The new decade has opened with many analysts focusing on the significance of the manufacturing rebound in China. Indeed, Asia in general is beginning to post results that indicate a more robust foundation upon which the world economy can use to climb out of the doldrums.
For CE retailers and manufacturers, this poses a long-term impact on their supply chain and profitability. Although current economic warnings emanating from the UK and Germany are cause for deep concern, the Chinese economic stimulus and tax incentive packages seem to be the necessary drivers to move the world economy forward.
Many analysts, though, are cautious on that point and divided on its meaning. The caution stems from memories of Japan's economic miracle in the late 1970s and early 1980s, and the fact that it is mired in economic stagnation today. Based on China's newly revised 2008 GDP calculations – factoring in a realistic growth rate of 8 percent – it appears that China could soon overtake Japan as the world's second largest exporter. Furthermore, Beijing forecasted last December that it is poised to overtake Germany (the world's largest exporter) to claim that spot as well. Strong initiatives to decrease energy consumption by 20 percent this year and incentives to increase factory efficiencies could help to increase its export levels at substantially lower costs.
While a one- or two-year encapsulation of numbers can predict long-term trends, analysts are quick to point out that that Germany's and Japan's numbers have been hobbled by turmoil in the banking sector – which China has, for the most part, avoided – and overall weakened demand throughout the global economy. This scenario, some analysts believe, has made the strength of China's economic momentum appear more impressive than it really is. But, on the other side of the coin, there are analysts who note that a projected annual growth rate for China at 8.8 percent is nearly 4 times faster than U.S. economic growth and far above the UN projected worldwide average of 2.4 percent.
Although the initial picture emerging from the Chinese indicates that the outlook for China to lead a global recovery is good, there are key issues that have emerged among trading partners that could impact a broader recovery. Primary concerns include the Yuan's value, trade protectionism, slumping demand worldwide and the U.S. savings rates.
The darker side of global trade, particularly for the CE industry, includes shifting consumer attitudes and their tolerance for debt. It's important to note that consumer-spending adjustments create disruptive ripples throughout the world economy. While China has enjoyed a domestic boom, based on such items as household appliances, many consumers in countries such as the U.S. have become more cautious and conservative in their buying habits.
What is of paramount interest now is the American consumer's shift to higher savings rates. There has been exhaustive study of U.S. consumption patterns, particularly in the CE sector, and many of the results have focused on product price and quality, access to credit, and consumer confidence. Adding the U.S. saving rates and impact on the China-U.S. to that equation yields interesting new data.
China's export sector is impacted as U.S. households save more than they spend. Nowhere is this felt more than in the CE categories. Higher U.S. consumer savings and lower demand for products could spell bad news for China. Despite China's enviable growth, the country is headed for its first annual decline in exports since 1978. The grand economic picture also indicates that as demand diminished for Chinese products intensifies, the country earns fewer dollars with which to by U.S. government securities.
China does have an incredible advantage in international exchange markets and their currency, many believe, is held below any real exchange rate. In other words, China is able to boost its exports through an artificially low exchange rate that favors the Yuan. The U.S., while publicly calling for a repegging of the currency, has little leverage due to the bonds and securities China buys. Leverage cuts both ways, as both nations have found out.
So where does this leave the CE industry? The arcane details still point to a deep interdependence between countries that have a vital national interest in trade and consumer consumption. The most recent numbers in the U.S. also indicate that consumers still maintain a healthy appetite for CE products, and many price points are holding firm with a resilience that has surprised analysts. The overriding fear at the start of the economic downturn was that price points would erode to the point of non-sustainability, but that has not been the case. This doesn't mean that the global economy has reached a safe have. It does mean that retailers must keep a close watch on international trade and position themselves accordingly.
