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Top Ten Business Trends in China for 2009

China General Interest

The Li & Fung Research Centre, a division of the Li & Fung Group, share their expert analysis of the year ahead in China; we focus on the first trend and provide you with links for further reading.

Summary of the "Ten Highlights of China's Commerical Sector in 2009"

  1. 2009 will be a very challenging year for China's commercial business
  2. Government and businesses will strive to stimulate consumption in China
  3. There will be growing attention on China's food safety monitoring system
  4. Post-quake reconstruction is set to offer tremendous investment opportunities
  5. Great strides will be made in China's rural commercial infrastructure developments
  6. The anticipated legislation for the City Commercial Development Plan will promote a more regulated and orderly business environment
  7. Retailers will expand more cautiously: focusing on regional expansion and increasing penetration into lower-tier cities
  8. E-commerce is set to continue its tremendous growth
  9. The Government will take active measures to promote green practices in commercial businesses
  10. Industry organizations will play a more active role in the commercial sector.

TREND #1: Challenging year ahead for China's commercial businesses

The financial tsunami sweeping through the globe since the later half of 2007 has not only impacted the global financial markets but also hurt the real economy as well. With growing interdependence among different countries, China’s commercial sector, which has witnessed tremendous growth over the past decade, is also feeling the pinch. Commercial enterprises will have a challenging year in 2009.

Swift government response to global financial turmoil

In the face of credit crunch crisis and the myriad uncertainties, China has responded swiftly by shifting the focus of its macroeconomic policy over the past year. Compared to the government imperative of preventing economy from overheating and curbing inflation at the end of 2007, the central government today has taken a series of active initiatives to maintain stable economic growth. Boosting domestic consumption and rural development has become the prime focus since the later half of 2008.

Slowing growth trend confirmed; tough challenges ahead

Indeed, major economic data has already confirmed the slowing pace of the Chinese economy.

According to the National Bureau of Statistics (NBS), GDP growth fell to 9.0% year on year (yoy) in 3Q08, which was down from 10.1% yoy in 2Q08, 10.6% yoy in 1Q08 and 11.9% yoy in 2007. It was the slowest growth in 5 years.

Exports and investment, which have been China’s major economic growth drivers in the past decade, are under tremendous pressure due to slackening demand. Taking inflation and RMB appreciation into account, it is estimated that export could just post single-digit growth in 2008; meanwhile, investment growth would be lower than 20%. Both have registered sharp declines unseen for many years.

Macroeconomic downturn has put government’s fiscal revenue under pressure. Growth of tax revenue fell sharply from 33.5% yoy in the first half of 2008 to 13.8%, 11.0% and 2.5% yoy respectively in July, August and September 2008.

Retail sales maintained stable growth amid economic concerns in 2008; strong growth in 2009 under question

On the contrary, retail sales number has been impressive in 2008. In the first three quarters of 2008, the total retail sales reached 7,788.6 billion yuan, up nominally by 22.0% yoy. Real growth stayed at 14.1%, which is the highest since 1997. As exports and investment lose their growth momentum, domestic consumption now plays a more prominent role in driving the Chinese economy.

Nevertheless, the sustainability of strong retail sales growth is under question. Some big-name retailers have already witnessed non-seasonal business slowdown. For example, the Beijing Wangfujing Department Store has reported a slide in sales growth in the first three quarters of 2008 (25%, 16% and 9% respectively in 1Q, 2Q and 3Q 2008) and expected to see a further decline in the fourth quarter. The Xidan Department Store and China's largest electronic appliances chain Gome have also witnessed falling sales revenues.

Our experts believe the true impacts of global financial turmoil on China's commercial sector will become more prominent in 2009, putting commercial businesses in China under the toughest test in recent years. Indeed, cloudier employment outlook and plummeting housing and stock markets will continue to dampen consumption sentiment in the coming year. Our experts anticipate that in 2009:

  1. Department stores will be under high pressure as consumers cut back on their discretionary and luxury spending. On the other hand, focusing mainly on consumer staples and necessities, supermarkets will see relatively fewer impacts.
  2. Demand for big-ticket purchase such as home furnishings and improvement, household appliances and automobiles are likely to remain soft.
  3. China's coastal regions, with their economies being more export-driven, will be more negatively influenced than the central and western regions.
  4. Rural markets shall demonstrate better growth potential than urban markets with a series of government initiatives to boost consumption.

Commercial business in China fraught with challenges in 2009

All in all, 2009 will not be an easy year for most commercial businesses in China. Softening demand and widespread economic concern will put businesses in China under tough tests. Businesses must prepare themselves well to weather tougher economic environment.

This article is an extract from the Lif & Fung Research Centre report "Ten Highlights of China’s Commerical Sector in 2009". To visit the Li & Fung Research group please click here or to download the complete report please click here.