Beijing 2008

THE UK will have a fond place in its heart for Beijing 2008. From which team GB brought home its biggest medal haul in a century. But in what state has the estimated $30-40 billion spend left its host nation? Some looked to previous Games hosts such as South Korea, which was growing at a similar rate to China until the Olympics, then slowed to under 7 percent in 1989.A ‘return to normal’ would seem natural after such a giddy spending. The Birds Nest alone – Beijings 91,000-seater national stadium, built by the UK’s Arup – cost RMB3.6 billion (around $423 million), and the city is believed to have spent as much as $26 billion on infrastructure.

Wang Yiming, quoted in China’s Xinhua at a press conference, put the effect of the Olympics into perspective: “Although the Olympic economy has contributed much to Beijing’s economic development, the city’s economy only accounted for 3.6 per cent of the whole country”Beijing’s population, added Yiming, a member of a Development and Reform Commission think-tank, is around 1 per cent of China’s overall population. That estimated infrastructure spend equates to no more than 1.06 per cent of China’s overall fixed asset investment since 2004. “The Olympics will not become a watershed of China’s economic development,” he stated.

Continued Growth

Nevertheless, there have been inklings nationwide of a flat trend in the short term – China’s growth rate dipped from 11.9 per cent to 10.1 per cent. On the other hand, some figures speak of continued and robust growth: retail sales in July rose 23.3 per cent to RMB862.9 billion ($126 billion), growing faster than at any time in the past nine years.

Infrastructure investment continues at its typical non-stop pace. By the end of July, there were 238,455 construction projects, each worth over RMB500,000 ($73,000), underway. China’s National Bureau of Statistics reported a slow down in textile production and a weaker manufacturing output, although factory shutdowns to clear the air pre-Olympics must figure. The China Association of Automobile Manufacturers said passenger vehicle sales showed the lowest growth for two years in July, with domestically produced car sales waning since March. But that number is still over 488,000 cars- and the annual sales tally is up on last, with China now the third-largest buyer of Rolls Royce cars globally.

During the games, tourists were delighted to spot iconic London cabs in Beijing, made by Shanghai LTI Automobile Components, a joint venture between cab-maker Manganese Bronze Holdings and Geely. Overall, the current steadiness in China’s economic growth is natural, particularly on the back of decreasing demand from the US and high oil prices. The credit crunch, too, must be affecting China, observes Steven Weatherseed, partner and head of the China group at Grant Thornton UK.

“Theres a natural slowing down in the recent statistics, but it’s a case of slowing from a very fast pace of growth to a fast pace. Theres no diminishing of interest, though” he says. What happens in the rest of the world is certainly having an impact on China’s fortunes. If the US, the UK and Europe cannot absorb Chinas continued high output, it could be stuck with rising inventories that will lead to production cuts and, ultimately, slowed growth, observes Michael Pettis, professor of finance at the Guanghua School of Management at Peking University in Beijing. He foresees slowing growth and an excess reserve accumulation putting pressure on Chinese businesses to expand abroad. This could be excellent for foreign direct investment prospects. Indeed, the UK’s own economic slowdown could create market opportunities for expansive Chinese businesses. A positive legacy of the Games has been the experience it affirded of working alongside global businesses. “Chinese companies have gained confidence to venture out into the international arena”, believes Peter Chan, China’s chief executive of design and engineering consultancy Scott Wilson Group, which advises a range of local and International businesses throughout China. Like many operating in China, Chan believes, a global decline in demand will be leavened By internal demand, as well as the Governments tight control of fiscal policy: “Theres always a danger of Chinas economy overheating and much of the country’s economy is artificially cooled down, the government would relax some of the restrictions, thus allowing it to heat up again.”

President Hu Jintao has already made it clear that he wants to maintain steady but fast growth, which will be fuelled by internal infrastructure investment. That will overall growth levels, believes Guy Dru Drury of the CBI China. “Any slowdown will have a little knock-on-effect on UK investment interests, as UK expertise inn China tends to be at the high-end – financial services, engineering, design, FMGC sectors and aiming at the domestic market,” he says.There may, however, be some geographical shifts on the cards for companies agile enough to move on quickly to secure incentives. “Development outside of Chinas first-tier mainland cities has been taking place for more than 10 years,” he adds. “Unilever relocated its manufacturing base from Shanghai to Hefei (the provincial capital of Anhui) in 2004 and has saved more than 40 per cent in costs as a result.”

Environmental Needs

Infrastructure is developing fast. “I drove 2,500km across Inner Mongolia last autumn – on tarmac roads,” says Drury. This is particularly true on the east coast, but central and south-west China still need to tackle transportation bottlenecks.

Pettis agrees: “A lot more needs to be done, especially on the water and environmental fronts.” Fast growth has come at an environmental cost, with power outages in Shandong and Shanxi a problem as coal mines fail to keep pace with the number of power plants popping up to service local factories. This offers opportunities for sustainable and clean-tech investors to make their mark as China seeks to improve its poor environmental record. Areas that are particularly ripe for development exist across private enterprise, rural area investment and R&D for new energy sources. Oxford Industries (OI), a business that now employs 72 people in manufacturing and big incentives to move further west Chengdu. OI has a sales office there, but, according to its chief executive Jonathan Flint: “Its all about selling, so we need to be further east, where high-tech industries are concentrated.”“The size of China is such that the choice of region is critical,” maintains Chan of Scott Wilson, which derives less than 20 per cent of its workstream from Beijing and Shanghai. Earlier this year, it created a joint venture with Chongqing Communications Planning Survey & Design Institute to take advantage of a range of transport, property and environmental opportunities in the South-Western region.Hotspots tend to be sector-specific: the high-growth infrastructure industries gravitate to the west and south-west, while commercial property growth will be focused on the eastern seaboard, with residential growth slowing. Chinas growth may be very slightly down but it’s a long way from out. With everything to play for, the future offers exciting prospects British businesses must seize.