China 2008: What If, What Else, and What Are The Odds

Saturday, December 8, 2007 8:28
Posted in category The Big Picture

During 2007, China changed a lot. There were new regulations, a strengthening RMB, consumers starting voicing their opinion, the Hu Wen Administration implemented numerous new LARGE regulations that affected everyone doing business in China… and I am pulling them together to see what is next.

Spawned from my curiosity and inability to stop thinking in worst case scenarios, I will be pulling a group of Old China Hands together this week to discuss the topic China 2008: What If, What Else, and What Are The Odds.

While closed to the general public, and media, I thought that I would throw out some of the questions we will be discussing next week to see what readers thought on some of the possibilities of what could happen in China next year.

  1. What regulatory changes were passed in 2007 that you feel will have a significant impact on your operations (good & bad).
  2. What macroeconomic/ regulatory events had the most positive impact on your business in 2007?
  3. What macroeconomic/ regulatory events are you hoping will follow in 2008?
  4. What would be the impact if any of the following happened?
    1. Macroeconomic:
      1. RMB reaches 6.25/ USD
      2. Complete VAT rebate removal
      3. inflation reached 10%
      4. Interest rates rose 3%
    1. Operations:
      1. Severe Power shortage or extend outage (think California power crisis)
      2. Labor disputes following Jan 1 labor law
      3. Increased environmental inspections and enforcement
    1. What will have the greatest impact on trade
      1. Continued fall of the USD/ Rise of RMB
      2. Complete Removal of VAT
      3. Policies of foreign government(s)
      4. Product safety
      5. other?

5. What is your work economic nightmare?  What would knock your star out of the sky?

Hopefully, this will be one of the more interesting threads. I know you all have your “expert” opinions, but more than anything, I hope that through this post (and the exercise next week), a process of thinking through the possibilities will allow participants to uncover and evaluate potential shocks to the system… and from there figure out the best protective measures to take.. and perhaps figure out the best offensive measures to take.

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11 Responses to “China 2008: What If, What Else, and What Are The Odds”

  1. Paul Denlinger says:

    December 8th, 2007 at 7:36 pm

    For 5, my answer would be:

    Human-transmitted H5N1 pandemic starting in Jiangsu (there has been one fatality and two cases) and spreading to Shanghai and Zhejiang, then rapidly across China.

  2. The ShangHighRoller says:

    December 9th, 2007 at 10:28 pm

    My answer to number 5 would be any kind of secessionist activity (looking at you, Mr. Chen) on the eve of the Olympics. That could escalate quickly to involve at the very least the US and Japan.

  3. Heywood Whealq says:

    December 10th, 2007 at 7:51 am

    I’m anxious to hear the answers your group comes up with and hope you share them on this forum

  4. Rich says:

    December 10th, 2007 at 8:05 am

    Paul/ Shanghai High Roller,

    thanks for your input. Anything on the other items, or are you all too focused on the scary scenarios?


    Those who give shall receive. I will provide some basic highlights on the forum, but more than that, I am hoping that you the reader as someone exposed to China will also put your ideas down as well. There is not a reader I know of that cannot have an opinion. The questions above may be China specific, but are global in impact.

    Looking forward to others who are willing to tackle the issues head on, however if you prefer to send me your responses in confidence, you can always email me. I will use them in the session (no names) and incorporate them into the feedback as well.


  5. Chris Devonshire-Ellis says:

    December 10th, 2007 at 9:26 pm

    Rich you have my comments already. I’m looking forward to seeing the spread of opinion.

  6. Rich says:

    December 11th, 2007 at 1:41 am

    Chris –

    I do have it and I appreciate the time you took, and your answers were really incitful and I wil bring them into the conversation.

    Will send you some notes that are outside the scope of what I will put on here for you as well.

    so.. for anyone else out there that wants to add in their thoughts on the above issues, there is your carrot!

  7. Terry says:

    December 12th, 2007 at 2:53 am

    RMB at 6.25 will totally kill me as I bill in USD as a rep office. Am already feeling the gradual pain. Having been here during SARS and the Asian financial meltdown, am way to aware of how business can just…. dry up. Thanks for reminding us of macro downsides here.

  8. Chris Devonshire-Ellis says:

    December 12th, 2007 at 5:54 am

    Terry you’re 100% right. I see many, many exposed businesses here. On average, based on the past 20 years I’ve been here, China has a major incident every 5 years that dries up FDI. If you’re dependent on orders from overseas, thats a big hole. The only way to deal with it in services or manufacturing is to get as many retained clients as possible. If you do biz here purely on a project basis that is a huge risk exposure for when, not if, China has another hiccup. It’ll put some of our competitors out of business, which is a good thing, but on the other hand – I’d rather maintain profit levels. Not enough thought goes into the risk aspect concerning the financial structuring integrity for foreign businesses here when it all goes to shit. Too many people think it’s always sunny.

  9. Rich says:

    December 12th, 2007 at 6:13 am


    Thanks for your answer. If the RMB would kill you, what would a change in VAT rebate do? For many that was also a tough one, but if you are already at zero I guess you are ok… unless in Steel, alumnium, or other high energy industry which may see export taxes.


  10. Rich says:

    December 12th, 2007 at 6:20 am


    You make some excellent points, and they were ones we covered tonight. There are a lot of people who are in for the ride on this and one member of the discussion called it picking pennies up off the railroad track.

    Eventually the train will come into the station

    SARS was not an economic phenomenon like 97, and while H5N1 has made a few nervous, the general consensus tonight was that we are more likely to see an economic shock that is based in economics than in something else.

  11. FOARP says:

    December 13th, 2007 at 4:52 am

    One doesn’t need to have graduated from Bishop Wand C. of E. secondary school to know that currency issues are going to be just as important this year as they have been over the last few years. As for FDI ‘drying up’, even SARS didn’t actually do this, though it did cause a slowing down in investment for a few months (check table B1 in this document for a yearly breakdown of FDI inflows: ).

    The new labour laws seem to be pretty fairly balanced between employee/employer rights/responsibilities, I can’t see how they could lead to any great increase in employee disputes. I personally approve of the restrictions placed on non-compete agreements, but some people involved in software-oriented SMEs don’t like them as they require too much from the employer.

    Power shortages will certainly be more of a problem next year, especially in Shenzhen and Shanghai but also across more of China (this year was the first year when Foxconn, for example, has had to cut back on power usuage due to shortages), but it’s hard to see how an extended blackout could come about as the government has a pretty firm hold on power usuage. The post references the shortages in California, but the power situation in cities like Shenzhen during the summer months is already much worse than that of California from 2000-2001, it is people’s expectation which is different.

    Of course the ultimate worse-case scenario is that of political unrest, but this is hardly the place to discuss this, nor do I think it is much more likely in the next year than in previous years. Economic shocks seem more likely to come from slow-downs in the American market, but you’d have to ask an economist about that.