Chinese exporters relying on low prices thrive when the economic growth rate is over 10%, said Andy Xie, an independent economist. But if that number hits 8% next year, as Xie expects, there will be trouble.
The pressures on exporters come from three directions: High raw material costs, rising labor costs and reminbi appreciation against the US dollar. Exporters might find help in the recent 5% hike in bank loan quotas, but Xie says businesses should invest in retooling for greater efficiency, not growth.
Some exporters hope to convince Beijing to implement targeted subsidies. Jerry Lin, executive account manager for industry body Cotton Incorporated said lobbying by apparel makers was important in securing a 2% value-added tax rebate increase.
Nevertheless, some industries continue to suffer as Beijing promotes higher-end manufacturing. According to Lin, banks are discouraged from lending to textile firms.
All this has some companies considering a move. Consultancy Booz Allen Hamilton and the Shanghai American Chamber of Commerce found that 17% of foreign firms surveyed had “concrete plans” to leave China.
Still, that leaves 83% of manufacturers with no such plans. Yan Lyansky, founder of American folding-bicycle firm Downtube said he’s staying put. “The quality control is impeccable … and given the quality control, the price is ridiculously low,” he said.
It’s not news that property in China is looking gloomy: A Moody’s report published back in April cited tight liquidity, regulatory risks, and oversupply as reasons for the firm’s negative assessment of the sector.
John So, a residential property analyst with ICEA in Hong Kong, says that those factors still exist. He expects further drops in prices and transaction volumes before stability returns “after early 2009.” In Guangzhou, where new apartments usually cost around US$1,400 per square meter, So expects prices of US$1,200.
In Beijing, sale prices of luxury accommodation fell by 1% from the previous quarter to US$4,200 per square meter, according to a CB Richard Ellis report.
But government efforts may be working. Nicole Wong, a property analyst with CLSA, said the increase in bank loan quotas shows Beijing is pushing easier access to credit. Wang Qian, an economist with JPMorgan in Hong Kong, expects the government to loosen its stance still further, potentially making banks more willing to lend.
However, easier access to liquidity doesn’t mean safer investments.
“Property is a very cyclical investment … in the long run it’s very positive,” said ICEA’s So. “But even if China’s economy experiences continued growth … there still can be very serious downsides in property prices over one or two years.”