China wows them at Davos

The plenary hall was indeed crammed to hear China's premier Wen Jiabao detail how Beijing plans to tackle the global economic crisis. The slight, bespectacled Chinese leader wowed them with a detailed outline of a massive Chinese stimulus package that will sound familiar to Americans: build new infrastructure, establish a comprehensive national health system in the next three years, improve compulsory education.

What sounded different was the Chinese leader's obvious self confidence (he used the word "confidence" around a dozen times). China's banking system is in far better shape than those of the USA and Europe, and Wen predicted a growth rate of 9% for this year. He was stinging in his indictment of the "unsustainable economic model" in the United States (which he didn't refer to by name) that saved too little and relied on the "blind pursuit of profit."

Of course, China has helped fund that blind persuit by buying our T-bills with dollars earned from exporting cheap goods to America. That model is going to change, and Wen was telling the audience that he thinks China can flourish with a new model that relies more on domestic consumption.

He issued a veiled warning to the Obama administration which has already criticized China for keeping its currency artifically high against the dollar.  While saying he looked forward to "early contact" with the new administration, he said a "confrontational relationship with China will make both losers." That's true, since we will need China's cooperation if we are to wind down our heavy dependance on their financing of our debt, and do so at a speed slow enough to prevent a dollar train wreck.