So, how's the economy in China doing?

Last week, while negotiating some future opportunities, I had the boss of a potential supplier tell me that the slow down in the US (and the EU) is having no affect on China whatsoever.  He then proceeded to tell me how strong the domestic Chinese economy was and that I if I didn’t believe him, he could show me one million RMB right then and there.  When I mentioned that most of our suppliers are telling us that things are slowing down and that domestic clients are the ones that typically are not paying their bills he told me that because I’m a foreigner he doesn’t believe anything I say about China and that I should pay early to prove to him that I really do have money.  That’s what I get for questioning his proposed payment terms, eh?  (In the end, we got the payment terms we were asking for, by the way.)Now if you’re equally skeptical about the strength of the Chinese economy, you’re not alone.  There are a number of factors that are having serious effects on individual projects right now.  Here are a couple of real price-affecting issues:1.    The VAT refund is down 10%.2.    The cost of raw materials is up.3.    The number of orders from the US and EU is down.4.    The number of orders to China is down due to competition from ASEAN and product recalls.5.    The Chinese domestic economy is not as strong as it was in the past years.6.    The RMB rise (recently slowed) hurt Chinese competitiveness.7.    Labor prices are continuing to rise.8.    Inflation in China is finally slowing down from record highs earlier this year.9.    Electricity and fuel costs are higher (and no longer subsidized as much as before).10.    Export restrictions are tightening.11.    Many areas of China are trying to “upgrade” the quality of exports buy moving up the production ladder from simple assembly to higher technology.  This means provincial governments are giving incentives to tech products first and foremost.12. I've heard that spending by the Chinese government will slow on social/infrastructure projects now that the 0lympics are over.13. I've also heard that a post-0lympic economic hangover (slower growth) will set in the last quarter of this year too.None of these issues are “new” or unexpected.  But, there is definitely a post-0lympic let down sweeping through Guangdong province if not the whole country.  Of course, the Chinese government says all is well. While it’s been estimated before that Chinese factories can work for profits as low as 1-3% (or even breakeven), these hits directly to their bottom line will make it next to impossible to continue to do business on such small margins.I’ve heard, from other suppliers and business associates, that there are “thousands” of factories in Guangdong province that have closed down in the past 18 months or are closing down now.  We’ve worked with a couple of sub-suppliers that have closed their doors recently.  And we’ve had two suppliers ask us to pay early to allow them to have the cash to finish production too.But before you get ready to jump ship and plan your move elsewhere, remember this, there are pro’s and cons to production no matter where you are located.  One story from Richard Brubraker is here.  For more examples look at the new about ASEAN countries: Thailand is in the middle of political turmoil and is never as fast at turnaround time as China.  Many factories, especially toys, stuffed animals and clothes suppliers are currently overwhelmed with orders that have moved from China in the last year (because of recalls and 0lympic delays).  Cambodia is having record inflations, 22%, and has very little developed infrastructure and no port (but Cambodia’s Ankor Wat is THE most incredible historical site I have EVER seen—and I’ve been to Egypt, Jerusalem, Jordan and seen it all here in China).  Vietnam has only one deep-water port, high inflation and weak infrastructure.Good news is that Thailand’s over all confidence is still high and trade will continue to benefit the country. Here, and here, and here. Vietnam too is improving.  HSBC and Standard Chartered are the first banks to have wholly owned branches in Vietnam—one in Ho Chi Min City and another in Hanoi.  Both will be open within the next 12 months.  No doubt that other banks are lining up to follow their lead.And, just because this got me thinking about this now, here is a point of comparison between Mainland ASEAN (Thailand, Vietnam, Cambodia, Lao; not Burma) countries and Guangdong province/ Hong Kong: Guangdong/Hong Kong has 95 million residents and another 31+million migrant workers for a total of about 126 million.  Mainland ASEAN countries have a combined population of about 140 million.  Guangdong has three of the world’s largest and busiest ports, Yintian, Guangzhou and Hong Kong.  Not to mention three of the busiest airports (Hong Kong, Guangzhou and Shenzhen).  Mainland SEA has two deepwater ports (Hanoi and Bangkok) and one major airport (Bankok).  Guangdong is the world’s 17th largest economic unit.  ASEAN as a whole wouldn’t be as large as Guangdong (without Hong Kong), Taiwan, or South Korea.  While these numbers don’t mean all that much for individual projects, it puts China into perspective.  (Just a little more perspective: California is the world’s 7th largest economic unit and the US economy is still more than 3 times larger than China’s with only 20% of the population).Finally, I was in Hong Kong recently to do some tax and banking work and was asked to do a survey at the newly renovated Mong Kok office of HSBC.  The bank is now open 8AM to 8PM 6 days a week—how’s that for service!?!  Can’t ever complain about longer bankers’ hours.  Compare this with US hours—9-6 (some open as late as 7pm and some with partial services on Saturday AM); and with China hours—8-6 seven days a week; and Thailand hours—9-3, with a long lunch, five days a week (but only if there are no holidays or coups; Thailand has the most holidays of all countries on the planet, probably coups too).  As a side note, the survey I participated in was in Mandarin, furthering my complaints/perception that Hong Kong is quickly turning into a Chinese only business center (Cantonese or Mandarin).  While they offered to do the survey in English, I gave them (two customer service reps) the choice of English or Mandarin—they chose Mandarin.