One of the ever-present views of the economic climate is the slowing of China’s economy and the impact it’s having on the world. Celanese has major investments in Asia and China which represents about 20% of our annual revenues. So it has been a priority of mine to get a firsthand look at what’s happening there, to hear from customers, suppliers and to spend time with our employees.
Having just returned from four weeks in Asia I want to share some highlights of this trip. But before I do, let’s start with some statistics.
China today has a total GDP of roughly $7.5 trillion. Its workforce of roughly 700 to 800 million people and is twice the size of the US’s workforce. It takes over five hours to fly across the country. There are 23 provinces, 4 municipalities and 5 autonomous regions each with a degree of independence. Benefiting from strategic planning, an engaged and energetic workforce, China has grown its GDP by 15% on average since 2007. Each year about 12 million people come into the work force. So a GDP growth rate of 7% per year is needed to keep unemployment intact. While China’s approach to controlled growth has been very successful, its infrastructure is under stress. Long on coal and short on other forms of natural resources has led to severe air and water pollution and as well as dependency on oil imports. The population sits on a low level of arable land (15% of its total land area) and farming is for the most part still the livelihood of 700 million people.
Since last year, China’s economy has slowed dramatically. Exports to the US and more importantly Europe have fallen. Real estate speculation has driven the cost of houses to unattainable levels. Europe’s slowdown has also reduced foreign direct investments in this country. As China slowed we’ve seen the same trend in our businesses. So what’s going on? Will this economic situation worsen, or will things get better? I set out to find out the old fashioned way: ask.
Over 4 weeks in June and July I did just that and in the process learned a lot about the Chinese government, political challenges (yes, they have them too) and the general state of the economy. I met politicians, ministers, mayors, senior business executives, JV partners, customers and suppliers and listened to their perspective on the economy. And most importantly I sat down with the Celanese team to hear from them. To give you a peek at what that means over these four weeks. I . . .
- Traveled roughly 20,000 miles which meant 12 flights, three high speed train rides, 20 taxis and two rickshaws.
- Covered six provinces, 20% of the customer network, met with one executive vice premier, two ministers, three JV partners, two mayors, and rubbed shoulders with more than ten US and Chinese multinational CEO’s, as well as meeting with the US Embassy staff and 6 bankers.
- Visited two Celanese expansion projects and three plant expansion sites and toured the Celanese ethanol and Nantong Acetate expansions.
- Had more than two dozen internal meetings to discuss business opportunities. Interacted with major customers and suppliers in Japan and across China.
- Had dinner with a Tibetan family, sipped Yak Butter Tea (you don’t want to try it).
- Most importantly visited with our employees in Tokyo, Nanjing, Nantong, Shanghai and Beijing.
What I’ve Learned
I have been to China many times in the last decade, and I learned more about the China’s political system, economic challenges and opportunities in this trip than in all the others combined.
The Chinese government has a major reorganization every ten years. Changing leaders for the Politburo, major ministries and even the Premier. It’s a very big deal. What’s clear to me through the leadership change, the government is totally focused on continued economic growth and addressing the social needs of the citizens of China.
Meeting with key ministers and the leaders of Chinese banks, they all presented a litany of efforts to continue the transition from an export-oriented economy to a higher-end consumer focused society. The Chinese government is sitting on about 3 trillion dollars of cash. That is roughly equal to 50% of their GDP. It was pretty clear to me they intend to use that cash over the next five to ten years to help maintain growth in the 7-8% range, and in the meanwhile address environmental and social challenges which are necessary steps in the government’s transition. Maintaining annual growth at the 7-8% range China will exceed US GDP by about year 2025. I expect that will happen.
So what does this mean for Celanese:
- After the political transition, additional efforts will be taken to push growth to 8% or perhaps higher in 2013.
- China’s migration to a high-end domestic consumer economy creates opportunities for our materials and emulsions business.
- China’s push for clean air and water sets the table for success with ethanol.
- Lastly, to satisfy the local demands companies will need to have the capability to provide rapid service and support in country which means our service capability will need to continue to grow.
The Chinese economy has certainly slowed and it’s doubtful we’ll see the kind of growth going forward that we’ve seen in the past, however, the growth will be better than it is now, likely above $500 billion of GDP. At that level, the Chinese market will expand at almost twice the U.S. That’s pretty good.
I’d like to thank everyone I met during my visit. Your time and knowledge strengthened my belief that China will become an even bigger element in our company and the Celanese team is well positioned to support this growth throughout the region.