How is China affected by the economic crisis (经济危机)?

My readers who follow the economic headlines know full well that like the rest of the world, China has been greatly affected by the current global economic and financial crisis (财政危机). Economic growth, which had been averaging churning along at double-digit rates over the past few years, has slowed dramatically. It's estimated that China's economy will expand by no more than 7% in 2009. And more and more forecasts call for significantly lower growth.

Americans would be delighted if the US economy, which contracted during the last two quarters and is expected to shrink through the first half of 2009, was expanding at a 5-7% annual clip. However, the 7% growth figure is something of a critical number here in China. Economists have argued that unless the Chinese economy grows by at least 7% every year, it won't be able to provide jobs for all the new people entering the labor.

My own first hand observations, particularly the stories I hear from Chinese friends, tells me that the job market here has indeed deteriorated significantly for new entrants to the labor market. The sophomore students I taught two years ago at the Second Beijing Foreign Languages University (二外) are now looking for work. While most of them have had at least a few interviews, very few have found jobs. And we're now moving past the first peak hiring season, i.e. the late fall and early winter (the other is the early spring).

Many of my former 二外 students majored in finance. These job-hunters are having an especially hard time finding positions. They're all naturally keen to find positions in banks and other financial businesses like security and brokerage firms. However, very few of these companies are hiring people at the moment; indeed, many are getting rid of staff (more on that below).

However, university students who majored in technical fields are also scrambling to find work. One of my good Chinese friends works at a sister company—both our firms are China National Petroleum Company subsidiaries (分公司) doing bore-hole and well testing and servicing work—as a recruiter in their HR (人力资源) department. My friend said that they were swamped with applicants at job fairs this fall.

I spent much of last week helping to do English assessments on job candidates for my company. For readers wondering about this, our firm's clients are all foreign clients, and the language of the international oil business is, of course, English. Hence anyone hired here must be able to speak at least intermediate level English. Most of our recruits were completing their M.S. degrees from the China National Petroleum University (a few were completing doctoral degrees). This place is the country's top institution for studying petrology, petroleum engineering, and the like. One of the people we interviewed told us that many of his classmates were having difficulty finding jobs, despite their high-powered educational backgrounds.

China's manufacturing industries that depended heavily on exports (出口) to the US have certainly been hard hit by the sharp downturn in the American economy. Scores of small toy (玩具) factories (工厂) in Guangdong province have gone bankrupt (破产). And lots of what are called 农民工—factory workers from small villages who leave their families to live in cities without permanent residence permits—have lost their jobs (失业了). These men are returning home early for the Spring Festival.

The crisis has affected not just manufacturers, but the banking and financial sector as well. A very good Chinese friend of mine works at Hong Kong Shanghai Commercial Bank (HSBC), which is one of China's leading commercial and investment banks. She recently informed me that HSBC's Hong Kong Branch has shed some 10,000 employees.

My friend told me that HSBC had invested heavily in Australian securities. The bank thus lost lots of money when the Aussie $ plunged, causing the value of these Aussie $ denominated assets to fall sharply. My friend added that HSBC also had some money invested in Madoff's funds. It looks like this swindler's tentacles reached very far and wide indeed.

Thanks to the problems in the financial sector and a bearish stock market—the latter downturn preceded the crisis in the US—many urban middle class Chinese people have seen their nest eggs dwindle. My friend at HSBC, for example, has seen the value of her savings' stock portfolio has shrunk by more than half, from 70,000 to 30,000 RMB (at the current exchange rate, that's $10,250 to $4,400).

In the past few years, buying property has become an attractive investment strategy for middle- and upper-middle class Chinese city-dwellers. Housing prices have risen sharply in Beijing and other big cities over the past decade. For example, the Irish lawyer, Diarmuid O’Brien, who got me the tickets to the Olympic Basketball games, bought an apartment in Beijing's exclusive Central Business District (国贸) area. The apartment's market value has risen several times over this period, and Diarmuid was getting lots of calls or sms mobile phone message every day from people interested in buying the place.

It now appears that this long run-up in property asset values is coming to an end. People who thought that housing prices would keep rising forever are learning the hard way that in the investment (投资) world, when asset prices skyrocket, they often come back down to earth a bit. Indeed, THE ECONOMIST ran a story late last year about apartment prices falling from 15,000 RMB per square to 9,000 RMB per square meter in an exclusive Hai Dian District apartment community. The angry buyers sued the developers over this sudden collapse in the value of their properties.

A fellow laowai colleague at the company I work for named John Gormican is married to a Chinese woman, Rebecca, who has a real estate business. When I sent him an IM about THE ECONOMIST story the other day, he replied that yes, his wife had heard many similar stories. John added that they “were expecting it to be slow after Olympic Games, but not like this.”

Rebecca is lucky. Her business is a one-woman show, which she runs from out of her apartment. Since Rebecca's overhead is absolutely minimal, she won't have a lot of problems weathering this downturn. The same, however, can't be said large big real estate companies. John anticipates that many of them will soon be facing big problems.

The economic slowdown is also affecting foreign companies. I have a Chinese friend who works at another integrated well services provider, the French giant Schlumberger, the second largest firm in the business after Halliburton. She informed me several weeks ago, when we were exchanging IM's, that Schlumberger recently moved out of its old China corporate headquarters in the expensive Lido area near the Holiday Inn. They did so mainly to cut back on costs.

Schlumberger's new headquarters—or “operations base” as they now call it—is located in an old factory building converted into an office space. The new digs are not only fairly crummy, but also very hard to find. My friend told me that visiting client spent over an hour trying to locate this place and was not very happy about that.

One of my laowai friends living in Shanghai has a boyfriend who is an engineer in GM's China operations. She informs me that GM has, is or will be stopping production altogether or cutting it “way down” for two weeks here. VW, the biggest foreign car manufacturer in China, is supposedly doing the same.

Even the IT sector is being affected by the current economic problems. One of my Chinese friends, a very pretty and delightful young lady, is a software engineer at a Japanese IT firm. During a recent night out, she informed me that recently business has been really slow at her company, so she isn't very busy and has a lot of down time at work.

Lastly, as one would expect during an economic crunch, the hospitality business is really suffering at the moment. I have breakfast once or twice a month at Paul's Steak and Eggs restaurant. This place is very popular with Beijing's expat community, and I enjoy hearing the patrons, as well as the owner, a French-Canadian named Paul, chat about business conditions in the capital. During my last visit on January 3, I overheard Paul noting that the occupancy rate at the luxury Ritz-Carlton Hotel is now just 15%. The Ritz Carlton and several other luxury hotels have fired their executive chefs.

The current problems in the hotel business are exacerbated by the overbuilding that took during the run-up to the Olympic Games. This surplus capacity is especially severe in the high-end housing area. Lots of luxury full-service apartments and other less expensive but still arguably upscale housing, built to accommodate wealthy tourists and business guests coming to Beijing for the Olympics, now stands vacant.

However, the glut in high end housing and the overall drop in apartment prices can also be seen as a silver lining in Beijing and China's overall cloudy economy. Laowai and Chinese people who hold on to their jobs or are even lucky enough to get better paying positions, will be able, for the first time in recent memory, to find nice housing at relatively affordable prices.

Finally, a few people I know have remained unaffected by the economic downturn. One of my Chinese friends is an HR consultant at Hewlett Packard—yes, they have an HR consulting branch here in China. She does lots of work advising state owned enterprises and was recently put in charge of a big project near Xinzheng City in Henan Province (I spent my first year in China living in Xinzheng City). This lady informed me that business remains brisk and they were paid their usual annual Christmas bonus this year.

Throughout the first half of last year, many people speculated that China and India might somehow get “decoupled” from the brewing global economic crisis (THE ECONOMIST magazine was a prominent proponent of this view). It now looks like such thinking will have to be put on ice. China will definitely feel some economic pain over the next year. The good news for the country is that it's arguably in a much better position to respond to the crunch than is the US. I'll have more to say on that in my next post.

经济危机 (jing1ji4wei1ji1). 经济 is economy or economic, while 危机 is crisis.
财政危机 (cai2zheng4wei1ji1). 财政 is financial (another word for financial is 财金 [cai2jin1]).
二外 (er4wai4).
人力资源 (ren2li4zi1yuan2). 人力 literally means “human power,” while 资源 means resource(s).
分公司 (fen1gong1si1).
出口 (chu1kou3).
玩具 (wan2ju4).
工厂 (gong1chang3).
破产 (po4chan3).
失业了 (shi1ye4le5).
投资 (tou2zi1).
地产 (di4chan3).
国贸 (guo2mao4).