The Chinese economy isn’t growing as fast as it used to. This week’s third quarter statistics revealed growth in its economy of 7.4 per cent. This figure doesn’t sound so bad when set against the equivalent figure for the UK of 0.8 per cent, but the Chinese economy saw growth as high as 12 per cent in 2010.
The slowdown has been blamed on a continued weak demand for Chinese exports in the depressed US and EU economies. Many commentators have highlighted the need for China to better harness its own potentially huge internal market. Doing so could also benefit the global economy, as there’d be more potential for other countries to export their products to the huge Chinese population.
There are several worrying potential implications of a faltering Chinese economy. Inside China, it could mean a fall in property prices, leading to many Chinese investors losing a significant proportion of their assets. Externally, reduced industrial demand from Chinese manufacturers is likely to have a significant impact on Middle Eastern energy suppliers and African commodity producers, with knock-on effects around the globe.
However, there are some indications that the quarterly figures shouldn’t cause too much alarm. China has recently posted promising figures for industrial production, export and retail sales figures, all of which are seen as reliable indicators of an economy’s health.
In addition, the Chinese government has undertaken a number of stimulus measures in recent months, including cutting interest rates to promote spending and reducing bank reserve requirements. It has also given the green light to a number of new infrastructure projects, which should encourage economic growth.
It’s worth noting, however, that elections for the National People’s Congress, the nation’s main legislative body, are scheduled for this autumn. The results of which will have a significant economic impact.
The Chinese economy is a key consideration for anyone at an investment bank involved in forex. The US has long been involved in a bitter “currency war” with the Chinese government, which has historically tightly controlled the yuan rather than letting it trade freely. Washington claims that the value of the yuan is kept artificially low to keep the price of Chinese exports attractive, which they see as unfair. These days though, the yuan is allowed to fluctuate to a certain extent and is currently performing very strongly against the dollar.
The Chinese economy certainly provides an enormous number of potential business opportunities for commercial lawyers, but foreign law firms are limited by the fact that their Chinese-qualified lawyers are prohibited from providing advice on Chinese law to clients. Also, a lot of legal work in China involves liaising with regulators – and most will only do business with a Chinese law firm. The result is that many foreign law firms in China, despite employing large numbers of Chinese lawyers, find themselves frequently forced to instruct Chinese firms to assist them, driving up costs.
It’s not just governments that are required to produce a report every three months: many business are required by law or their own internal requirements to do the same. In the current economic and political climate there’s been some debate about the effect that this pressure has on the way in which businesses are run. Does this type of scrutiny foster an excessively short-term attitude? My advice when looking at quarterly figures, whether from a corporate or a government, is to pay attention to the detail of what they say, but not to forget to think about the bigger, long-term picture too.
UK mid-market fashion retailer Karen Millen has recently opened a store in Beijing, the first in a planned chain of 60 across the nation. The popularity of high-end luxury products has been a big story for the Chinese economy for a while, and has been seen by many as a sign of the awakening of the massive commercial potential of China’s huge population. But only a tiny minority of Chinese people can afford luxury goods, so when thinking strategically about commercial opportunities in China I’ll also be tracking the progress of quality but accessible brands like Karen Millen for a real indication of China’s development as a consumer market.