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The China Analyst – and As Always We Welcome All Feedback February THE 2009 CHINA ANALYST A knowledge tool by THE BEIJING AXIS for executives with a China agenda China and the financial crisis: 10-page special focus Features Financial Crisis: China Impact 6 Financial Crisis: China’s Response 9 Financial Crisis: Beginning of the BRIC Era 12 Regulars Macroeconomic Monitor 16 China Sourcing Strategy 24 China Inc. Goes Global: OFDI/M&A 32 Retail Sales Growth, % y-o-y Chi n a US 40 30 20 10 0 -10 Nov '05 Nov '06 Nov '07 Nov '08 “This is the worst financial crisis since the Great Depression….” IMF, World Bank, OECD, etc Export Growth, % y-o-y 30 Chi n a US 20 10 0 Nov '05 Nov '06 Nov '07 Nov '08 -10 Main Photo: Sonyasonya / flickr. Data: US Bureau of the Census; Nat. Bureau of Statistics 4 At the Highest Level China’s sharp slowdown will catch many by surprise and wrong-footed. Indeed, over the next 2-3 quar- ters a painful adjustment will continue to unfold, requiring good information, solid planning skills and a strong ability to implement. Anticipating and managing risk must be the focus. But do not lose sight of China’s long-term trajectory – it will remain a prominent market and opportunity, outperforming develop- ing and developed countries over the medium and long term. Do not get caught out twice! the country. Important though, is that pects remain solid. We must also con- we do see a rebound late in the year. sider that it is natural for developing countries to face periods of turmoil. In Still, it is clear that the ensuing period this respect China is really now just will be a very challenging phase. Dur- behaving ‘normally’ and there is no ing this time we identify a number of merit in becoming utterly disillusioned managerial imperatives for those that with China. Rather, see China for what manage businesses in China or that it is: a key developing market, with the have China exposures to watch. The associated dynamism (good and bad) overarching objective is to anticipate that is endemic in developing coun- and manage risk in a few key areas: tries, but that will remain prominent The landscape is changing – re- and even become more important over As we enter the Year of the Ox we • gions, sectors, policies and industry the long haul. look back on a year in which the global linkages and value chains are ad- economy underwent profound Also, as China adjusts we can expect justing and reacting in different changes. These changes include ad- policies and changes that would likely ways. Stay on top of these changes justments in the global banking and bring structural changes that would in and manage information well. financial system; new trajectories in themselves represent opportunity, for real economic growth; extreme volatil- • Strategic review is needed – the example, in casting the Chinese con- ity in energy, commodity, property and severity of the economic impact sumer as a key pillar of future growth. financial asset prices; dramatically may render existing strategies ei- We can also expect more moderate reduced trade; layoffs on an unprece- ther completely irrelevant or may at and therefore sustainable growth. Fi- dented scale; corporate and country least make them somewhat out of nally, we need to remind ourselves bankruptcies; and a scramble interna- date. A comprehensive strategic that populous China, with its roughly tionally to launch appropriate rescue review is necessary with some ele- USD 3.5 trillion GDP, is now the packages. In delivering these rescues ments of the strategy likely to world’s third-largest economy, growing many nations broke some of their own change much. – still – at a pace faster than the aver- sacred rules, even rules that were pre- • Re-discover partners – many Chi- age for all developing nations, all de- viously universally accepted as un- nese firms and players have been veloped nations and indeed the world. breakable. But worsening conditions affected already, some detrimentally Even in dynamic Asia it still leads the progressively became more systemic so. Know how their strategic focus field. Moreover, we do not see this and by the fourth quarter of 2008 im- and ability to perform have changed changing. As such, over the long-term pacted negatively on global sentiment and mitigate the associated risks. it will remain a focal point in board- and confidence – with most busi- • Supplier audits and health-checks – rooms around the world. nesses now, in 2009, unsure about many firms that source from China their prospects for the future. are really ‘outsiders’ to China. Now Ultimately, as we set out on the year of is the time to pay close attention to the ox, to navigate urgent short-term These unfolding global circumstances the health of suppliers and their risks, we must not lose sight of, or be are not encouraging. Towards the end ability to deliver on previously (or deflected from, the complex long-term of 2008, as China celebrated 30 suc- newly) agreed contracts and to do a maze that must simultaneously be cessful years of market-oriented re- rolling due diligence. ‘solved’ in order to capture full long- forms, it became clear that China’s term advantage in the world’s leading economy had been fully pulled into the So, we acknowledge the seriousness developing market. global financial and real economic cri- of the current and unfolding environ- sis and Q4 growth of 6.8% confirmed ment. We face testing times. But we I trust that our readers will enjoy this the severity of the adjustments that are must add that now, more than ever, it edition of The China Analyst – and as always we welcome all feedback. in train in China. Indeed, looking is necessary to maintain a balanced ahead there is significant concern over perspective on China’s future. We We wish all our readers a prosperous China’s short-term prospects. We con- must guard against a view that is too Year of the Ox! cur that over the next 2-3 quarters heavily influenced by adverse short- China will be growing at rates that are term trends or prevailing sentiment well below those that the world has that is so deeply negative (and deterio- Kobus van der Wath grown used to. In line with Q4’s head- rating). A balanced view would also Founder & Group Managing Director line GDP growth, we anticipate Q1 and enable planners to differentiate be- THE BEIJING AXIS Q2 2009 to see growth of well below tween short, medium and long term China Business Solutions the 7-8% range, widely viewed as the trends, issues and prospects. Over the Strategy I Sourcing I Investment ‘minimum’ that can ensure stability in medium and long-term China’s pros- [email protected] 5 Table of Contents February 2009 Financial Crisis: China Impact 6 China’s banking system has sustained limited direct losses from the financial crisis, yet the global slowdown has seriously impacted China’s exports, and GDP growth may slip below the crucial ‘minimum range’ of 7-8% in 2009. Financial Crisis: China’s Response 9 With the Chinese government finding itself among the best positioned in the world to inject and control the spending of a massive stimulus package without major debt, inflationary or exchange rate consequences, there is much room for hope. Financial Crisis: Beginning of the BRIC Era 12 The BRIC economies have been severely affected by the crisis. Yet they are now ready not only to deal with the current predicament, but also to rise above it by emerging from the crisis with an enhanced role in the global economy. Macroeconomic Monitor: China’s Slowdown 16 China’s economy has been slowing down dramatically since the middle of 2008, and while the adjustment will be significant over the next several quarters, over the longer term we expect China to become more prominent, not less. We examine. China Facts, Figures & Forecasts 22 China Facts, Figures & Forecasts provides a cross-section of data illustrating growth, transformations and trends in com- merce and industry. China Sourcing Strategy 24 This section provides information and analyses to help formulate successful China Sourcing Strategies for the year ahead as international procurement managers assess the risk to China’s status as a top-tier global supplier. China Sourcing Blog Highlights 29 Highlights from The China Sourcing Blog, THE BEIJING AXIS online information portal and discussion forum on all issues relevant to sourcing from China. China Trade Roundup 30 This section illustrates the main trends in the growth and transformation of China’s trade profile, and summarises a selection of the latest available trade statistics for China. China Inc. Goes Global: OFDI and M&A 32 With Chinese firms increasingly ‘Going Global’, this section analyses Chinese Outbound Foreign Direct Investments and cross-border M&A by Chinese companies. BRICS Breakdown 36 Incorporating recent economic statistics from Brazil, Russia, India, China and South Africa, BRICS Breakdown is a compara- tive segment that evaluates and contrasts China with the other leading developing economies. Financial Markets 37 Tracking the dynamics of China’s Shanghai and Shenzhen Composite Index indicators and benchmark interest rates, Finan- cial Markets also illustrates recent trends and transformations in China’s exchange rate regime. China Business News Highlights 38 A roundup of the main business headlines from China during the fourth quarter of 2008, including the latest indications of the impact of the global slowdown on China, notably in the airline and shipping industries. Regional Focus: China-Africa 40 While China-Africa trade is still relatively small, the region has strategic importance for China as trade focuses on resource- rich countries like Angola, DRC and South Africa.
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