Due to sharp decline in Chinese growth, the present time is seeing several Western companies carefully examining the position of their business in China and on the Chinese market. Companies are keeping an eye out in order to come up with effective solutions of tackling the bad debt that may be experienced as a result of this slowdown in growth.
The recent Chinese decline in growth is leading to questions being raised about the demand and financial stability of Chinese companies. In the beginning of the millennium, an upwards spurt in Chinese growth led Western investors to flock to China with their money and heavily invest there. Will Hallyer, partner, Strategy Consultants OC&C stated that the previous "land-grab" mentality of investing heavily first and thinking about growth and profit later is rapidly changing. Ensuring that the company remains economically stable and profitable is coming first, according to Hallyer.
Philips NV chief executive Frans van Houten recalls the electronics company experiencing "fabulous years" in China, but confirmed that it is now going through a period of negative order intake. According to van Houten, this means that future expectations should be more modest and realistic until market conditions turn round.
Jacques Aschenbroich, CEO, Valeo, stated that the company's growth rate is anticipated to slow down and the company is currently reviewing its growth plans accordingly. Ford Motor Company has responded by cutting production, as affirmed by vice president Stuart Rowley. As this happens, Western suppliers will also be impacted.
Strategy and planning varies across different companies. General Motors are looking at cost reductions, flagging "material cost performance" while BMW and Luxottica are looking at price cuts in order to attract the more cautious Chinese consumer. Meanwhile, Danone are rethinking their Chinese product lines as they become less competitive on the Chinese market.
Organisations are also taking their credit risk management very seriously as companies and banks are actively seeking to reduce credit losses and minimise their exposure to China. UBS-AG stopped lending money to onshore clients in China, confirmed CEO Sergio Ermotti. At the same time, companies are still on the lookout for opportunities, particularly the possibility of acquiring local companies at a conservative price due to the stock market drop despite this option being less accessible than desired due to governmental influence.
Although figures are dropping and growth is being halted, withdrawal from the market is being widely excluded as China's economy still remains a giant. Ulrich Spiesshofer, CEO of industrial conglomerate ABB stated that it is only the short-term that is worrying. Spiesshofer is confident that medium-term and long-term China "will come back".
Sourced from Tom Bergin, Reuters.
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