Tuesday 28 October 2008
Hope for mainland economy amid crisis
As the global credit crisis lurches towards a global recession, employers and employees are asking what the impact will be for their companies and industries. With Asia facing its stiffest economic test since the financial crisis of the late 1990s, it is right to assume that all employers will be affected by this financial meltdown.
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Hope for mainland economy amid crisis
Carl Redondo
27 October 2008
As the global credit crisis lurches towards a global recession, employers and employees are asking what the impact will be for their companies and industries. With Asia facing its stiffest economic test since the financial crisis of the late 1990s, it is right to assume that all employers will be affected by this financial meltdown.
The economy in Hong Kong is closely tied to the global financial services industry and is now in the eye of the economic storm.
Lehman Brothers Holdings, American International Group and the other global financial institutions have made a huge contribution to the Hong Kong economy in recent years and the outlook for this sector is obviously bleak. Spending and hiring freezes are in place already and it is likely this industry will shed hundreds (if not thousands) of jobs in the coming months.
Hong Kong is also starting to see the “second order” impact of the crisis in the financial sector. The retail industry in particular relies heavily on consumer spending, which is now seeing a steep downturn in view of job losses and deep uncertainty within the all-important financial services market. The past weeks have seen the bankruptcy of at least two relatively high-profile reatilers on high street.
The overlap between the Hong Kong and mainland economies is typically found in the manufacturing belt of the Pearl River Delta. Huge numbers of Hong Kong-owned (or at least Hong Kong-listed) companies have been set up just across the border and employ hundreds of thousands of mainlanders.
As the global recession hits home and exports grind to a halt, many of these firms face extreme bankruptcy pressures. The toy manufacturing sector has already been badly hit and it is forecast that about 50 per cent of the toymakers in Guangdong province will face bankruptcy in the next six to 12 months.
The other industry in sharp focus on the mainland is construction. There has been a construction boom in recent years with many feeling the property market - both residential and commercial - is now suffering from oversupply.
Consolidation was already under way before the credit crisis and this is likely to accelerate in the coming months. Construction is almost certain to slow with many firms being gobbled up by rivals. All of this is likely to lead to job losses and hiring freezes in the short term.
The key question is how these economies and job markets will adapt in the coming months.
In Hong Kong, financial services firms are looking to find and cut “discretionary spending” and this typically affects expatriate employees.
One clear trend that is emerging is that expatriate packages are being cut, frozen or even withdrawn, leading to far fewer foreign employees in this industry over the next year or two.
The reverse can be seen in Hong Kong’s manufacturing industry. Many companies are now looking to shift factories and plants across the border to cut costs, with jobs being lost in Hong Kong and replaced on the mainland.
On the mainland, the issues are of course slightly different. The domestic economy is still expected to grow about 10 per cent in the next 12 months and so we are likely to see companies shift their focus to the domestic rather than foreign markets.
Retail and even financial industries are still expected to grow as they feed on increased demand from the local market.
The other interesting lever that the mainland economy has is the western provinces. There are huge areas of rural China that can provide new sites for cheap industrialisation and labour sources. As companies look to cut costs in the coming months, it is likely that many more will be looking westward.
In summary, the Hong Kong and mainland economies are undoubtedly going to suffer from the impending slowdown and Hong Kong in particular looks exposed to the uncertainty in the financial sector. However, the strength of the mainland economy means that there are still opportunities - we might just have to look a bit harder.
Carl Redondo is Hewitt Associates’ general manager in Hong Kong
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