Recently, we can see that export demands by the United States has only recently picked up. Manufacturers are obviously suffering from the depressed demand but right now we see a rise in the employment as shown by the China’s National Bureau of Statistics. “Number of unemployed migrant workers has fallen to 4.2million by end June from 20 million early this year in construction and manufacturing.”
Looking at the nature of China’s economy, we can see that they have a strong reliance on export demands because they are export-orientated. The recent demand is mainly due to the effects of new orders in preparation for Christmas up ahead. Local demand is definitely not enough to revive the industry and it fails to support the growth of the industry per se. The sudden rise in export demands is only temporary and should not be depended upon because once Christmas is over; United States is probably going to play safe on imports once again. If China placed too much emphasis on them again, it will have to suffer the disastrous consequences.
Nonetheless, we can see that the government are China is encouraging strong loans and stimulus spending. I believe that this move is to encourage local spending. With strong loans, companies will be able to purchase products locally which will probably come at a discount. With stimulus spending, the locals will naturally demand more as a result of tax relief and the provision of credits by the government. They will then feel more at ease when they purchase, on one hand they can help push the economy and on the other, they can satisfy their own needs.
Nonetheless, we can obviously see a recovery in China with the rise in investment and industrial production. There is a total of 7% rise in foreign investments in China. This is probably one of the best time to invest in China because the government is high on their stimulus package and their loans are relaxed with an all time low interest rates. If companies are able to sustain themselves in China through this dire period, they are probably going to reap fantastic and surreal rewards in the long run as China will definitely emerge as the next top economy ahead of United States and Japan.
But, looking at its stimulus package, it seems to be focussing on the prime sectors and bigger firms, such as the steel and cement industry which helps to provide materials for construction. Small and medium enterprises on the other hand are facing deep trouble because their demise is not going to have a huge impact on the gargantuan country.
It seems that they are pretty smart because right now, they are currently tailoring their production to suit the local needs since the demand from the West can no longer be relied upon. They won’t be able to sustain themselves if they do not feed on the local demands.
However, the local consumers are thrifty in nature and I do not think that will start to spend at this point in time. Like many others, they are probably going to sit back and relax for a while and see how this post-crisis period develops along the way before they start to enter the fray. It is understandable that they are not willing to take precarious purchase like buying of houses or investing in stocks. Conversely, they might be enticed in great deals if these smaller and medium enterprises can produce products that will attract them and yet be affordable at the same time. Right now, people in China are at the lower end of the Maslow’s Needs of Hierarchy, namely Psychological and Safety, which is to say food, clothing and protection. If the smaller firms can emphasis on all these and help them save at the same time, they might just be able to get a huge demand from this big group of people.
Credit -hydrogenassociation, -eicta
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