HONG KONG (MarketWatch) -- The 108-basis-point rate cut by the People's Bank of China last week tells us Beijing is now serious about boosting the economy. And with the one-year lending rate still standing at 5.58%, the good news is that China has scope for further easing. But at the same time, the glass-half-empty interpretation is that China now recognizes its economy is in freefall as the global slowdown triggers a domino-like collapse in private business. Last week, China's top planner Zhang Ping said the government has been forced to act to stave off massive unemployment and social unrest. The data coming out for November are expected to show an accelerated slowdown. One economist predicted that 1 in 5 migrant workers could lose their jobs. As China's quasi-market economy faces potentially the worst decline in two decades, the capacity of business to cope with a cyclical downturn is being brought sharply into focus. Going missing increasingly appears the favorite exit strategy for private business chiefs after a wave of closures. The "Vanishing Business Owners" phenomenon made headlines last week when Hong Kong-listed Gome Electrical Appliances (HK:493: news, chart, profile) was unable to confirm the whereabouts of its founder and Chairman Wong Kwong-yu for nine days. Shareholders finally learned Friday that the billionaire tycoon had not fled China but has been answering questions with the Beijing police. Leaving aside the issue of whether Wong has something to answer for, the case highlights the uncertainty facing business owners (and investors) when things go wrong in China. Across China, thousands of business owners have literally disappeared overnight, leaving behind ghost-like factories and legions of unemployed migrant workers. This chaotic unraveling looks to be more than just a reaction to a down cycle. One entrepreneur explained to me last week that many normally law-abiding business owners conclude their only option is to take flight rather than take their chances with China's opaque and uncertain legal system and the potentially large costs involved contemplating bankruptcy. In Guangdong this year, the introduction of new rules on employment protection, medical benefits and wage rates have certainly made any restructuring more costly. Hong Kong factory owners will feel the brunt as the biggest investors in Guangdong.(sound familar?) Additional problems according to anecdotal reports are that authorities often respond to signs a business is in trouble with an aggressive tax collection policy, adding further strain to businesses. Last week it was announced the two provinces of Shandong and Hubei banned companies from firing staff without government permission. In theory, that would make sacking staff a criminal offense. There has always been this conflict with the risk-taking nature of capitalism and the command-and-control tendencies of the mainland Chinese government. Addressing some of the concerns that are forcing business owners to up stakes looks to be a growing challenge for policymakers. The government in Beijing will also be aware that much of its legitimacy rests on a promise to deliver economic growth and jobs. Various China skeptics have long argued that China lacks the institutions to make its market economy and self-styled brand of capitalism work successfully in the long term. Will Hutton, for instance, in his 'Writing on the Wall" novel says that despite China's impressive economic achievements, its Achilles heel is the lack of institutions necessary for sustainable progress, such as rule of law, an independent judiciary and an idea that government needs to be accountable. While these weaknesses can be papered over in good times, they are more likely to be exposed at a time of crisis, when the fault lines appear. The naturally cyclical nature of capitalism needs a reliable framework that that keeps uncertainty and risk to a minimum, in order to work through the bust as well as the boom. While the fiscal and monetary stimuli introduced by Beijing will undoubtedly help to keep the economy moving, something more will be needed to deal with these structural frailties. Otherwise, the downturn risks being more painful than many currently expect, as more business owners decide to take their money and run.
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08:22 AM
PFF
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blackrams Member
Posts: 33189 From: Covington, TN, USA Registered: Feb 2003
Originally posted by maryjane: The "Vanishing Business Owners" phenomenon made headlines last week when Hong Kong-listed Gome Electrical Appliances (HK:493: news, chart, profile) was unable to confirm the whereabouts of its founder and Chairman Wong Kwong-yu for nine days. Shareholders finally learned Friday that the billionaire tycoon had not fled China but has been answering questions with the Beijing police.
What? Didn't even get to make one phone call?
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Originally posted by maryjane: Across China, thousands of business owners have literally disappeared overnight, leaving behind ghost-like factories and legions of unemployed migrant workers. This chaotic unraveling looks to be more than just a reaction to a down cycle. One entrepreneur explained to me last week that many normally law-abiding business owners conclude their only option is to take flight rather than take their chances with China's opaque and uncertain legal system and the potentially large costs involved contemplating bankruptcy.
Now why would anyone with the ability to disappear stick around?
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Originally posted by maryjane: Additional problems according to anecdotal reports are that authorities often respond to signs a business is in trouble with an aggressive tax collection policy, adding further strain to businesses. Last week it was announced the two provinces of Shandong and Hubei banned companies from firing staff without government permission. In theory, that would make sacking staff a criminal offense. There has always been this conflict with the risk-taking nature of capitalism and the command-and-control tendencies of the mainland Chinese government. Addressing some of the concerns that are forcing business owners to up stakes looks to be a growing challenge for policymakers. The government in Beijing will also be aware that much of its legitimacy rests on a promise to deliver economic growth and jobs.
Hmm I sure hope President Elect Obama isn't watching this "cure".
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Originally posted by maryjane: Various China skeptics have long argued that China lacks the institutions to make its market economy and self-styled brand of capitalism work successfully in the long term. Will Hutton, for instance, in his 'Writing on the Wall" novel says that despite China's impressive economic achievements, its Achilles heel is the lack of institutions necessary for sustainable progress, such as rule of law, an independent judiciary and an idea that government needs to be accountable. While these weaknesses can be papered over in good times, they are more likely to be exposed at a time of crisis, when the fault lines appear.
Apparently, some economic independence is a good thing. We might want to re-look that angle.
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Originally posted by maryjane:
The naturally cyclical nature of capitalism needs a reliable framework that that keeps uncertainty and risk to a minimum, in order to work through the bust as well as the boom. While the fiscal and monetary stimuli introduced by Beijing will undoubtedly help to keep the economy moving, something more will be needed to deal with these structural frailties. Otherwise, the downturn risks being more painful than many currently expect, as more business owners decide to take their money and run.
Probably the most factual statement in the whole article. Capitalism is cyclical, if you over tax the rich or employer, they'll take their money/business and run or move on. Government should regulate, not over regulate, where that line should be is always debatable.
Ron
[This message has been edited by blackrams (edited 12-01-2008).]
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08:50 AM
Old Lar Member
Posts: 13798 From: Palm Bay, Florida Registered: Nov 1999
When I went to China in 98, 99 and 00, I learned that there is no "wefare system" in place in China. The businesses more or less hire two people for every job. (lots of bodies in the workforce). The employers pay for the "welfare" of the workers. It is no wonder the government doesn't want any job terminations as there is nothing in place to care for the jobless by the government. The workforce and their job description was very narrow. There was no expectations of mutitasking or cross training. Each worker would be assigned one job and would become the "expert" on that job.
I was training staff in an analytical laboratory. Many different testing criteria, and I had only one person to train in each job. No thought of backup staffing. I suggested that there was a need for backups and that samples would be coming in for some tests at any time during a 24 hour operation. I felt like I was trying to train a union shop.. very strict "shop rules". The laboratory had the obligatory communist overseer to insure that order was mantained. He had no real job (ie union shop floor leader), but was on the payroll.
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09:31 AM
Pyrthian Member
Posts: 29569 From: Detroit, MI Registered: Jul 2002
businesses exist for the good of the people. it is a BIG mistake to allow businesses to exist for the good of themselves. and - even a bigger mistake to allow business' to get to the size where they can hold the nation hostage like the recent banks & the auto companies.