Shifting Fortunes in Davos

January 26, 2010 - If there is a face of this year’s World Economic Forum, it may well be that of Rui Chenggang. Rui is a director and anchor of China Central Television and presenter of Economic 30 Minutes, the country’s leading business news program. He has been coming to Davos for the past decade, but this year he is one of the most sought-after participants.

CCTV has rented a villa adjacent to the Congress Centre, the sort of splash normally associated with CNBC or the BBC, and Rui will be interviewing a host of top corporate executives here for the annual business and political jamboree. Few CEOs are likely to turn down the opportunity to appear live on the world’s biggest television station.

“I don’t care if he’s got 400 million viewers or 200 million, I’ll take it,” says Sir Martin Sorrell, the CEO of global advertising giant WPP Group.

Rui is just one example of the clout and swagger of emerging market participants in Davos this year, and not without cause. At a time when recovery seems fragile in the West, most executives here are hoping that countries like Brazil, China and India will pick up the slack and give the global economy a boost with their dynamism. Azim Premji, chairman of Indian software maker Wipro, expresses confidence that India will grow by 7 percent this year and by 8 to 9 percent in 2011 and beyond.

The Institute of International Finance, an association of major banks, underscored the optimism on Tuesday by predicting that captial flows to emerging markets would soar to $722 billion this year from a crisis-constrained $435 billion in 2009. The dramatically better economic and growth prospects in emerging markets relative to developed markets is “a situation that in my more than 50 years in banking is without precedent,” says William Rhodes, first vice chairman of the IIF and senior vice chairman of Citigroup.

In contrast to the optimism of emerging markets players, executives here are subdued about growth prospects in the U.S. and Western Europe and concerned about regulatory uncertainty and a growing backlash against big banks.

Western economies have bounced back from the worst of the crisis, but with consumers and governments heavily indebted, they lack the dynamics for a vigorous, self-sustained recovery, in the eyes of CEOs. Indeed, it seems that the restraint of corporate chieftains is a leading factor holding back the recovery. Although bosses are decidedly more confident about the outlook than they were a year ago, the biggest single investment priority of CEOs is increasing cost efficiencies, not expanding capacity, according to a survey of nearly 1,200 CEOs by Pricewaterhouse Coopers. Chief executives expect to add the most jobs this year in Brazil, India and China; the U.K. and U.S. slightly exceed the global average for job-growth expections, while Western Europe lags behind.

The sluggish economy explains the toughening stance toward banks taken by several governments recently, including President Barack Obama’s pledge last week to crack down on banks too big to fail and bar them from proprietary trading and investment in hedge funds. Regulatory reform, therefore, is the other big theme of this year’s meeting. Big banks are back in force in Davos after several notable absences in 2009, and among top CEOs only Jamie Dimon of JP Morgan Chase & Co. and Lloyd Blankfein of Goldman Sachs & Co. aren’t scheduled to appear. In addition to wooing clients, the bankers are expected to press their case for less draconian regulation and new taxes with the likes of French President Nicolas Sarkozy, the chairman of the U.K.’s Financial Services Authority, Adair Turner, and Lawrence Summers, head of Obama’s National Economic Council.

The banks get little overt sympathy, even in the corporate playground that is Davos. “I don’t think there’s any question that there need to be fundamental changes” in financial regulation, says Dennis Nally, global chairman of PwC. But participants are worried that domestic political pressures will prompt governments to strike out on their own, fracturing the G-20 consensus on bank bailouts and stimulus programs that stanched the financial crisis a year ago.

The worst of the downturn may be behind us, but until politicians and regulators establish clear rules for the future, the recovery is likely to leave everyone unhappy.

A Frank Exchange
An odd couple shares the stage during Wednesday’s global macroeconomic policy debate.

A Banker's Warning
Bankers and regulators square off at Davos. Round one goes to the banks.

Shifting Fortunes in Davos
Emerging markets take center stage while bankers fight a rearguard battle against tigher regulation.

Raising the Curtain at Davos
The World Economic Forum’s theme this year – “Rethink, redesign, rebuild” – is tailor-made for business leaders and government officials.

A Breakdown In Our Values
Klaus Schwab, WEF Executive Chairman: Bonuses are a symbol of business's bigger problem - an eroded sense of duty to the wider community.