Slower China economy a worry for Western firms
Updated: 2012-04-28 18:30
(chinadaily.com.cn)
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Not backing down
Most executives are still optimistic in the long-term growth prospects for China and see nothing more than a blip in the rise of the world's second-largest economy.
One way companies are planning to boost growth is to focus on secondary cities in the Chinese interior, where the clamp-down on the housing market is not as tight. German fashion house Hugo Boss said it would open its own stores and expand into smaller cities to boost its business in China.
"Despite China's slowdown and structural adjustment toward a consumption-driven economy, its inland provinces are experiencing and will experience double-digit growth over the next decade," Cynthia Carroll, CEO of miner Anglo American, told investors at the miner's annual general meeting last week.
However, analysts and executives acknowledge there are challenges. Schneider Electric noted that part of the slowdown in its business in China was due to weaker demand from companies that rely on exports to Europe, which have been hit by the continent's debt crisis.
Even when China's growth picks up, it may never return to the heady days of the past decade, some executives said. In the automotive sector, for instance, Chinese car sales surged 46 percent in 2009, a rate unlikely to return, with executives and analysts looking to an eventual annual growth rate of 7 percent to 8 percent more likely in the coming years.
The sustainability of China's growth has become a bigger concern for investors as Europe's economy has soured, leaving companies more dependent on emerging market demand.
But even a slower-growing China offers opportunity for big US companies, said Wayne Titche, chief investment officer at AMBS Investment Counsel, whose stock holdings include General Electric Co , 3M and Parker-Hannifin Corp .
"People are always nervous about China," Titche said. "So far they've been able to keep things going. They're still expecting 8 percent growth instead of 10 percent growth."
The CEO of Ingersoll Rand Plc , a manufacturer of air conditioners, locks and other products used in buildings, agreed with that assessment.
"Weaker China, I think, will be a short-lived phenomenon," Ingersoll CEO Mike Lamach said in an interview. "I do think you'll see recovery there in coming quarters."
The fact is that even at more modest growth rates, China compares well with prospects in Western, and particularly European, markets. Chinese economic growth slowed to 8.1 percent in the first quarter, from 8.9 percent in the fourth, but that was still more than triple the estimated 2.5 percent first-quarter growth of the US economy.
"Seven percent or 8 percent for me still looks like a great opportunity," said Keith Nichols, chief financial Officer of Netherlands-based AkzoNobel NV , the world's largest paints maker.
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