Chinese Businesses: Major Signs Indicate a Difficult Year Ahead
Chinese businesses may be facing a very tough year and it is not entirely due to the American-imposed trade war. According to corporate analyst Thomas Gatley who works for Gavekal’s- an investment research firm based in Beijing, most indicators do not promise an easy year for both private and public Chinese companies. Here is a brief summary of what is going on in China at the moment;
- Alibaba despite having handsome growth in the latest quarter missed its last year’s forecast.
- Tencent, a social media and gaming company, reported having slowest quarterly growth in spite of gaining considerable revenue boost from its cloud business.
- Baidu, another Chinese tech giant, reported its first quarterly loss since it gained a listing in 2005.
- During Jan-April of the current year, there has been up to 3.4% decline in industrial profits, as reported by the country’s National Bureau of Statistics.
- Some issues regarding corporate governance have also raised flags, such as Kangde Xic Composite Material Group’s first quarter report indicated no trace of over 12 billion Yuan that was claimed to be held in bank and Kangmei Pharmaceutical ratified an accounting error that led to cash overstatement of nearly $4.4 billion in 2017.
- GDP projection indicates slower growth during the current year, down from 6.8% to 6-6.5%.
For the first time in nearly 12 months, some companies did beat expectations, as per Morgan Stanley’s MSCI China index companies assessment; however, the ever-escalating trade war between the United States and China indicate a very bumpy road ahead for Chinese companies.
Private Businesses and Smaller Cities maybe the Key for Chinese Economy
Private businesses contribute up to 90% job opportunities and nearly 70% product innovation in China. However, with Chinese SMEs having a life span of merely 2.9 years versus 12 years in Japan and 7 years in America, circumstances have not been good for small and medium private businesses. The Chinese government has been making efforts to improve finance sourcing opportunities for private businesses as an attempt to boost growth. There has been some success in this regard but a lot more needs to be done in order to allow this sector of the economy to achieve its true potential.
Regardless of discouraging indicators, China still stands to among the fastest growing economies in the world. Experts believe that future opportunities for business and growth may be present in smaller cities as opposed to metropolitan areas.