Economic storm in a teacup?

In a week of undoubted economic turmoil across the globe – and in particular for American and European markets – Alaric Fairbanks, General Manager of B2B International’s Beijing office, gives us a timely analysis of how things are shaping up in China.

Over the last few months and particularly days, many of the conversations I’ve had with friends and colleagues in the UK and Europe have, at some point, unsurprisingly centred around the seemingly never-ending series of crises affecting the major economies of the West: credit crunch, fuel prices, Northern Rock, Wall Street Crisis, I could go on.  So how do things seem in China? Is the pessimism that I sense being felt in the business community here?

Firstly, let’s have a very brief look at overall economic forecasts: this week the Asian Development Bank adjusted its forecast for economic growth in China in 2009 downwards, by 0.3%. There are a number of factors behind this, including, of course, decreased demand in export markets resulting in a reduced trade surplus, increased production costs, an increase in the value of the renminbi and rising commodity prices. Bear in mind, however, that this reduced growth forecast for next year still stands at 9.5%. A slowdown, maybe, but the economy is still developing at a rapid rate.

Taking into account this backdrop, how are things on the ground? Recently we conducted the first British Business Climate Survey for China with the British Chamber of Commerce. 17% of members were represented, ranging from large multi-nationals with years of experience in this market to newly established branches of SMEs. Whilst there were some issues, such as a lack of transparency, regulation and availability of appropriately skilled staff, the overall outlook was extremely positive, with over 80% being somewhat or very positive about both the business environment and their own companies’ performance in both the short and medium term. Possibly the strongest indication of this is that 54% of respondents stated that they will definitely invest further in China within the next three years.

It could be that those running Western businesses in China are all natural optimists: how else could you cope with the ambiguities, constant change and minor frustrations that confront us every day? I don’t think this is the case, however. You may say, come on then, can you come up with any other evidence that this apparent optimism is justified?

Well, yes I think I can: exports from the UK in the first eight months of this year stood at over £1.6 billion, which is a 50% increase on the same period last year (UK Office of National Statistics). All this in a market that has been the UK’s fastest growing export market since 2002. For us in the service industry, we can point to the fact that services exports to China are in the UK’s favour, at around £1.5 billion last year. The confidence is also borne out by the amount of British investment in China, which stands at over £7 billion, making the UK the largest single investor from the EU in China.

It is worth pointing out, however, that not all business shares the confidence, with those involved in export and sourcing already feeling the pinch. This also applies to domestic, particularly in lower value-added industries such as textiles, which are already operating on wafer thin margins, and certainly feeling the downturn in their existing markets, and there are reports of factory closures, especially in Guangdong and Zhejiang. And I am not saying that no other companies here will face problems; some undoubtedly will.

In general, however, I think – as I hope I have shown – the economy, although not without its pitfalls, is worthy of the confidence shown. And B2B International? – Well put us with the 54% of UK companies I pointed to earlier, as we are moving to bigger and better premises before the year end.

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