Doubts remain about Asian crisis recovery

DALIAN, China // Asia appears to have avoided the worst of the global financial crisis and seems well on the path toward recovery, but some nagging doubts remain. Among them are growing trade protectionism, an addiction to exports and an end to the easy money that fuelled growth. "Asia has become more unbalanced," says Stephen Roach, the chairman of Morgan Stanley Asia. Its strategies for fighting off the crisis have succeeded in boosting growth, but have increased its vulnerability to export demand in the West rather than reversing a tendency among Asian consumers to save rather than spend. "The missing link is social safety nets," Mr Roach said.

He and the 1,299 others at the World Economic Forum event offered a brighter outlook than last year when the failure of Lehman Brothers touched off the crisis. Now the risks appear to have been reduced by massive and co-ordinated action by governments and central banks. And Asia's apparent recovery augurs well for the Gulf, which may benefit from increased trade and tourism. Risks persist, but no longer appear as dire. Protectionism remains a problem, panelists said, but it had become much less threatening than once feared.

At the centre of the optimism was China, as Beijing has managed to restore growth to 8 per cent and higher with huge government spending. This 4 trillion yuan (Dh2.15tn) of fiscal stimulus also sparked an explosion in bank lending, most of which has gone into infrastructure. That, according to Mr Roach and others, has only increased overcapacity in Chinese manufacturing, making it even more reliant on foreign demand. And China's consumers are investing in local stocks and property, creating what many fear are dangerous asset price bubbles.

Beijing remains one of the biggest sceptics. "China's economic rebound is unstable, unbalanced and fragmented," Wen Jiabao, the premier of China, told participants in an address opening the meeting. "We cannot and will not change the direction of our policies before conditions are right." China's problems mirror those elsewhere, where governments have used enormous government borrowing and spending to counter the crisis.

The challenge now, economists say, will be how to remove state spending and allow the economy to stand on its own. [e-mail]