So much for Chinese exceptionalism. The financial crisis continues to ripple across the economy, leaving many CFOs here shaken, particularly those who until very recently thought the country would emerge unscathed. The slowdown has been dramatic, particularly in the final two months of last year. Many manufacturers reported low-single-digit sales growth in November, a laggardly pace unheard of during the past 10 years. The final tally for December will likely be worse.
The economic jolt has shed light on quite a few problems that had lain hidden underneath the country's astounding growth. Overcapacity is perhaps the most conspicuous one. Earlier this year, Chinese automakers were upbeat about double-digit growth and competed fiercely with one another to set ambitious sales targets and to roll out a slew of new models. Chang'an Auto, for example, which has partnered with Ford Motor Co., announced a target of 2 million cars by 2010. Now those goals have been quietly scaled back. Many automakers have closed plants — some brand new — as they wait for demand to pick up. Across the economy, a broad "de-stocking process," as one China-based financial director of a U.S.-based chemical manufacturer puts it, is under way. "Companies have stopped production to reduce inventory and preserve cash," he says.
If that page seems firmly ripped from the American playbook, so too does the new focus on cost-cutting. Companies are no longer hiring hundreds of new college graduates. Instead, they have put in place hiring freezes, and some have even begun to quietly lay people off. Meanwhile, business-class flights and five-star hotels are out as executives learn to economize.
China remains a land of opportunity, however. As the crisis forces multinationals elsewhere to restructure and downsize, higher-end manufacturing, R&D, and other activities may be shifted to China. M&A is also booming. Global firms with large cash reserves are actively searching for Chinese firms that were unavailable for sale or were too expensive just a few months ago.
Beijing's commitment to growth has also helped to keep confidence high. The government has announced plans to eventually make private ownership of farmland possible. Although still little more than a pipe dream, the prospect has excited local companies that hope farmers will finally be able to cash in on the astounding appreciation of land and so will be able to spend more.
Optimists believe the economy will pick up speed again as early as the third quarter of this year, when the government's $600 billion stimulus package takes effect. Meanwhile, crisis mode prevails as Chinese executives lie low, work hard, and put their leadership skills to the test as never before.
Wu Chen is editorial director of CFO China.