China Business Blog and Podcast

Well, the Party’s party (the National People’s Congress) is underway in Beijing, and all the city is agog.  I had to be up in Beijing for business this past week and got caught in what I call a “Serve-the-People Traffic Jam.”  That’s when a major road has several lanes blocked off in order to allow Party officials clear passage, officials whom Mao Ze-dong exhorted to “serve the people.”  The aforementioned “people” are left to wade through the traffic density in the remaining lanes.  The sarcasm among the average Beijing taxi driver is thick when caught is such jams.  If ever foreigners are tempted to think of China as brainless automatons following a centralized will, they only have to spend three minutes in a Beijing taxi to realize that independence and oppositional thinking are alive and well here.

At the very top of the Party’s honey-do list is to insure that China’s growth continues on through the airsickness bag that is the global economy.  But in order to do that, they need to assure their people that they are on the job and have the situation well under control.  Like every politician worth their earmarks, there is a certain amount of sounds-good-if-you-say-it-fast in the Party’s communication about the economic state of things and the plans they have to fix it.  Premier Wen Jia-bao’s Congress-opening speech – of Castro-like duration minus the spiffy fatigues – was pretty much simply a restatement of what we have heard before: that China plans to invest RMB 4,000,000,000,000 (that’s “trillion” for those of you still counting zeros) back into the Chinese economy and it will go to both physical infrastructure (bridges, roads, obscenely tall buildings) as well as social infrastructure (hospitals, clinics, schools that won’t fall down in an earthquake).  Bully for them.

Mr. Wen did take an extended solo around the riff that the Chinese people should spend more to support their own economy, but it seems that such exonerations are going to fall short of their goal.  He might want to take a page from G.W. Bush when he encouraged Americans to continue spending at the onset of the Iraq War, for fear that the terrorists might win … the fact that it worked and, eventually the economy tanked, might seem to beg the question of who really won, but those are issues for other blogs.  Seriously, as we’ve said before in these pages, consumer spending in China won’t move much until the social safety network is repaired – once Chinese citizens feel that there is help for their parents and themselves in their old age, they will start to spend in their youth.

Two points are worth mentioning, however, regarding the 4 trillion RMB stimulus package.  First of all, that is not going to be the total sum of relief spending in China; it is likely to be far more.  The rumor on the street and among my staff is that the final tally could be double that amount.  In fact, the rest of Asia seemed to think so too because the Japanese and Korean stock markets went up significantly following Wen’s speech.  Their economies – like all of ours – are tied so closely to China’s that, when the dragon looks like it will flap its wings, we all try to get aerodynamic for the expected blast of air.  Of course, as the U.S. is proving with its multi-squillion dollar relief package, “more” is not necessarily “better” so just because China is going to spend more doesn’t mean it is going to be better.

What DOES make China’s relief plan potentially more effective than the U.S. plan is because of how the money will be applied in China.  In the U.S., so much of the relief money will go to relieving pressure on companies’ balance sheets … many U.S. companies are so far in a hole that they need significant help just to get back to ground level (most U.S. banks and car companies are in this condition).  In China – where most companies are not so deeply in debt – any relief is going to go directly to benefitting the P&L … juicing the topline and/or helping companies invest in improving their bottom lines.  Therefore, if the China relief program works at all, we can expect to see a more rapid uplift here than in the U.S. (where the key measurement of impact immediacy is in calculating the number of “shovel ready” projects available).

Where are we going to see the biggest hits?  Our money is on anything in the medical sector – medical devices, pharmaceuticals and healthcare – and in higher value-added manufacturing (systems integration, design engineering, etc.).  Listen for the Perotvian “giant sucking sound” as money and resources are poured into these sectors (and look particularly for consolidation of smaller players to form larger ones).  And remember, RMB-for-RMB, the lift in China should be more immediate and more – perish the use of the word – “impactful” than anywhere else in the world.  Chinese companies are, in many cases, well-positioned to take advantage of the boost and will be quick to respond.  The question remains is whether the rest of us will be too.

This entry was posted on Sunday, March 8th, 2009 at 3:24 pm and is filed under China, economy, government, medical. 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.