Crisis? What crisis? Business as Usual in China
By Barry van Wyk
Talk everywhere is of crisis and panic emanating from the US financial centers. Yet in China, a different yet familiar kind of crisis is playing itself out.
Because of strict regulation and an overwhelming domestic focus, as FT.com put it, Chinese financial institutions are not overly exposed to US subprime-related assets or firms, yet China’s overall economy, with its reliance on exports and with China’s substantial dollar-dominated foreign exchange reserves, will inevitably suffer from a slowing US economy. As Wall Street wallows in a bad dream / nightmare, there are indications that China, while not gripped in panic, may be heading for some storm clouds of its own. While the impact of the Olympics is still unclear, industrial production growth plunged to a six-year low of 12.8% in August; car inventories hit a four-year high in June; air traffic has slowed sharply; and electricity output has dropped. While Chinese exports have remained robust, expanding 22% in the first eight months of 2008, the contraction in Europe and the US could make this period the calm before the storm – before Wall Street’s bad dream turns into storm clouds over China’s exports-dependent economy. In this context it is possible to discern how China’s slightly slowing economy could proceed to slowing more rapidly, reaching what Leo Lewis at The Times referred to as a psychological turning point of single-digit growth.
Although the slowdown in the US and Europe will harm China’s exports, in another view, Western consumers might only increase their demand for cheaper, Chinese-made goods. Speakers at this year’s Trans-Pacific Maritime Asia conference uniformly agreed that, despite the current weak global economy, China will remain the supplier of choice for manufactured products. Jonathan Beard, MD of GHK Hong Kong Ltd., noted that exports through China ports rose 13% in the first half of 2008, and other speakers lauded China’s established manufacturing relationships, supply chain infrastructure, port infrastructure and political stability: even in these times China is a safe bet and will remain so.
Yet if China sourcing seems set in theory to emerge unscathed from the current financial crisis, what of the reputation for quality and safety concerns associated with products made in China? The Made in China brand has once more been enveloped in crisis with the ongoing milk powder scandal. The fallout has generated vigorous online debate in which some Chinese netizens even called for a boycott of all products made in China, and China Youth Daily columnist Liu Yibin suggested that the best medicine for enterprises lacking conscience would be to simply allow them to die. Yet for those who do quality control for a living in China, its less of a crisis than merely business as usual.
Barry van Wyk, China Sourcing Blog
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October 22nd, 2008 at 8:19 pm
China probably has a pretty big amount of rotten credits of its own, plus a housing bubble. Calling the economy a place of political stability and a safe bet looks bold to me.
October 24th, 2008 at 5:08 pm
I’ve seen a marked slowing of activity in factories and fairly empty high rise developments over the past 12 months. I don’t believe the Olympics drove anything but a tiny change in output. The real change has been a definite slowing in exports over the past 12-18 months much like a snowball rolling downhill, although this is not the good kind that the Sage of Omaha talks about. The domestic housing market in China has it’s own problems and the Chinese government may in fact be adding fuel to the fire by recent moves to stimulate the real estate slump. It remains to be seen how slow or low China output will go, but I expect 5 to 7% or lower in 2009
October 24th, 2008 at 7:36 pm
I think only the propaganda machine will say that China will not be touched by the world wide crisis.
That and apologists. The rich will get richer, the poor have had costs raised 50% in the last year and have had no raise in pay. Look for more company’s closing, low end workers protesting in the streets when they get hungry and can’t fee themselves because of no jobs and savings. I think the ruling class are either not aware or don’t care about the working class much lately. The middle class are busy watching the daily re-runs of the Olympics and basking in the glory and sticking their heads in the sand for the rest.
They have no idea that the rest of the world has forgotten the Olympics and only remember the last crisis of Milk and the next one that will follow (I predict another big scandal like it in 5.4 months.). I live in China, I love China and I plan on staying here… But remember “buyer beware” and do your research, keep your head out of the sand. Be very wary of those selling pie in the sky….buddy – it ain’t there. But now is a great time to grab your savings and live like a king in China. Come for a year or so and learn the language and the culture or grab an internship and learn the Chinese way of doing business… The Future is in China, but it will be rocky all over the world for the next year or so… China will not avoid the crisis, except in the propaganda machine…for those guys they will be selling blue sky’s for years to come
October 27th, 2008 at 4:23 am
In association to the manufacture sector, given any economic circumstances manufacturers with terrible QA/QC won’t survive, not in China, not in anywhere across the world. With or without the current economic turmoil those disgraced Chinese manufacturers will die anyway. Similarly with or without the crisis those with standard QA/QC processes in place will survive. And in my opinion they can only do better. Where do we see people stop buying because of the crisis? What they may stop buying is luxury goods which China doesn’t make anyway.
November 17th, 2008 at 11:30 am
Hi all,
of course the financial crisis/recession will effect the whole world – however I do think there is one major difference for Asia – and that is the ATTITUDE to ADAPT to changes much more ‘eager’ and quicker than lot of (especially) European countries.I lived in China for nearly a year and just came back from a ‘post olympic visit’ in BJ and where else would you see people still making money out of the post olympic days in creative and successful ways?!!
Whilst I believe the news have their fair share of adding negative value to the picture of the depressing financial outlook (except happy tv CCTV 9)people just seem to get on with their jobs/lives in China.
In Europe I believe we got used to such a high standard of living & job benefits (free health insurance, pensions, long holidays)that now we think we loose everything – perhaps it is time to look at the Asian countries (with China being a major lead)to see that you can look at the challenges ahead also as an OPPORTUNITY (which in return may create new types of jobs etc..) – I also think that maybe a few companies take this ‘crisis’ as an opportunity to finally get rid of their NPA’s (non performing assets) which they should have done long ago.
All in all,I choose to look at the glass half-full rather than half empty and will therefore head back to Asia in a few weeks time.