China Business 2012 and Beyond

We all may recall how China, relatively speaking, breezed through the start of 2008-2009 Great Recession.  The world staggered and China still grew 8%.

2012 was a challenging year for Chinese industry, with many companies around me feeling the pinch. Most reports have noted that China hit bottom by October and has been on the uptick. China grew this year by continued investment in infrastructure. Infrastructure is fantastic in China and still getting better with room to grow.

Let me tell you a quick story on this last year’s China downturn.

In the spring of 2011, the Chinese housing market had gotten so hot that a chorus of complaints by new home buyers reached the government. The central government reacted with a vengeance, Every known limitation was put on the housing market and financing for homes. Housing prices dipped in late 2011 an average of 25% after more than a decade of consistent break neck growth. Housing prices have stabilized now. The fever has ended. China has avoided a massive bubble by popping it themselves in 2011.

The result was that people felt poorer in 2012. Al our housing and factory prices had gone down. Industry got scared, and many many businesses pulled back on spending and the industrial sector contracted slightly in 2012. In 2012, China eased monetary policy several times and inflation is still manageable, so they still have room to move, but it is clear that easing is starting to take effect.  Almost all predictions are for growth to return and it seems already to have started. Another strong set of numbers for December would show a solid upward trend.

China still has room to grow for a long time.  They desperately need to allow people to have many children now, but they will not hit the wall till 2025 or beyond. There are still more peasents to move and massive inefficiency to push out over the next dozen years before the next big hit comes. I wish I could say that Europe and the US were looking at clear sailing over the next dozen years like China. The US government does not even know how to face tomorrow.

China is not the future low cost center though low cost can be found in the interior. However, China is the place for a new market attuned to Western products and anxious to show off.

Anything to add?

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Posted in: China, Market Entry

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