China Business Blog and Podcast

Its getting ugly out there.  A pile of raw meat, in the form of new China GDP data, has been thrown into the cage of global economists who are ripping into it — and each other — with reckless abandon. Bloomberg meets Animal Planet.  It seems that China’s GDP grew 6.8% in the fourth quarter of last year, giving China an overall growth figure of “only” about 9%. This, of course, is after China announced figures for 2007 that were “adjusted” up to 13% from 11.9%. Its like a word problem from hell: “If Johnny told you he was going to grow 11.9% but he really grew 13% and Susie grew 6.8% when she was supposed to grow 10%, how does that affect commodity prices in China?”

Numbers, schmumbers. What is so surprising here? Given the global financial meltdown, were we expecting any less? The United Nations Development Program (UNDP) had already predicted that China would come in at 9.1% growth in 2008. Others had it higher, but what did they know? And prognostications for China’s GDP growth in 2009 are all over the map: A quick search found estimations from 5% up to 9.3%. Maybe “estimates” is too strong a word: how about “wild-arse guesses based on sketchy data and yet-to-be-proven models”? Too harsh? Sorry.

I don’t want to make light of this because this is some serious stuff. China’s growth is slowing, and this means that factories are closing and jobs are going away. An estimated 10 million migrant workers are out of a job. Imagine all of New York City and the surrounding boroughs standing in job fair lines and surfing Monster.com. But white-collar employment is, for the moment, pretty stable. In fact, it is even more stable than normal for this time when, typically, a sizeable portion of the workforce has received their year end bonuses and make a jump to another, better-paying position. People are nervous about the economy so they are not jumping for fear of losing what they might already have.

China HR issues aside, for the average foreign investor, what does China’s GDP growth number matter? Three things to pay attention to here:

1.  China is STILL growing. Maybe not as fast, but it IS growing. What part of this are we missing here? The United Nations — the same organization that correctly predicted the 2008 growth number — estimates that China will contribute more than 50% of the world’s total growth in 2009. Did you get that? One country, over half of the globe’s total growth in one year. If we weren’t looking wistfully in the rearview mirror at the wild-yet-fundamentally-unsustainable growth in China of the past couple of years, we’d be pretty excited about 2009.

One of my early mentors in China told me, “Kent, if you want to get hit by a car, go play on the highway.” Now, apart from the questionable safety of his chosen metaphor, the fundamental principle is this: Go to where the action is! And in a global environment sliding into gridlock, China is a veritable super speedway of activity. Perk up, people — growth is growth and China is where its at.

2. The GDP growth number means ABSOLUTELY NOTHING to the average international business person. Sure, if you are one of the three hedge fund managers still standing and are placing bets based on global economic growth numbers, then a few percentage points of swing in the China macro GDP number would matter. But down here where real people live and work, the GDP number is just a distraction. The key is getting to the number for YOUR particular business.

Example: A client of ours is a supplier of building materials to construction companies in China. Despite the announcements of an economic stimulus plan to dump squillions of RMB into the Chinese construction sector, we estimated for our  client that construction, overall, will remain flat. Further, the category of product that they sell will be flat to even down a bit; however, our client’s best product line — one that focuses on increasing the energy efficiency of buildings — is going to be up this year because “green” is the new “growth” in China and our client is perfectly positioned to go gangbusters in this sector.  If they were to look only at the macro GDP number or even the construction number, they’d miss their opportunity — they (and you!) need to dig down to the details of your industry and product sector to find out what is really going on.

3. The China GDP number is, to a great extent, manufactured and, recently, is being strategically communicated to the rest of the world. I refer you to my blog post of a few days ago where I so wittily expounded on the Chinese authorities’ growing sophistication in not only managing their economy but in communicating it to the rest of the world.

Think about the story arc here for a moment: It was just announced that China’s economy actually grew 1.1% MORE in 2007 than we originally thought; and then, before we have had a chance to catch our breath, the announcement comes out that China’s growth for 2008 is a percentage point LESS THAN double digits. In a year where the world’s largest economy went up in flames of Armageddon-like proportions, China still had enough going for it to take a hit of only a few points. Once the collective hand wringing and brow-furrowing subsides, China is uniquely positioned to grow at their minimum of 8% in 2009.

And mark my words — you heard it here first — at the end of 2009 when all the tallies are done, China WILL have grown at a minimum of 8%. The Chinese authorities have their hands on both the controls (to juice the economy as they see fit) and the intercom (to communicate whatever they want to the global public). Who is going to contradict them? Economists? Put three economists in a room and you’ll get 5 opinions — and they are all using the same data. Other governments? Everyone else has too much of their own stuff to worry about to mess around with the macro numbers of China.

Despite the “dire” circumstances of China, there will be winners this year. Big winners. These are the companies that will ignore the macro numbers and will dive deep into the minutiae of what China means for their particular products, customers, channels and competitors. Leave the macro numbers to professionals who don’t seem to know any more than the rest of us do — theirs is fantasy football to the “real” game that the rest of us play every day.

This entry was posted on Thursday, January 22nd, 2009 at 6:57 pm and is filed under China, communication, economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.