What Chinese Executives Think of the “Economic Meltdown”

Speaking

The headlines about China’s economy over the last few weeks have fluctuated from one extreme to the other. Depending on your favorite news site, you could be reading an article titled, “China is a Mess,” “What if the China Panic is all Wrong?” or “3 Reasons You Shouldn’t Worry About China’s Economic Slowdown Just Yet.”

While there has been some very solid analysis written about China’s economy over the last few weeks, there has also been a lot of sensationalist noise in the Western media. I have always found that the best way to cut through the noise is to speak to individuals on the ground.

I was fortunate enough to spend the better part of the last month in China, traveling across four provinces to speak to Chinese and Western executives, government officials and long-time China watchers. I wrote about my first two weeks in this blog post where I share insights from meetings with executives at Chinese companies including Baidu, Xiaomi and Wanxiang.

My more recent trip came ahead of last week’s military parade in Beijing. It was an unusual experience, as the two most common complaints about living in Beijing – the pollution and traffic – were nowhere to be seen. By closing more than 10,000 factories and removing half of the city’s cars from the road in advance of the parade, the sky was a picturesque “military parade blue,” and travel times across the city were at a minimum. This made my drive from the central business district on the east side of the city to the Summer Palace in the upper west side much more manageable than it would be under typical driving conditions.

Blue Sky

I was there to speak at a closed door executive forum for over 200 Chinese senior executives. The participants were primarily CEOs and CFOs for medium and large Chinese state-owned and private corporations. All participants were either currently investing overseas or had existing international operations.

I spoke about Chinese companies and the challenges their executives tend to face when expanding and operating in international markets. The day-long event was the highlight of my trip as it provided ample opportunities to formally and informally interact with the Chinese business leaders at the forefront of their firms’ international expansion strategy. Throughout the day, and into the evening, I put my Mandarin skills to good use and had very candid one-on-one conversations with what can be a fairly reserved group.

Despite the news headlines in the West, I did not get a sense that the executives I spoke to were panicking about the state of the Chinese economy. What was intriguing, however, was the impact of current economic conditions on their overseas investment plans. In the past, I had most often heard from Chinese executives that they wanted to expand overseas to acquire advanced capabilities (i.e. technology, talent, management know-how) or get closer to international customers, but this past week I found that many of the executives I spoke to expressed “market diversification,” i.e. beginning to lessen their reliance on the single Chinese marketplace, as a key driver for why they were looking out.

Consistent with the general trend that we have been seeing, executives from private companies were most interested in expanding their international footprint. For example, the CFO from a large private food and beverage company told me about her firm’s current plans to expand into Southeast Asia in order to reach new consumers. She said that the hyper-competitive domestic marketplace and slowing economic performance were two major reasons why they were looking out. On the other hand, the chairman of a major state-owned enterprise in the industrial space talked about his firm’s decision to enter markets in the Middle East as an outlet to compensate for overcapacity back home.

While the executives I spoke with were not panicking about stock market fluctuations or currency devaluation, there was a clear sense that everyone recognized the days of double-digit economic growth are over, and the strategies that led to their firm’s initial success will not be effective in today’s operating environment—and certainly not tomorrow’s.


To see what trends FSG is tracking in China, review our China 2020: Outlook & Scenarios report. Not a client? Visit our website to learn more.

For more insights from Joel Backaler, follow him on Twitter @joelbackaler.

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