THE BEIJING AXIS China Business in Perfect Strokes

China has weathered the global economic storm remarkably well. But it is too early to call it a complete victory. Currently China is a stimulus economy. As the economy recovers, to most probably overtake Japan later this year for the number two spot in terms of world GDP, the focus must be on sustainable economic growth. As China continues to be integrated into the world political and economic system, it is clear that China and the world will win and lose together.

China’s stimulus measures have largely worked. The economy has turned the corner and concerns over a faltering economy, that started late in 2008, are drifting away. Most analysts have revised growth up to 7.5% or higher in 2009, and even higher in 2010. It seems like business as usual. However, some things have changed and the past year of crisis has many ramifications that must be considered.

Firstly, despite an improved global outlook, the world economy is still consolidating and we should not be complacent too soon. China’s fortunes are tied in with the world over the long term, despite its ability to lift itself out of trouble by means of massive monetary and fiscal stimulus. Over the long term the world and China win and lose together.

Secondly, the levers that Beijing are using to pull up the growth performance are fiscal and monetary stimulus measures—not sustainable methods that can be used to propel the economy forward indefinitely. For example, the monetary stimulus has created unprecedented lending growth that must be reigned in at some point. Similarly, fiscal taps cannot re-main open forever without creating new issues and risks.

Thirdly, global stock markets, bond markets, currencies, energy prices and commodity prices have all generally rebounded during the past several months after their unraveling over 2008. But surely we cannot simply return to a continuation of the widespread growth story and the boom years so easily? Much adjustment, consolidation and repayment of debt still need to be worked through. All this suggest that a more measured pace of recovery would much more sustainable. And the extent of dislocation implies that within a long-term recovery there will be many contrarian views, trends, exceptions to the rule, and winners as well as losers. In short, many countries, sectors and companies will not form part of an immediate or broad recovery. Yet current sentiment suggests that good times could be back for everyone. Not quite.

Fourthly, China is playing a different game from before—and it is playing in a new division. The nation, its people and its companies are more assertive than ever. This implies a new world order where Chinese ideas, capital, products and influence is on the rise at an increasing pace. For many this will be a new exciting phenomenon full of opportunity, for some a scary and unwelcome development. Overall though, China’s integration in the global economy is now happening faster than ever be-fore. Moreover, having recently overtaken Germany in terms of GDP, and probably this year doing the same with Japan, to go from the fourth-biggest economy in 2007 to the second-biggest in 2010, China is now more than ever a force to be reckoned with. Its role at the G20 and other regional and world forums—and the way it held up in the face of global economic turmoil—means that China is being elevated as far as its political, economic and strategic importance is concerned.

All this makes for a dynamic space and as China and the world recover many new opportunities, risks and issues will arise. Overall the broad trends are looking much more positive than only a few months earlier. However, managers of China businesses must look beyond the general. The world has changed and there are no more sure bets. Analysis, scrutiny, and due diligence is now more than ever the name of the game. Suc-cess awaits those that are best able to discern the temporary short term fluctuations from the durable long term trends. Unfortunately, that has never been more difficult.