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

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.


Powell: No clear hint on rates but says Fed will aid economy

Updated 23 August 2019

Powell: No clear hint on rates but says Fed will aid economy

  • The outlook for the US economy, Powell said, remains favorable but continues to face risks
  • Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter

WASHINGTON: Federal Reserve Chairman Jerome Powell sent no clear signal Friday that the Fed will further cut interest rates this year but said it would “act as appropriate” to sustain the expansion — phrasing that analysts see as suggesting rate cuts.
Powell said President Donald Trump’s trade wars have complicated the Fed’s ability to set interest rates and have contributed to a global economic slowdown.
Speaking to a gathering of central bankers in Jackson Hole, Wyoming, Powell didn’t give financial markets explicit guidance on whether or how many rate cuts might be coming the rest of the year. The Fed cut rates last month for the first time in a decade, and financial markets have baked in the likelihood of more rate cuts this year.
The outlook for the US economy, Powell said, remains favorable but continues to face risks. He pointed to increasing evidence of a global economic slowdown and suggested that uncertainty from Trump’s trade wars has contributed to it.
Reacting to the speech Friday, Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter:
“As usual, the Fed did NOTHING!” Trump tweeted. “It is incredible that they can ‘speak’without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the US will do great.”
Trump added:
“My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?“
Powell’s speech comes against the backdrop of a vulnerable economy, with the financial world seeking clarity on whether last month’s rate decision likely marked the start of a period of easier credit.
The confusion only heightened in the days leading to the Jackson Hole conference, at which Powell gave the keynote address. Minutes of the Fed’s July meeting released Wednesday showed that although officials voted 8-2 to cut their benchmark rate by a quarter-point, there was a wider divergence of opinion on the committee than the two dissenting votes against the rate cut had indicated.
The minutes showed that two Fed officials favored a more aggressive half-point rate cut, while some others adopted the polar opposite view: They felt the Fed shouldn’t cut rates at all.
The minutes depicted the rate cut as a “mid-cycle adjustment,” the phrase Powell had used at his news conference after the rate cut. That wording upset traders who interpreted the remark as suggesting that the Fed might not be preparing for a series of rate cuts to support an economy that’s struggling with a global slowdown and escalating uncertainty from President Donald Trump’s trade war with China.
There was even a difference of opinion among the Fed members who favored a rate cut, the minutes showed, with some concerned most about subpar inflation and others worried more about the threats to economic growth.
Comments Thursday from Fed officials gathering in Jackson Hole reflected the committee’s sharp divisions, including some reluctance to cut rates at least until the economic picture changes.
“I think we should stay here for a while and see how things play out,” said Patrick Harker, the president of the Fed’s Philadelphia regional bank.
Esther George, president of the Fed’s Kansas City regional bank and one of the dissenting votes in July, said, “While I see downside risk, I wasn’t ready to act on that relative to the performance of the economy.”
George said she saw some areas of strength, including very low unemployment and inflation now closer to the Fed’s target level. She said her decision on a possible future rate cut would depend on forthcoming data releases.
Robert Kaplan, president of the Fed’s Dallas branch indicated that he might be prepared to support further rate cuts.
If “we are seeing some weakness in manufacturing and global growth, then it may be good to take some action,” Kaplan said.
George was interviewed on Fox Business Network; Harker and Kaplan spoke on CNBC.
The CME Group, which tracks investor bets on central bank policy, is projecting the likelihood that the Fed will cut rates at least twice more before year’s end.
Adding to the pressures on the Fed, Trump has kept up his attacks on the central bank and on Powell personally, arguing that Fed officials have kept rates too high and should be cutting them aggressively.
Trump has argued that a full percentage-point rate reduction in coming months would be appropriate — a suggestion that most economists consider extravagantly excessive as well as an improper intrusion on the Fed’s political independence.
The president contends that lower rates in other countries have caused the dollar to rise in value and thereby hurt US export sales.
“Our Federal Reserve does not allow us to do what we must do,” Trump tweeted Thursday. “They put us at a disadvantage against our competition.”
Earlier in the week, he had told reporters, “If the Fed would do its job, you would see a burst of growth like you have never seen before.”
Powell has insisted that the White House criticism has had no effect on the Fed’s deliberations over interest rate policy.