Where are the China profits?

An interesting piece by Dan Slater today on FinanceAsia.com in which he asked "Where is China's slowdown?". There are always prophets of doom who see the collapse of China around the corner but the latest wave of doubt is coming from some who have been amongst the biggest boosters of China's economy in recent years such as CLSA's Jim Walker.

The problem they are particularly focusing on, and which I have been seeing this a lot with my clients in China, is the profit squeeze: costs are consistently rising while pricing power in the immensely competitive marketplace is negligible. In fact, most companies' prices are falling. You don't need a Nobel Prize in economics to work out what effect that has on a company's financial performance. Some people find that they now have quite large businesses in China but that they are still struggling to get healthy margins from them even if they are profitable.

Walker is predicting that China's economic growth will slow to 5 - 7% next year. The stars he is projecting for 2006 which will maintain current growth rates:

Hong Kong (+6.5%)
Korea (+3.5%)
India (6.6%)

According to FinanceAsia.com Walker "...expects the majority of remainder of Asian economies to witness 50% declines" in GDP growth.