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D a v i D B u t o w / R e D u x

Tan and others like him spell trouble

or the global economy. China has

long been a big contributor to world-

wide expansion, but this has been

largely ueled by actories that churn

out ever more goods to ll U.S. malls.

Beijing understands that it needs to

boost consumption at home to achieve

healthier growth, but

Chinese consumers

have been reluctant

to spend without an

adequate saety net.

Economists had hoped

Chinas burgeoning

middle class might

pick up where Ameri-

can shoppers have le o. But even

big consumers like Tan have tightened

purse strings as stocks plunge, real

estate values all, and thousands o ac-

tories close their doors. Only when the

Chinese are sure their government will

take better care o their social welare

will they decide they

are saving too much

money, says Andy

Xie, an independent

economist. Growing

consumption is a gradu-

al process. It can not

immediately become aneconomic engine.

This is bad news

or multinationals

that were counting on

China to make up or

agging sales else-

where. Foreign-owned

restaurants, retailers,

and manuacturers are

watching Chinese sales

slow. Cell phone sales,

or instance, have grown

by 30% per year overthe past hal decade, but

over the next ve years

theyll be lucky to hit a 9% rate, says re-

searcher BDA China. No one involved

in China today is unaected, says Joerg

Wuttke, president o the European

Union Chamber o Commerce in China.

Theyre all in the doghouse now.

The gloom was apparent at the an-

nual Guangzhou Auto Show. While

there was no shortage o sleek concept

cars and miniskirt-clad models at the

annual event, which opened on Nov.

18, auto executives painted a glum

picture o their prospects and called

or a handout rom Beijing. Chinas car

market has grown by more than 20%

annually since 2001, but next year it

could contract by 2%, researcher J.D.

Power & Associates predicts. Buick

sales will likely tumble by 17% this year

and 21% in 2009, while overall sales o

General Motors vehicles will be o by

1% in 2009, aer rising by just 3% this

year. Nissan Motor had expected China

to pick up the slack rom the U.S., but

that now looks unlikely. This year is

O.K., but I have some concerns about

By Dexter Rberts nd Ci-Cu Tscn

For years, Jack Tan was a

Western marketers dream.

The 24-year-old bank man-

ager rom the southern Chinese city o

Shenzhen regularly spent a big chunk

o his $1,200 monthly salary at Pizza

Hut, McDonalds, and TGI Fridays.

He wears Nikes, carries a new Nokia

phone, and listens to Linkin Park and

Green Day on his iPod nano. Time or a

pick-me-up? A latte at Starbucks.

But lately, Tan has changed his

ways. Much o his $30,000 in sav-

ings has evaporated with the Chinese

stock market, down more than 60%

this year. When he eats out, Tan now

requents local Chinese noodle and

dumpling shops, and his plans to buy

a car have been put on hold. Instead he

expects to salt away hal o his salary

next year. Everyone is saving so we

can make it through the hard times to

come, he says.

062 China

BUSINESSWEEK I DECE MB ER 8, 2008

TeGretWlletSpsSutInstead of sustaining global growthas the world

hopedChinese consumers are hunkering down

Nnin Rd in

Sni s

seen bustin

dys nd fr

busier nits

Wit n sci sfety net t rvide fr

tem, te Cinese wi cntinue t insist

n svin mney durin rd times

8/8/2019 The Great Wallet Snaps Shut

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next year, says Yasuaki Hashimoto,

president o Nissans aliate in China.

As multinationals suer, their sup-

pliers do, too, completing a vicious cy-

cle: Ailing actories re more workers,

who then stop spending. The impact o

the crisis on Chinese exporters in the

Pearl River Delta north o Hong Konghas gotten so severe that Premier Wen

Jiabao made a special tour o the region.

On Nov. 14 he stopped in at Li Kai Shoes

Manuacturing, a Dongguan company

that makes New Balance shoes. Orders

at the plant have allen rom 9.3 million

in 2007 to 7 million this year. Since

January, Li Kai has laid o 22% o its

9,000 workers. Consumers are unsure

about the uture so theyre cutting

down on expenses, says Stanley Chen,

China boss or New Balance.

MEgapRojECTS WoNT hElp

Longer-term, its not unreason-

able to expect Chinas middle class to

become a new engine o global expan-

sion. Trouble is, it may be years beore

they open their wallets enough to make

a dierence. Despite eorts to get citi-

zens to spend more, consumption as a

percentage o gross domestic product

has shrunk in recent years, to 37.1%

in 2007, rom 46.8% a decade earlier.

In the U.S., by contrast, consump-

tion makes up 70% o GDP. And while

a $586 billion stimulus plan includes

some measures aimed at boosting

consumption, the bulk o the money

will go to megaprojects such as new

highways, railroads, and airports.

The stimulus also aims to boost real

estate, but housing prices are at or

down. In Shenzhen, or instance, they

have allen by 15% this yearleaving

the likes o Xu Shungang in the lurch.

Construction has ground to a halt,

so the 38-year-old laborer sits with

other migrants at the Shenzhen railway

station. Aer just 20 days in the city,

Xu is cutting short his planned three-

month stay and heading back to Henan

province. Though he is looking orward

to Chinese New Year at home, he wont

be bringing many presents. Its better

to save or the uture, Xu says, eyeing

a plastic dufe bag stued with his

belongings. There are no more jobs

now, he says. Well come back when

the economy is stronger. ^

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DECE MB ER 8, 2008 I BUSINESSWEEK