Seeking Certainty in 2009

Cover, issue 401, January 5, 2009
Translated by Liu Peng
Original article:[Chinese]

"When will the Chinese economy hit bottom?"

This has become one of the most frequent questions asked of Chinese leaders since the global financial crisis set in.

Though they have confidently maintained that things would turn for the better in the second half of 2009, industry players in the private sector have remained more pessimistic.

The business community remained dogged by a sense of uncertainty; to them, the recovery largely depended on how the US market fared.

Seeking Bottom
"What I am most concerned about now is, when will China's economy recover?" A coal mine businessman posed this question to Zheng Xinli during a conference. Zheng is vice-director of the Central Policy Research Center, a think-tank for the Chinese Communist Party's Politburo.

"If I know when the economy will recover, I can be prepared," the businessman added.

Zheng replied: "We believe the first half of 2009 will be the toughest, but things will likely get better in the second half."

Similar answer was echoed by other Chinese officials at the conference organized by the State Council Development Research Center.

Zheng believed the backlogged inventories in the Chinese market would be exhausted by the end of April 2009.

Inventory exhaustion had been a signal that economists and officials watched out for to determine if an economic decline had reached its bottom.

Gao Shanwen, chief macro-economist of Essence Securities, held a similar viewpoint: "By then (when the inventories exhausted), the industrial equipment utilization ratio will likely improve, and the products' prices will stabilize or begin to rebound."

Business Sense
Many industry players, however, were doubtful of the projection. "Frankly, the officials are usually not that sensitive to what's happening at the micro-level and the real economy," said one senior manager at Teda Group, a real-estate developer in Tianjin.

For those in export-oriented businesses, many believed the recovery depended heavily on the health of the US economy.

"In a globalized market, it is hard to say the Chinese economy has hit bottom if the export trade remained weak," said US-based trade credit company chief Ren Jiangang.

Some managers have told the EO that as long as liquidity remained tight, the decline in the Chinese economy would continue. They said despite that China's central bank cut the interest rate and reserve requirement ratio several times, it remained hard for businesses to get credit from commercial banks.

Divergence in opinion was also reflected in the projection of economic growth for 2009. While some Chinese officials were optimistic that China could realize a Gross Domestic Product (GDP) growth rate of 9%, some market analysts gave more conservative estimates between 6% and 7%.

The EO found that the business community belonged to the most pessimistic group. Many entrepreneurs interviewed projected a growth rate between 4% and 5%.

The bleak outlook had pushed businesses to formulate countermeasures, and among the common strategies shared by many companies included reducing investment, restraining diversification, focusing on core businesses, and improving cost-effectiveness.

One of the foremost steps in controlling cost by companies, the EO learned, was to cut manpower. Since late last year, waves of staff cuts have hit major Chinese cities, with the companies concerned ranging from multinationals to local small-and-medium sized firms.

"We are still groping in the dark, not sure which direction to follow," said one senior manager.