China and the the world needs Ox-like characteristics
Jan 29 2009 By Jeremy Butler
This week China celebrating the start of their new year. In line with tradition, 2009 will be the year of the ox – an appropriate symbol given the year it faces.
It is said that people who are born in the year of the ox demonstrate key characteristics including stability, perseverance and a fearless drive in achieving their objectives or tasks.
It is therefore very appropriate that with the global financial economic turbulence now bearing down on the Chinese national economy that these forces come into play.
As I have said a number of times within these columns, China has seen a drop in its economic growth, but it is still growing – just at a slower rate than in the previous few years. In today’s climate this is a good performance. However, it would be naïve to think that this means that their economy will continue to be sheltered and as the economic conditions across the globe worsen, China needs to respond to protect its national economy.
It is in this response that we need to see the characteristics of this year’s astronomy symbol come into play. We have already seen some fiscal stimulus but I suspect there will be more to come.
Ensuring demand within their national market remains, consumers need to be encouraged to spend. The Chinese authorities are very keen to maintain domestic growth – maintaining social harmony is a key objective for the government, and that has been achieved by providing jobs for the millions of people either graduating, moving to the cities from the countryside or returning to China from overseas. It is this ‘economic contract’ with the people that maintains harmony.
The domestic stock exchanges have seen their dizzying valuations of a year ago (50 times earnings!) drop back to more realistic levels in line with other countries, and although this is a shock for those domestic investors who saw the markets as a one-way bet, it does make Chinese companies more affordable and rekindles the interest of foreign acquirers. Moreover, the historical pricing difference between mainland shares (‘A’ shares) and shares for the same business traded in Hong Kong (‘H’ shares) has been cut right back, which is a welcome development for normalising share dealings.
Looking at the big picture, China has crammed its own industrial revolution into about twenty years, and is doing it under the gaze of Western countries who went through this at a more leisurely pace many years ago. It is a fine balancing act to maintain growth, be a good world citizen and not frighten the legacy powers such as America and Russia. We in the West rely on China in so many ways – as a market for our own products and services, as a source of cheap manufactured goods and textiles, for students, and not least for sovereign wealth injections into our businesses - that we simply must embrace their development, and work to ensure that the UK has a key role in it.
History teaches us that when the economic cycle dips, gut reaction is to put up trade barriers – and history shows that this has always worsened and deepened any recession.
Now is the time to be that Ox, to be fearless and calm. There is no doubt that we are all facing significant economic challenges but with co-ordinated and holistic action, the characteristics of this Chinese year could help limit its impact. Happy New Year.
* Jeremy Butler works for KPMG
