China's stimulus package: Will it work, and what's next?

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(chinadaily.com.cn)
Updated: 2008-11-26 10:28

Crisis to opportunity

While noting that China's slowing real estate sector is a cause of concern, Rein points to the underlying strength of China's economy, describing himself as a cautious optimist.

Inflation, he points out, dropped to 4 percent in October, on the back of a dramatic fall in food inflation. At the same time, investment is playing a more pronounced role, while the export sector's role is shrinking.

Indeed, some experts and business practitioners sense opportunity amid the crisis. The current export slowdown provides an opportunity for China to reconfigure its export sector, getting rid of high-polluting, low-value-added businesses, leaving the economy stronger for it, suggests Joyce Qian, a Wharton alumna who is based in Shanghai.

Some well-positioned companies see this as an opportunity to catch up, she says. For the majority of the export industry, companies that are in trouble depend on a cheap labor model. This is a time to improve the industry level, she says, to move China to next level.

How can companies capitalize? One way is to take their cash abroad. With global companies' assets depreciating, this is an ideal opportunity for Chinese companies to look at mergers and acquisitions, stock swaps, technology and brand purchases, says Han Jing, Treasury Regional Manager of DuPont China.

For those companies that have relied on low-value manufacturing, have underdeveloped R&D capabilities, and lack well-established brands, this is an opportunity to sharpen their long-term competitive edge and move to a more sustainable economic model, she says.

"In this financial crisis, cash is king, and China has plenty of it," says Wharton's Zhang. "China can deploy the cash strategically to acquire resources, technologies and companies that are otherwise off limits for China."

By providing a low-cost environment for many of China's enterprises to grow, lower commodity and energy prices should also help Chinese companies, he adds.

"Those companies that act now and are proactive will not only survive but will emerge stronger and more profitable from this financial tsunami and economic earthquake," notes Wharton's Amit.

Firms need to be "proactive... realizing that we are in a new economic order." This will require "rapid adaptation to the new realities, adjusting the scale and scope of operations, redoing business plans, business models and budgets to maintain profitability in the new economic environment."

Zhang also sees opportunities at the government level. "As China has adequate foreign currency reserves and the revenue growth for all levels of government has been very strong, the crisis can be turned into an opportunity in a number of ways.

"China has already gained quite a bit of credibility in the world in managing its financial resources cautiously and independently." The country has the potential to play an important role in shaping the future of global financial systems by participating in their design, he notes.

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