China In Crisis? Profits Down And 8/10 CEOs Want Out
Chinese GDP growth is falling back to around 7-7.5% a year, which sounds to the rest of the world like a good problem to have. However, for the Chinese entrepreneurs and Western businesspeople trying to compete in China, is this economic slowdown real, and at what cost success? We took soundings from 500 Chinese CEOs, and the results may surprise you...
China Growth Reality: Depends On Which Side Of The Chinese Wall You Sit
Many Western leaders and commentators outside China are now seriously questioning whether China’s explosive growth can continue, and whether growth rates keep on falling. Former US Treasury Secretary and former Goldman Sachs CEO Hank Paulson expressed his concern at a recent Fortune Conference: “The current growth model is running out of gas. They're going to need to reinvigorate reform, it's clear.”
However, the Chinese themselves, and the Western experts who spend a lot of time in China, are much more optimistic about the future prospects for growth. It is mainly those who have never been to China, or who only visit very rarely, who say that it is all about to collapse. Zhu Min, deputy head of the IMF and former deputy head of the People’s Bank of China told the BBC: “Growth itself isn’t the problem: we just need to focus more on the quality of the growth.”
As a bi-monthly visitor to China for many years and a confidant to many of their top business leaders, my sense is that China will continue to boom, but that there is a grain of truth in both viewpoints. There is a 200-year growth trend at play, whereby China, having reopened itself to the world, is now moving back to realize the economists’ prediction of being the world largest economy. Sir Martin Sorrell, founder of advertising firm WPP, is one CEO who believes that this is the direction of travel: “We have not witnessed growth on this scale for 200 years at this speed: Asia-Pacific will dominate again.”
However, do expect big bumps and dips along the way. Why? Because China, with its volatile history, is going through a massive and fundamental structural transition. It is moving from a lower cost production- and export-oriented economy to one which will be more consumer/service-oriented and more focused on meeting vast potential domestic demand.
Profit Reality: Chinese Entrepreneurs Expect Profits To Fall
In June 2013, on the fringes on the Fortune Global Forum in Chengdu, I was privileged to be the only Westerner at a gathering of 500 Chinese CEOs, hosted by Zhisland, the elite Chinese private networking organization. The mood in the room was considerably less bullish than it had been on previous occasions. The sentiment of the Chinese entrepreneurs attending was measured by a real-time survey – the results are revealed for the first time, exclusively here on LinkedIn.
The most shocking news was that 65% of the Chinese entrepreneurs predicted that this year’s profits for most Chinese enterprises would decrease, versus only 15% who thought that they would increase.
So why are profits falling? As the existing domestic and multinational players become more effective and established, many industries are entering a much more intensely competitive phase, and margins are being squeezed. Also, many Chinese companies are investing in the future. The Chinese CEOs told us that their dilemma was whether to maximise near-term profits (and maybe retire), or accept lower profits now as a trade-off for being able to expand their businesses across China and beyond. The question is whether to keep building their companies organically, or to look at buying up companies and consolidating through mergers and acquisitions. 63% of the Chinese CEOs told us they expected activity to increase over the next five years.
Looking ahead, I expect future industry consolidation, and well as a continuing land-grad dynamic. In the quest to sew up the market, I see ambitious companies, such as New Oriental Technology Group, prepared to deliver education courses at a loss in order to win market share.
Personal Reality: 28% Of Entrepreneurs Have Had Enough And 58% Want A New Life
The picture that emerged at the Zhisland gathering was that entrepreneurs have wedded themselves to the relentless Chinese work ethic, but that many have taken it too far and are driving themselves into the ground. 58% said that they wanted a new lifestyle and 28% said that they’d “had enough”.
While these Chinese entrepreneurs have been pioneers of the country, their successes have come at a great personal pain to themselves and their families. Vincent Mo, CEO of Soufun.com, personifies the personal sacrifices that the top entrepreneurs are making today. He told me:
I spend Monday to Friday in Beijing working, and then at the weekends fly to Shanghai to spend 20 hours with my family. That way when I am away from my family I can spend 24 hours a day focused on the business.”
“You’ll have to dig deeper like never before in this market to win,” adds Benson Tam, a partner at Fidelity Growth Partners.
Even if some leaders have tremendous amounts of energy, determination and perseverance, the challenge is humans are not machines. No individual human being can consistently focus 24 hours a day on work– or at the other extreme focus 24 hours a day on their family or on themselves – without hitting a wall. Many of the Chinese CEOs report feeling like they are stuck on a treadmill, where they can’t stop and few people can really understand them. They are too busy to find solutions for taking care of their health and their minds are often too tired to think coherently.
Are things any better for Westerners looking to make it in China? “The pace of work in China is extraordinary,” reflects Mark Hutchinson, China President and CEO of GE, “there is so much to do, so many people to see. I’d work 24 hours a day if I could. Getting the balance right is key, the key today is prioritizing your work. On a personal level, it comes down to health, more difficult me now for as I am getting older, I have to be careful about what I eat and drink.”
Can You Provide A Home To A Disillusioned Chinese Billionaire?
Another interesting thing to come out of the Zhisland session was a low confidence that the senior talent would remain in the country. 60% predicted that year-on-year increases in the numbers of Chinese entrepreneurs emigrating looked set to continue indefinitely.
So What Do Eastern & Western Leaders Need To Do In Order To Win In China?
A small number of Chinese entrepreneurs are not willing to risk burn out, and are trying to find ways to break the cycle. One of the “new breed” of Chinese CEOs is Joe Chen, founder of social networking site Renren.com, China's answer to Facebook. He told me:
“I treat every day like it’s my last day, I currently work 12-14 hours a day and we are a public company. In the future I’d like to work 10-11 hours a day which is more sustainable for me and my company. Physiology and psychology are very important to me: I have a 30-year plan for my company, so need to stay in shape to keep healthy, happy and achieve my targets.”
I believe that those who do make it in China will be marked out by their adaptability, resilience and persistence. In the words of Huang Nubo, Chairman of Zhongkun Investment Group, and the man famous for trying to buy 115 square miles of Iceland (the country) for use as an exotic golf course:
Operating a company in China is like mountain climbing, there are a lot of uncertainties and you need a lot of perseverance, toleration of loneliness, desperation, and fear to reach the peak. 99% of entrepreneurs give up because they are not persistent.”
Over To You
Do you think China's growth will continue? How is your business performing in China? Is your Chinese team at risk of giving up? Do you believe that there is a better and more sustainable way to run global companies? I am currently finalizing an English version of my 'Dream To Last' book (which interviews 200 Chinese CEOs), and would like to hear in the comments section below which aspects of the Chinese business environment are of most interest to a Western audience.
Do follow me here on LinkedIn to get weekly updates on both Eastern and Western CEOs, as well as the latest leadership insights.
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By Steve Tappin
Chief Executive, Xinfu, Host BBC CEO Guru & Founder, World Of CEOs
Steve is a personal confidant to many of the world’s top CEOs. He is the host of BBC ‘CEO Guru’, which features in-depth, on-the-record interviews with the CEOs of General Electric, Lenovo, WPP, China Vanke, Wholefoods and Unilever.
Founder Of WorldOfCEOs.com, Steve is the author of ‘The Secrets Of CEOs’, which interviews 200 CEOs on business life and leadership. His latest book, ‘Dream to Last’, was published in Mandarin in December 2012, by Beijing University Press, and will be released in English later this year.
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VP sales High-tech "made-in-China"&Web2.0 start-up&VC/PE sourcing
11 年One thing i want to make it clear...Another interesting thing to come out of the Zhisland session was a low confidence that the senior talent would remain in the country. 60% predicted that year-on-year increases in the numbers of Chinese entrepreneurs emigrating looked set to continue indefinitely. The Chinese elite whom likely moving out of China is not means they lost confidence to China domestic economy growth..the most motivating factor is the China lack of the individual property rights and protection legal system..the elite just worry about this ..the second biggest factor should be China old-school style education system..the rigid and boring system just kill creativity and cannot make sure their kids to well-positioned in this fast-changing dynamic society..
COO
11 年Is anybody looking at the aging Chinese population with only 25% replenishment due to draconian birth control laws? How can China continue to produce when productive population is leaving and there is no cohesive immigration policy to pump new blood into the system. Plus the aging population will drain resources from infrastructure. The Great Fall of China is a no-brainer.
$imple Fixed Commi$$ion $trategies
11 年This is not a political problem, it’s a descendent one. Facts are facts, no matter how uncomfortable they may be. We are going to have to come together to take meaningful action 'regardless of the politics' Businesses and leaders in uncertain times can have no patience for waiting for a return to “normalcy.” This is not the moment to be risk averse. You must be an agent of change or you’ll soon find yourself and your organization in a permanent state of “dormancy.” Why? Because the new “normal” is that the world is volatile, turbulent and perpetually uncertain. This is what I call “flying in the red zone.” Great risk, but the reward horizon is enormous. Achieving success today in a high-consequence, highly uncertain, and rapidly-changing world requires that leaders be adept in living and acting out of their comfort zones. In this environment, impatience is a virtue. And, while there are no guarantees the search for unique opportunities must be constant and never-ending. The organization must keep a keen eye for incremental change, but leadership must look for exponential opportunities. May be we can’t change what is. But nothing stays the same.
@Steve All growth and profits without benefits reaching the people is waste.Hope Chinese economy slows down sparks a domestic unrest and democratic revolution.You are right Humans aren't machines and can't be working 24 by 7.