the importance of the internet for tourism. However, he said, there is a need to bring digital experts and destination experts together.
He also said that although economic diversification is often a populist standpoint for governments, it makes more sense to focus on core competencies to enhance the comparative advantage of a destination. Diversification and sports and health tourism are the future, he said, pointing to Cayman’s medical tourism plans as “brilliant.” Creating reasons to travel to a destination are vital, he said.
Professor Edward Kolodziej of the University of Illinois said it is critical that we recognise a global society, though one that is at risk, due to its differences. These divisions can only be tackled if the world’s states and peoples assign priorities to addressing them, he said.
Mr. Kolodziej also argued that “there are no superpowers”.
“The US did not have its preferences abroad right for a long time” and “China will not be any different”, he said.
Joe Shooman contributed to this article.