3rd November 2008
I am now sitting at Hong Kong International Airport, waiting for the ferry to take me to Shenzhen and I thought it is good time to share some learning..... Learning Experience China 4 ... about the financial crisis and its effect on China
Sitting at the airport, I realize the volume of people that goes through this airport.... It is mind bogging. Just looking at the chairs and the queue.
I am on his trip as a result of an acquisition in south china.... the factory to the world. I have a client in China wanting to sell his business and raise some fund for his other business. Anyone interested in buying a fastener business:-)
In the last few months, I have several calls from some of my clients to look for investors for their business. To come and see them and see how I can help them. These are the people that employed ten of thousands of people, manufacturing from electronic, to household goods and garment for the export market. I am talking about the small business but the medium size business. Some of them have been around for over ten years. In the last one years, bankruptcy are in their thousand and retrenchment are in tens of thousand. It is bad.
There is three reasons why this is happening
1. The rising cost of business
In the last three years of traveling to South China (my specialize area of consultancy), the cost of labor has been increasing and also government enforcement of health insurance and other taxes have make the "cheap" place for production extremely expensive.Labor cost up by 30% to 50% in the last years. I remember Guangzhou has the highest GDP in the whole of China a few years ago and now......
2. The falling demand for goods
There is a steady drop in global consumer demand. This was evidence from the recent exhibition and expo which I attended, there is less European (the main market for China) attending these exhibitions. Surprising more Indian and African...More enquiries than orders. I notice the changing attitude of the exhibitors as well, there are more keen to talk to any one who come to their store, at one time I remember they were very selective.
3. The current financial crisis
This crisis affected many factory owners who have started their business with bank loans and financing for their supplies etc. The crunch has affected borrowing facilities and hence cash flow is an issue for these owners. It is very bad at the moment
We will talk about winding down a business.....
to be continued......