Now that the Beijing Olympic Games are over what will happen to China’s booming economy? Will it continue to enjoy its position as the world’s emerging manufacturing powerhouse? Or will rising inflation, a growing green consciousness in the West and a slowing global economy have its impact on China as the primary location for outsourced manufacturing?
The economies of most countries that have hosted the Olympics suffer in the wake of the games, and no doubt this will be the case in China too. According to Datamonitor, economic growth in China is expected to drop from 11.4 per cent in 2007 to less than 10 per cent in 2008.
But while a drop in China’s growth figures may be inevitable, and to some degree understandable in the current global conditions, is there an underlying shift in foreign strategic investment plans and sourcing policies?
Figures published recently in the Financial Times pointed to the fact that foreign direct investment from the European Union into China fell steeply last year from 6bn euros in 2006 to 1.8bn euros. In contrast, India experienced an increase from 2.5bn euros in 2006 to 10.9bn euros last year. And Russia saw foreign investment soar from 10.6bn euros to 17.1bn euros.
One explanation given was that European businesses were looking to central and eastern Europe as a plausible alternative to China for moving production – especially as transport costs would be much less.
Interestingly, this supports the findings from the Supply Chain Standard/YouGov survey of 569 senior supply chain professionals conducted in the Spring. The survey found that of those surveyed who outsource the manufacture of goods to low-cost economies, 71 per cent see an impact of rising oil prices on their sourcing decisions. Most supply chain directors and purchasing directors surveyed had noticed an increase in costs for goods manufactured in China and sound bites indicated that many are looking to bring manufacturing closer to home markets, with several citing East Europe as a likely location.
However, with rising concerns over Russia’s conflict with Georgia, investment plans in Russia and neighbouring countries could well be recalculated.
I’m sure China’s economy will continue to blossom. Just how the UK’s will be doing after the 2012 Olympics is another question.