Businesses struggle as cracks appear in China’s economy

The number of people seeking arbitration in China has gone up as more companies experience difficulties in funding. (AFP)
Updated 27 January 2019
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Businesses struggle as cracks appear in China’s economy

  • Private businesses in particular face new hurdles as costs rise and financing becomes harder to come by
  • Venture capital funding dried up at the end of last year

BEIJING: Cracks are opening in China’s mighty economy: investors are backing away from deals, factories are moving abroad and companies are shedding jobs.
The world’s second-largest economy is losing steam, hitting its slowest growth in almost three decades last year, and flagging further in recent months.
While gross domestic product grew at 6.6 percent in 2018 — a rate that would be the envy of most nations — China’s efforts to cut its debt mountain have weighed on the economy.
Private businesses in particular face new hurdles as costs rise and financing becomes harder to come by, while the trade war with the US has not helped.
Here is a look at some of the struggles faced by Chinese companies and people:
Feeding China’s addiction to video games seemed an easy bet for Beijing Yixin Technology, a tech startup behind the mobile game Farm Take Home.
The game allows players to harvest wheat, raise chickens and plant apple trees — a bucolic refuge from the pressures of urban China.
But in real life, the tech firm has struggled to find investors.
“In December our company’s funding ran out, we had an investment lined up, but the money never came through,” said chairman Cui Yi.
“This month I arranged another investor, then he backed out too. I think we can’t hold out.”
His company is not alone.
Venture capital funding dried up at the end of last year. Total investment in the fourth quarter fell 13 percent from a year earlier, according to data from Preqin market research.
Policymakers are partly to blame, pushing a war on debt and financial risk that has cut the funding flowing into investment firms, industry insiders say.
Another government diktat halted new video game approvals for months — officially due to youth gaming addiction concerns — sending firms like Beijing Yixin into a deep freeze.
Other companies are facing the fallout from the trade war with the US.
More than a handful of exporters have sought to get around US tariffs by building factories outside China, according to a review of public stock filings.
Others are sending workers home early for Chinese New Year or cutting overtime.
Last month China’s exports fell.
“It has hit our profits,” Harry Shih, manager of Runfine Bearings in eastern Zhejiang province, said of the trade war.
Washington slapped 25 percent taxes on many types of ball bearings in July. Shih said he had shared the cost increase with his customers, roughly half of whom are from the US.
“Business is going down for most companies including factories. Like me they have the same problems, profits are going down” as costs rise, said Shih.
Slowing disposable income growth and tighter credit have hit consumer spending, with car sales falling last year for the first time in more than 20 years.
“Volumes have fallen by half,” said Wang Jingjing, a fast-talking 23-year-old salesman at a Ford dealership in Beijing, noting about one third of the salespeople had been fired or left.
Wang’s own salary has roughly halved, he said, from around 10,000 yuan ($1,474) a month in 2017 down to less than 5,000 yuan ($737).
“I’ve definitely controlled my own spending, going out to eat less, buying less, cutting down on these things,” he said, adding he believes things will turn around this year with new car models coming out.
Official data shows unemployment at a stable rate, rising slightly to 4.9 percent last month.
But independent data paints a different picture.
In October-December advertised tech positions fell by 20 percent from a year earlier, after declining 51 percent in the third quarter, according to data from Zhaopin, China’s largest recruitment website and Renmin University.
China’s economy “faces downward pressure, and to some extent this pressure will be transmitted to the job market,” said Meng Wei, a spokeswoman for the National Development and Reform Commission, China’s state planner.
A lawyer who consults on labor disputes, Guo Xuehai of Beijing Zhonghai Law Firm, said, “there are definitely more employees coming for help than before,” but added this was usually the case at this time of the year.
At Beijing Yixin, Cui said he could only afford to pay his 30-odd employees 70 percent of their salaries as money ran out in November. By December he paid them nothing and this month he cut their insurance and benefit plan, unofficially firing them.
“We worked 9 am to 9 p.m. plus Saturdays with no overtime pay and now no pay at all,” said a 3D designer surnamed Li, who helped build Farm Take Home.
Employees looking for new jobs have found that companies are not hiring at the moment.
“Hopefully it will be better after Chinese New Year,” Li said.


Apple’s Cook to China: keep opening for sake of global economy

Updated 23 March 2019
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Apple’s Cook to China: keep opening for sake of global economy

  • Cook’s comments come as Apple weathers sinking sales in China
  • Despite official pledges and repeated assurances that China would continue to open its markets

BEIJING: Apple chief executive Tim Cook nudged China on Saturday to open up and said the future would depend on global collaboration, as the United States and China remained locked in a bitter trade dispute.
“We encourage China to continue to open up, we see that as essential, not only for China to reach its full potential, but for the global economy to thrive,” Cook said at a China Development Forum in Beijing.
Despite official pledges and repeated assurances that China would continue to open its markets, some analysts worry that its reform project has slowed or even stalled under President Xi Jinping, who has sought greater control over the economy and a bigger role for state-owned firms at the expense of the private sector.
Cook’s comments come as Apple weathers sinking sales in China because of a contracting smartphone market, increasing pressure from Chinese rivals, and slowing upgrade cycles. The company reported a revenue drop of 26 percent in the greater China region during the quarter ending in December.
Before those results came out, in a January letter to investors, Cook blamed the company’s poor China performance on trade tension between the United States and China, suggesting that pressure on the economy was hurting sales in China.