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Commercial sector in rough waters

By Diao Ying (China Daily)
Updated: 2009-04-09 07:46

The country's commercial sector is likely to slow in the near-term amid the macro economic slowdown, with more opportunities coming up in the less developed rural areas, according to an annual report released by the country's top think tank.

The report, called the Blue Book of Commerce Sector, released by the Chinese Academy of Social Sciences, said the commercial sector, which mainly refers to retailing and wholesale enterprises, will experience a difficult time this year.

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The macroeconomic slowdown has dampened consumer confidence, and the financial crisis has tightened credit, making it difficult for enterprises to get loans, according to the report.

To sail through rough waters, preserving cash and maintaining a healthy balance sheet is necessary, it said.

"The large-scale bankruptcies among enterprises has not ended, and the outlook for the retailing industry is grim," said Chang Ka Mun, managing director, Li & Fung Group, the Hong Kong-based distributor which conducted the research jointly with CASS.

Chang cited his firm's experiences and suggested that retailers and wholesalers in the sector control costs and enhance their own core competitiveness to survive the downtrend.

According to the report, the economy in the eastern coastal areas has experienced a sharp slowdown and commercial sector firms now need to pay more attention to inland cities and rural areas.

"Lower-tier cities and the rural market are likely to offer better growth potential as the government initiatives are targeted at boosting regional development," the report said.

It said the eastern coastal regions of the country have for long had strong retail sales, while there was stiff competition in the coastal markets.

However, many retail firms have now shifted their focus to low-tier cities and the central and western regions.

In addition, retail sales in these less developed regions have gathered momentum in recent years.

According to the Ministry of Commerce, retail sales nationwide in the first three quarters of 2008 rose 20.2 percent.

Sales in the central region increased 23.1 percent during the period compared to 19.6 percent increase in the eastern region.

"It is expected that retail sales in inland regions will continue to outpace the coastal regions in the coming years," the report said.

The government's stimulus measures are also expected to help the retail and consumer sector weather the economic downturn.

In addition to the 4 trillion yuan stimulus package, other measures like education and healthcare reforms and lifting residents' income would also help stimulate rural consumption.