Good China. Good. It's Simple. China Is All Good. Good. Good. Good. And Business Demands We All Realize This.
Well, not really.
But since I did a post last week, entitled "Bad China. Bad. It's Simple. China Is All Bad. Bad. Bad. Bad. And Politics Demands We All Realize This," symmetry demands I use the "all good" title on this one. In my China is "all bad" post, I poked fun at those who attack China's business and economic fronts for political reasons. Among other things, I questioned those who claim China is on the verge of economic collapse by noting that the Chinese are today quite optimistic about their country. At the time I blogged on this issue, my best evidence of Chinese optimism was China's strong support for capitalism:
Mr. Halloran talks about how wealth disparity is disruptive, but he ignores that the general view in China these days is one of optimism. It is no accident that a recent international survey found that the Chinese view capitalism more favorably than those of any other country. They view it favorably because (at least so far) it has done so well for them. People who believe they are on an ascendancy tend not to be disruptive.
Today, I have even better evidence. The Grant Thornton accounting firm has released its 2006 International Business Owners survey (h/t to PanAsianBiz Blog) and the verdict on China is in: China is a great place for doing business and its business owners are the most optimistic in the world.
Highlights from the survey of 300 business in China and 7,000 businesses around the world included the following:
China's business owners are the most optimistic in the world about 2006 growth prospects.
China's business owners are worried about domestic competitiveness and the availability of capital to continue international expansion. I have previously blogged on the difficulties private business owners face in finding capital in this post, entitled, "Hey Buddy, Can you Spare a Yuan? The Sorry State of SME and Consumer Lending in China" and in "Hey Buddy, Can you Spare a Yuan, Part II -- The Sorry State of Lending in China."
Nearly one in five medium-sized businesses in the worldwide survey now imports from Mainland China. The results of the first independent survey of business owners in Mainland China show that business owners are among the most confident in the world about the local economy. Only three countries/territories out of thirty surveyed ' India, Ireland and South Africa ' were more optimistic. And when asked about prospects for growth in turnover in 2006, Mainland China topped the table. This made it the most optimistic country in the survey.
Medium-sized businesses in Mainland China are bullish about export prospects for the year ahead. The survey balance was one of the highest among the thirty countries/territories surveyed.
China's employment outlook is very healthy, with 49% of respondents forecasting an increase in their workforce.
China's surge in investment is likely to continue, with 58% of the Chinese businesses intending to invest more in buildings and 53% in plant and machinery.
According to Gabriel Azedo, a Grant Thorton Divisional Director for the Asia Pacific region, "Our survey demonstrates that the economic miracle Mainland China is experiencing is not only benefiting large enterprises but is trickling through to medium-sized companies. The survey, the first of its kind, shows that Mainland Chinese business owners are very positive about the economic prospects for the country but there is concern about constraints impacting the ability to grow their business. Who knows, this may be the first sign that Mainland China may not have the ability to meet the widely expected goal of it becoming the world's largest economy by 2050.'
Not suprisingly however, the survey also revealed that not everything is good for business in China and the following concerns were prominent:
A high proportion of mid-size businesses in Mainland China are clearly worried about a wide range of factors and are among the most concerned in the world about constraints to expansion.
In a listing of thirty countries/territories, Mainland China comes 5th in the table citing 'cost of finance' as a constraint to business expansion, 2nd for 'shortage of working capital', 4th for 'shortage of long-term finance' and 9th for 'availability of skilled workforce'
39% of business owners were worried about 'cost of finance' as a constraint to business expansion, 39% about 'shortage of working capital', 32% about 'shortage of long-term finance' and 37% about the 'availability of skilled workforce'
In addition, 34% were worried about regulation and red tape and nearly half (44%) about shortages of orders and reduced demand (particularly due to increased domestic competition.)
China will need to resolve the lack of financing options for its small and medium business if it wants to see its private sector companies (I am assuming most of the surveyed companies were private companies because the survey focused on medium sized companies, which in China tend to be privately held) continue to expand. Foreign venture capital funds are starting to step in to fill this hole and it will be interesting to see how far this goes toward solving the problem.
Bottom Line: China is not without its problems, but its economic growth is real and it is that growth that fuels its optimism for the future.
Comments (2)
Read through and enter the discussion by using the form at the endJames J. Na - May 1, 2006 10:52 AM
I poked fun at those who attack China's business and economic fronts for political reasons.Politics and economics cannot be separated, and it is foolish to think they can be.Among other things, I questioned those who claim China is on the verge of economic collapse by noting that the Chinese are today quite optimistic about their country.Two points:
I, for one, do not think that China is on the verge of any kind of "collapse." But I do think that China is due for a serious "correction" or deflation of the bubble. Just as the bursting of the tech bubble did not result in us going back to the abacus, a Chinese bubble burst won't return China to fourth-world poverty levels. The rise of China as a major power, both geopolitical and economic is a fact. But a substantial economic downturn could magnify the existing social tension.
That leads to my second point. Whether a majority of Chinese is optimistc about China does not equate to continued explosive growth. In fact, an overly optimistic outlook (fueled by gains by the top 10 percent of the population) can feed expectations that cannot be met for the vast majority of ordinary Chinese.
That can actually INCREASE social tension.
I lived through a very similar historical process in South Korea, which was racked by civil disturbance. Two factors saved South Korea from a calamity, however.
First, the existential threat posed by North Korea limited the extent of protests and disturbances.
Second, there was enormous and persistent behind-the-scene American pressure on the military dictators to increase civil participation ("democracy"), which slowly but surely nudged South Korea into a more representative form of government.
These two conditions do not exist in China today. The Chinese government tries to whip up hyper nationalism to meet criteria one, but that has a very large potential danger in and of itself to the outside world.
Otherwise, the mechanism that existed in South Korea to limit violent expression of social tension does not exist in China, does not look to grow anytime soon, and poses a real danger despite the go-go mentality that exist in and about China.
China Law Blog - May 1, 2006 11:17 AM
James --
I agree there will be a correction. Economic history dictates this. I do not purport to know when it will occur, but I am fairly confident that it will not be before the 2008 Olympics.
I also agree that optimism for the future does not necessarily mean a good future. The dot.com bust proves that, though I think Chinese optimism relates more to the Chinese people trusting their government than on their economic predictions. Of course, trust in a government tends to disappear quickly when the economy sours. "It's the economy, stupid," everywhere in the world.
I also like your analogy to South Korea and I buy into it. I too am of the view that if things start going really bad in China, the likelihood of their problems being solved through non-violence are not good. China's male to female ratio, standing alone, scares me on the issue of violence. The poverty of the Chinese peasants also cannot be ignored.
It would seem then that we agree on the main issue. Will China's growth be fast enough and penetrate deep enough to prevent China from succumbing to large scale problems? My answer is probably yes and I'm guessing your answer is probably no.
Am I accurate here?