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All around the world, the panel cautioned, the Goldilocks economy is not always as lustrous as it appears. China, its treasury bursting with foreign reserves and its stock markets surging, is poised for stable growth, Courtis said. "And if China moves ahead an inch, the rest of Asia moves ahead a foot. We're going to have a very strong year from Beijing to Bombay." But China's July 1 takeover of Hong Kong could still pose a problem. Courtis optimistically declared that even though Hong Kong's physical and business environment will become more polluted and "the people will be less free," nonetheless, "the goose will get used to a different diet and still lay golden eggs." Garten was not so sure: "The viability of Hong Kong as a financial center depends on an elusive sense of international confidence that could be lost. This relationship between Hong Kong and China will be a roller coaster."
In India, unlike China, Courtis said, the free-market reforms pushed by the political elites have not yet won acceptance by the population at large: "They're still at the point where they think reform is going to make their life worse." The big question mark, said the panelists, is whether the current 13-party coalition government can accelerate the pace of reform enough to attract badly needed foreign capital.
Japan, where massive government spending programs have brought the economy "back from the lip of meltdown," said Courtis, is a study in contrasts. "The multinational manufacturers are today stronger than they've ever been," thanks to the weak yen (currently trading at 124 to the U.S. dollar). But "small and mid-sized Japan is going through a brutal rationalization." In four years, Courtis predicted, "we'll see 10% of GDP wiped out through liquidation of these companies." The big question is whether a new tax program announced by the government--equivalent to a whopping 2% of GDP--is too strong a medicine. If not, said Courtis, "in six to nine months there will be a dramatic turnaround in the Japanese trade position, the export sector will grow, and investors will see the budget deficit getting much bigger." But Courtis warned the plan could backfire: "The Japan problem isn't over. If they raise taxes too much, the economy is going to crater."