The engine of global growth is not running as fast as we expected. What does this mean for business?

The engine of global growth is not running as fast as we expected. What should we be telling our clients?

By Hermen Chow and Mary Devereux
SEC Newgate Hong Kong

As the world’s second-largest economy, China has long been an engine of global growth. But in recent months, the engine – which was supposed to rebound after the ending of ‘Zero Covid’ policies - is not delivering the strong economic performance the market expected.

According to a CNN report, the Chinese yuan fell to its lowest level in sixteen years, in mid-August, which prompted the People’s Bank of China to make the biggest defence of the currency on record, by setting a much higher rate to the US Dollar than the estimated market value. Consumer prices also fell y-o-y in July for the first time in more than two years, suggesting the economy is heading towards deflation. Key indicators, including retail sales, industrial production and investment missed expectations in July. As many of you may have read, the government suspended publication of its youth unemployment rate in July. Add to this China’s property crisis, and we’re looking at a bleak picture.

As you can imagine, China’s slowdown has sparked widespread interest and concern among international leaders and investors. Whatever your politics, China matters.

Of course, China is not standing still while being buffeted by these headwinds. It has an array of plans to boost the economy, ranging from encouraging private investment in key industries like transportation, water conservation, clean energy, and advanced manufacturing; boosting consumer spending;  and providing monetary stimulus.

However, while we wait for China to turn the corner, growth forecasts around the world are being readjusted and mitigation plans being prepared to minimise the current to near-term impact on business. And it’s no different for corporate and financial communications. Our role is pivotal in this context, as we are responsible for managing the narrative around the economy and its impact on the business.  We aim to provide transparent, consistent, and clear communication to all stakeholders.

We recommend companies should talk about their China operations holistically in the context of their global business as a whole. We can help our clients position China as one of many operational bases but how it brings diversification benefits, which support the strength and resilience of the overall business.

When it comes to the macro economy, as in any crisis situation, we need to address the issues head on. Transparency is key, as is managing expectations. It’s important to keep abreast of the government’s mitigation measures and see where they match those of your clients on strategic, operational, financial levels.

Where appropriate, as you would for any country, we’ll state clients’ confidence in China, citing market size, growth potential, and commitment to the markets. That said, and again as with any country, we avoid getting involved in political discussions or speculation.

This is also a situation where knowing your stakeholders is key. We need to ensure all stakeholders are updated on our clients’ plans; identify any perception gaps between international and domestic stakeholders, and develop response strategies and messaging to clear-up misunderstandings and reinforce company positioning.

With the right foundation and a steady hand at the communications wheel, clients with operations in China or those who have China HQs can emerge from this downturn, like any other negative situation, stronger than before, ready to bring the business back an even keel.