July 21, 2002
China Business Strategy - More than economic growth alone
China's rapid economic growth is indisputable, but the cautious and wary are focusing on other economic factors as well to guide their business strategy. After all, in the Asian crisis of 1997 to 2001, the Asian region as a whole has just experienced the hard facts that stunning growth can hide the significance of other less newsworthy factors that long term can reverse the juggernaut. It is too soon to characterise China as a bubble economy, but experience suggests that a deeper analysis, especially when things are looking good, is advisable. China Business Weekly focuses today on the Hidden challenges behind fast growth Excerpt: Personal savings and foreign reserves have grown at remarkable rates. The balance of saving deposits increased by 1 trillion yuan (US$120 billion) in nine months since last August. And on average, about US$5.1 billion was added to the country's foreign reserves monthly in the first half of this year. Though all the evidence points to the country's swelling economic might, the causes behind the accelerated growth suggests the outlook might not be so rosy. Robust growth in exports, foreign investment and revenue from overseas tourists attributed significantly to the rapid increase in the country's foreign reserves.This bears testimony to the strength of Chinese exports as well as the confidence international investors have in the Chinese market. The country's Consumer Confidence Index, a gauge of consumers' opinions on the current state of the economy and their outlook on their future income and economic health, rose to 97.3 points in June, 0.2 points higher than in May. Although this rise in confidence can be used to allay concerns over deflationary pressures, the accelerated growth of savings deposits brings to light the uncertainty that continues to weigh on consumption. Along with enormous State investment, the government has tried hard to spark investor interest and consumer demand. But continued growth of savings deposits shows that the public still is holding on to its cash and refraining from spending and investing. As state enterprises privatise, unemployment is starting to become a concern, especially in the Western heartlands, still characterised by low income and poverty compared to the glamour capitals and Eastern and Southern seaboard cities. The magnetism of such cities as Shanghai and Guangzhou repeats the massive internal migration to key urban centres we have seen in smaller Asian countries like Thailand, Indonesia, and South Korea. We have seen the problems that such centralization has caused already, but in massive and widespread populated China, the risks are increased. Until local investment and spending increases to match the massive foreign inflows, China's expected role as a consumer paradise remains in the future rather than the immediate present. One thing is for sure. China must suffer some major shocks before it emerges as the stable economy promised. It's a long term game as always, and planning for periods of hard times is essential. |
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