The logic is simple – and is based on the classic marketing theory of ‘repeat, repeat, repeat’ any positive message. When an economy of the potential size of China is growing fast from a low base, the statistics should – for several years – always seem impressive, both internally and to a watching global audience. Hence the upward economic curves of the last 15 years have been accompanied by a raft of stellar percentage growth figures.
The global recession has, of course, largely derailed China’s stratospheric figures, although, as analysts frequently point out, such rapid upward growth is a relatively short-term phenomenon anyway. A maturing economy, even one built on the magnitude of China’s vast base of land and population, is not an unstoppable juggernaut. At some point in its growth cycle, it becomes bound by the same national, regional and global checks and balances as an other economy.
Which is a roundabout way of saying that China is now feeling the sustained impact of sluggish economic statistics for the first time in almost a generation – and these must be rigorously analysed by foreign investors in all segments. Not so much a case of ‘buyer beware’ as ‘buyer do your research, then check it again and again.’
Just as stock investors cannot rely on last year’s stellar picks (or its up-and-comers and underperformers) to guide tomorrow’s purchases, so manufacturing investors must now sift very carefully between the mixture of good, bad and rather ugly statistics emerging about China’s economy. Whether you are considering production output, GDP growth, industrial property prices, PMI or retail sales – check back over a period of time, not just recent months, and try to find a reliable analyst to project ahead. Because now is a time for analysis, strategic reassessment and, more than anything else, economic realism.
From Stellar Statistics To Economic Realism – Part II
Monday, August 31st, 2009The need for inbound economic realism is simple. China’s realises (and actually knew this long in advance of the global recession) that its economy requires massive restructuring over the coming years. International demand for cheaply produced goods has fragmented, and – according to July’s export figures, which fell 23 per cent year on year – is continuing to do so.
In addition, Fu Ziying, China’s Vice Minister for Commerce, this week admitted that Chinese domestic consumption remains too weak to offset the slump in global demand. This admission zaps the ‘booster’ view that domestic consumption could seamlessly replace export volumes in the near future.
The domestic consumption replacement theory never was a realistic scenario at this stage of China’s growth, but the admission from a high-ranking government figure should be seen as positive as well as negative. A significant degree of economic candidness is now accompanying the slew of upbeat China statistics to which we have become accustomed. It’s all about economic realism, now.
The challenge for manufacturers is to study and address the opportunities, as well as the difficulties, that lie ahead. China’s economy is changing, and will continue to do so. And just because the figures are currently less appealing than before, China won’t stop growing either. Equally, the old certainties are dissipating. More than ever, manufacturers need to adapt and change with China. Opportunities will continue to exist, although competition will get fiercer and input prices will continue to fluctuate wildly. Planning ahead is more important than even. Just don’t rely on today’s, tomorrow’s or yesterday statistics – dig a little deeper for a more realistic appraisal of the ‘next generation’ China that is emerging.
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