Chinese government propaganda words which read “Prosperity and Powerful” are displayed on a wall near a construction site in Beijing
China’s economy, the world’s second largest, grew 7.4 percent last year, its slowest expansion in nearly a quarter century. Forecasters expect growth to wane further in the next several years as China emphasizes consumption over polluting heavy industry and manufacturing, which suffer from overinvestment and overcapacity. The IMF predicts growth of 6.3 percent in 2016, a dramatic shift from double-digit rates in previous years that is creating winners and losers.
LOSERS — Industries that profited from China’s building boom are being battered by the ruling Communist Party’s effort to reduce reliance on investment and nurture more sustainable growth based on domestic consumption. Developers are losing access to credit and building permissions. Suppliers of steel, copper, cement and other building materials have seen orders dry up. That has wiped out jobs in construction and real estate sales and sent shockwaves abroad, hitting countries as far away as Australia and Brazil that export iron ore and other commodities. One developer, Kaisa Group, just missed a USD23 million interest payment on a bond abroad, alarming investors. Export-driven manufacturing industries that employ millions of people have been hurt by weak global demand. As explosive growth in auto sales cools, China’s domestic brands are losing market share to global rivals and their state-owned manufacturing partners. Sales of cognac, Swiss watches, designer clothing and other luxury goods have been hurt by a ruling party campaign to rein in corruption and official extravagance. So has revenue at upscale restaurants and casinos.
WINNERS — Big winners straddle the worlds of technology, private business and consumer brands — areas communist leaders want to promote as new sources of growth. E-commerce giant Alibaba Group’s revenue rose 54 percent in the quarter that ended in September. Revenue for rival JD.com jumped 61 percent. Milk producer Modern Dairy Ltd.’s revenue rose 86 percent in the six months ending in June. Novice entrepreneurs in some areas are benefiting from rule changes meant to make it easier to set up barber shops, restaurants and other small businesses. Energy-intensive industries including trucking benefit from the slump in global crude prices. E-commerce has produced unusual winners, including fledgling smartphone maker Xiaomi, which used Internet-based sales and marketing to slash costs and passed Samsung last year to become China’s No. 1 brand by number of handsets sold. A stock market boom has brought a surge of revenue and profit to brokerages and finance firms.
COAST vs HINTERLAND — The slowdown is squeezing China’s prosperous east cities but inland the impact is even bigger. Regions that relied on coal mining, steel and other businesses tied to heavy industry and investment are struggling. Growth rates in areas such as Heilongjiang province in the northeast have fallen close to zero. Local authorities in coal country in China’s north have orders to nurture clean energy and other new industries but their efforts are slow to gain traction. Even prosperous areas have suffered: In the southeastern provinces of Guangdong and Zhejiang, home to export-driven producers of furniture, clothing and toys, weak foreign demand has forced hundreds of small factories to close.
STATE INDUSTRY— Government-owned companies in oil, steel, banking, telecoms and other industries still enjoy monopolies and other privileges, but the ruling party’s plans, if carried out, will force them to compete. State companies still would be guaranteed control of an array of industries but the party says “market forces” will play a bigger role in allocating credit and other resources. In banking, regulators are gradually shifting the state-owned industry, which until now served to subsidize government companies, toward a market-oriented model with more lending to private business. State-owned steel and aluminum mills are under pressure to make their operations cleaner and more efficient. Oil giant Sinopec Ltd. is looking at ways to use its thousands of filling stations to sell groceries and other goods. Joe McDonald, Business Writer, Beijing, AP
No Comments