Domestic consumption: China's key to avoid the crisis

Getty Images via DaylifeMost foreign correspondents in China have by now made their pilgrimage into Guangdong to describe themselves the closed gates of former toy factories in Dongguan. The purpose is clear. Now the global financial crisis is spreading outside the financial industry, central banks worldwide try to jump start their economies, and the trade in raw materials signals a severe drop in construction, signals have to be gathered from China to show the country is no longer isolated from the worst crisis that has hit the world in a decade.
And while there are enough signals that indicate some vulnerability of the export sector, the total picture is mixed at best. Enough signals do not fit into the latest doomsday scenario's for China that tend to be so popular under foreign observers. First signals from the most important Canton export fair suggest this year has been a great success.
Earlier other naysayers like Arthur Kroeber suggested already that the importance of export for China's economy was closer to ten percent, not to forty percent like others say. Others like Paul French and Amy Sommers noted that domestic consumption was going strong, unlike what is happening in the developed world.
Efforts by the central government to encourage consumption on the country side, reverse some of the limitation on the real estate industry and a minor weaking of the Renminbi might help, although it could take a while before they really have effect.
China's contrary economist Larry Lang also points at the structural problems China's economy, and its lack of domestic consumption, might have. In a translation of the China Digital Times:

Do you understand the real consequence of such an economic structure? Due to the limited domestic consumption, the problem of overcapacity (in our manufacturing industries) prevails. That means we created more than we can consume. What caused this overcapacity? We sacrifice our environment, deplete our resources, and exploit our workers to expand manufacturing capacity. How far does it expand? It expands to an extent that we manufacture so many products that our people cannot consume them all. Since we only have 30% GDP in consumption, we have to sell the extra products overseas, to export the goods generated by overcapacity. It sounds appealing that we earned large export revenue, however, it in fact planted a time bomb that exploded in 2008. Why is it a bomb? Please think about this: we only consumed 30% of GDP, yet we have large production capacity. The production capacity is so large that we have to export the surplus goods to other countries for consumption.

In the end both Larry Lang and the central government seem to be on the same track. Only timing might be a problem as it will take a major effort to readjust China's economy.

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At the China Speakers Bureau we can provide a range of high-end speakers, who participate in the China's debate on its economic future. Among them: Arthur Kroeber, Amy Sommers and Paul French. When you need one of them for your conference, board room discussion or panel, do let us know.

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Victor Shih to join China Speakers Bureau

Victor Shih

Getting a thorough insight of what is happening in China's financial systems is becoming crucial as the financial crisis holds the global economy in its grip. Assistant professor Victor Shih of the Northwestern University is one of very few people who get beyond scratching on the surface and explaining the outside world what he sees.
In his articles, weblog and latest book Factions and Finance in China: Elite Conflict and Inflation, Victor Shih descriphers the political and financial relationships that mark one of the more important players in the global financial crisis. Is China going to drop the US dollar? What kind of alternatives the country has to invest its gargantuan trade deficit? Questions that get very seldom answers beyond the cliches of politicians, but do deserve a better insight in thise challenging times.
The China Speakers Bureau is happy to announce that Victor Shih has agreed to join its service. If you are interested in having Victor Shih as a speakers at your board meeting, conference of panel, do get in touch.

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China's GDP depends only for 10 percent on export - Arthur Kroeber

Arthur Kroeber
by Fons1 via FlickrUnlike popular believe China's GDP depends only for ten percent on export, not 40 percent, says Arthur Kroeber, manager director of Beijing-based research firm Dragonomics, according to Sify. The limits the country's exposure against failling export considerably.

China's dependence on exports is not as heavy as may seem at first glance. Officially, exports account for 37 per cent of its revenues and seem to be the driver of the Chinese economy.
But independent surveys by Dragonomics, an advisory firm specializing in China, put its "true" export share at just under 10 per cent of its GDP.
It is internal investments, which account for 40 per cent of its GDP, that are the driving force of China's economy. Although part of them is channeled into export-oriented projects, the global financial crunch will not slow China considerably.

Kroeber expects for that reason a "hard landing" of China's economy rather unlikely.

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Arthur Kroeber belongs to the China Speakers Bureau. Are you interested in his take on China's economic development? Do get in touch.

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China changes course to avert crisis - podcast

Amy Sommers
by Fons1 via FlickrBig ticket items like cars and apartments have a problem as Chinese consumers delay purchases, says Shanghai-based lawyer Amy Sommers in a podcast, from her car on the way to Pudong Airport in Shanghai. But the central government is adjusting its policies to avert a full blown crisis like elsewhere in the world.
Consumer spending is going strong, but for real estate, the automotive industry and the export policies will change to avoid that current delays in big ticket spending spills over into 2009, Sommers says. She sees the stronger Renminbi as the main reason for the downturn in export and expects the Chinese currency will weaken, as the government changes its monetary policies.



We lost Amy Sommers shortly and finish our conversation by discussing the plans of the government to increase spending in infrastructure. No crisis management, says Sommers, but a long term strategy.



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Amy Sommers is a speaker at the China Speakers Bureau. When you are interested in having her as a speaker, do get in touch.

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No Chinese brand can compete at a premium price - Tom Doctoroff

Tom Doctoroff
by Fons1 via FlickrNo local brand can compete at a premium prices in America, Europe and Japan, says Tom Doctoroff in the Huffington Post. Doctoroff, CEO, Greater China, of J. Walter Thompson, has a wide-ranging look at the China-branding trends hit by the milk melamine scandal, pushed by the Beijing Olympics, growth areas like services and the online trends.
But on the capacities of domestic brands and their chances of going global, Doctoroff is pessimistic:

There are many local brands that boast strong distribution in emerging markets such as Southeast Asia, Africa, the Middle East and Latin America. However, with the exception of Lenovo (which acquired the IBM ThinkPad brand), there is not one local brand equipped to compete at a price premium in the developed markets of America, Europe and Japan. Their brand equity is not robust enough and the structure of their organization is too sales-driven. This will not change for many years and the first brands to break through will be mid-sized, relatively non-bureaucratic entities such as Anta and Lining shoes, rather than lumbering state-owned behemoths.

More at the Huffington Post.

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Tom Doctoroff is one of the leading speakers at the China Speakers Bureau. If you want to have him as a speaker, do get in touch.

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"Guanxi retires or goes to jail"

by Getty Images via DaylifeA beautiful one liner by Jay Boyle at AllroadsleadtoChina I missed last month (see also the video). "Guanxi retires or goes to jail". It is warn clear warning to all those who still see "guanxi" in whatever form as a leading business model in China. A great discussion, although it might be hard to eradicate the model fully in the short run from the collective knowledge of real and so-called China experts.
Doing business in China is a fast changing business, as the closure of thousands of toy factories in Guangdong show. The new policies of the central government seem to make great inroads, going against what most people thought was actually possible.

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At the China Speakers Bureau we have great story tellers who can explain you exactly how the way of doing business in China is changing very fast.Mark Schaub
by Fons1 via Flickr Take for example Shanghai-based lawyer Mark Schaub, who wrote a great book about how greed becomes a great distraction for logic thinking. When you need him of another of our speakers to put your operation straight, let us know.

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by Getty Images via DaylifeNo panic, says also Gady Epstein of Forbes to Jeremy Goldkorn's Danwei, when looking at the Beijing real estate. Sales at China's most powerful industry have come to a standstill, but the influence of the global financial real estate problems might in China be limited to merely psychological problems.

Is it going to get worse?
I think it will definitely get worse in the short term. The central government has just announced measures intended to prop up the housing market, including a lower down-payment requirement, but it's obvious that the public has lost confidence in the market and is taking a wait-and-see approach. People no longer assume, as they did for much of the last five years, that buying an apartment is a can't-lose investment.

How will the global financial crisis affect the Beijing property market?
In the short run, it will have both a psychological and real impact, as people and companies delay big purchasing decisions either because they're nervous or because they're short on cash or credit. ... Most economic analysts who watch China agree on one thing: the long run picture — five, 10 years from now — looks good for Chinese real estate. That's because of ongoing urbanization and because there are still few places for Chinese to park their money, besides banks, the stock market (!) and the art market (!!)

More at Danwei.

Links
Danwei: China real estate market slump: Q&A with Gady Epstein
China Media Blog: Adidas May Cut Production In China
James Fallows: Our U.S. banker overlords
China Digital Times: Financial Meltdown Worsens Food Crisis
Shanghaiist: Accounting firm Lehman Brown to finally change its name?
Crossroads: Labor Instability in China May Spell Trouble
The China Sourcing blog: China Steel Industry: Hollow Bars Prices Going Down Slower
Wall Street Journal: Reading Tea Leaves: China’s Zhou Prepares For Crisis Impact
Shanghai Daily: China's special approach in the battle against economic slowdown
Jeremy Goldkorn
by Fons1 via Flickr
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Will China get a full hit from the global financial crisis or will it be able to avoid a major downturn? The jury is still out and at the China Speakers Bureau we have some of the jury members. If you are interested in having them as a speaker, let us know.

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China ready for Keynesian model - Amy Sommers

Amy Sommers
by Fons1 via FlickrChina is getting ready to spend its way out of the current financial crisis, says Shanghai-based attorney Amy Sommers in the LA Times.

"The government is going to actively and more quickly implement infrastructure development," said Amy Sommers, an attorney at Squire, Sanders & Dempsey's office in Shanghai. At the same time, she said, Beijing will be looking to attract more foreign investments in higher-value areas, such as green energy and new technologies for agricultural, environment and industrial use.

That should help companies like GE, which last month signed a strategic partnership with Hubei province, where the capital city of Wuhan is building a subway and expanding its airport. Shanghai, meanwhile, is ramping up for the World Expo in 2010, opening new opportunities for foreign businesses. AEG, the Los Angeles sports marketing firm that owns Staples Center and the Los Angeles Kings, last week announced, with the National Basketball Assn., new arena projects in Shanghai and Guangzhou.

China used similar investment strategies in its infrastructure during the Asia currency crisis in the second half of the 1990s.

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Amy Sommers is a speaker at the China Speakers Bureau. If you want to share her views on the ongoing financial crisis and China's possible answers, do get in touch.

Consumers still trust the brand 'America' - Shaun Rein

Shaun Rein
by Fons1 via FlickrDespite the financial turmoil, the Chinese consumer trust in the brand 'America' is still undented, says Shaun Rein, director of the China Market Research Group (CMR) in The Economic Times. While Chinese take their money out of the Citigroup banks into the Bank of China as a result of the financial unrest, trust for consumer goods is still high, Rein says based on own research.

Despite the turmoil, trust in American consumer brands is at an all-time high due to China's contaminated milk scandal, which led to more than 53,000 children falling ill, said Shaun Rein, managing director of China Market Research Group.
"They feel there is better quality control, people aren't going to cut corners, put in bad ingredients in order to make money," Rein said. "So on the consumer side, that 'Made in America' label is still very powerful."

But at the same time, confidence in US financial institutions has plummeted, Rein said, citing surveys his firm conducted in 10 cities across China.

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Shaun Rein is a leading expert on branding in China. When you are interested in having him as a speaker, do get in touch with the China Speakers Bureau.

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