Shanghai, China – January 8, 2008 – L.E.K. Consulting, the global strategy consulting firm, announced today the findings of a survey of Chinese business executives. The survey reveals that the impact of the global economic downturn is expected to exacerbate in the next six months on both Chinese export and domestic business, with overall business confidence not expected to recover until 2010. The survey also shows that although the top priority for many domestic businesses is to make it through the financial crisis, some companies are also keen to explore the opportunities presented by the crisis, particularly industry consolidation and overseas investment.

The L.E.K. Consulting survey of Global Economic Downturn Impact on Chinese Companies was based on interviews in Q4 ’08 with over 30 business owners and executives of Chinese domestic companies.

Impact on China export business
The impact on export oriented business was immediate. 94% of the survey respondents view the commercial environment unfavorable or strongly unfavorable to their export businesses, and 83% of the respondents expect export business outlook to worsen in the coming 6 months. Business confidence is expected to dip further in 2009 before starting to pick up in 2010 or even later. 56% of the respondents think the negative impact will sustain for 1-2 years, with the remainder believe the impact will last even longer.

“In addition to a number of international factors, i.e. dwindling overseas demand, limited access to credit by importers, reminbi appreciation, there are also China domestic factors widely blamed for negative impact, e.g. the strict control on credit and financing to small sized exporters and the increasing manufacturing cost, especially labor cost,” said Carol Wingard, L.E.K. China Managing Director.

Impact on China domestic business
For domestic focused business, a vast majority (93%) of the respondents feel that the current commercial environment has been unfavourable or strongly unfavourable. 82% of respondents reported lower profitability than expected just 6 months ago. “This is partially because 2007 was an extraordinarily good year for many business (e.g. consumer products), and expectations were set very high for 2008” explained Wingard.

Immediate business outlook is not viewed as optimistic. As the prognosis of the global economic situation remains unclear, domestic companies typically expect the pressure on their business to continue or even increase in the coming 6 months, indicating a flagging business confidence for 2009. As a result, companies are cautious in spending and investment planning. More than half of the respondents (59%) will invest less than originally planned due to dipping business confidence. Survival is prioritized.

Opportunities viewed in economy downturn
The survey found that the companies with industry leading positions, strong fundamentals and healthy cash flows are seeing opportunities in this economic downturn. Industry consolidation has been considered an effective way for leading players to strengthen competitive position. As overseas asset prices have dropped significantly, outbound investment has also been highlighted as a potential growth opportunity for Chinese companies with access to funding. However, the survey shows mixed views in terms of the timing of overseas investment, with only 40% consider it a good time to make long term overseas investment now as there are more undervalued assets and less bidding competition.

Carol Wingard concluded, “China’s economy is no longer decoupled from rest of the world. The impact from global crisis on many Chinese businesses is tremendous and not expected to wane in 2009. However, it should be noted that China is in better shape relative to rest of the world, as its banks and financial institutions are more insulated from the global financial crisis. Meanwhile stimulus plans from China government start to demonstrate positive results. Among the depressed business confidence, we are seeing leading Chinese companies with solid financials are looking for opportunities to enhance their position in China’s domestic market and to buy overseas strategic assets at a good value.”

About L.E.K. Consulting
L.E.K. Consulting is a global strategy consulting firm providing strategy development, transaction support and performance improvement services. It covers a broad range of industries, with clients ranging from large, state-owned utilities to small, entrepreneurial technology firms to financial investors. L.E.K.’s offices in Shanghai and Beijing are part of its 20 office international network.

To learn more about the Survey Report of Global Economic Downturn Impact on Chinese Business, please contact: Stella Chen, email: or phone: +86 21 6122 3922.


# # #