Haze blurs the view from the deck that wraps around the 13th-floor headquarters of An Da Trading Co. A sandstorm has dimmed the sun, adding to the dusty frontier feeling in China’s distant Xinjiang region, a place closer to Kabul than Beijing.
Surrounded by fields that grow cotton, tomatoes and grapes, this place holds little in common with the industrial centres whose coal mines, factories and steel makers have suffered as China’s economy slows. Chinese statistics suggest that this is still among the fastest-growing parts of the country.
But the worry plaguing the family that owns An Da are little different from those clouding other parts of China, a reflection of how unease has swept into the farthest reaches of the country as its outlook grows more uncertain.
“We must make change or we may face death,” says Ren Yueji, the An Da founder and chairman who built office and residential towers, building the wealthiest local company in this small centre. “It’s the same across the entire country.”
Overbuilt and saddled with debt, China’s economy has slipped to its weakest growth in a quarter-century. Last week, the country’s leadership sounded an optimistic note, saying China will cut overcapacity in key sectors such as coal and steel even, but continue to grow this year at 6.5 per cent to 7 per cent. Over the next five years, Premier Li Keqiang said, China will keep 6.5 per cent as its floor.
That kind of growth will allow the country to double its gross domestic product from 2010 to 2020. But it’s set against a worsening economic environment.
“At the macro level, what you are seeing is basically a structural slowdown, which is going to be very difficult to arrest over the next five years or so,” Tom Rafferty, Asia economist at The Economist Intelligence Unit, said on Monday.
Nationally, Chinese credit is already rising nearly four times faster than GDP, a level that puts it in line with Japan before its great stagnation.
Mr. Rafferty calls 6.5 per cent a “dangerously ambitious economic growth target.” For China to meet that “would require such a large degree of monetary and fiscal policy loosening that it would dangerously exacerbate imbalances in the Chinese economy and risk hastening a hard landing,” he said.
Korla, a city next to Yanqi in central Xinjiang, offers an example: The local government estimates 2015 growth at 7.1 per cent, beating out national figures. But it’s not driven by companies such as An Da. In a region where capital spending tends to be driven by government and state-owned enterprises, fixed-asset investment in Korla’s economic development zone soared 46.1 per cent in the first 11 months of last year.
But real estate investments, the domain of private developers, fell 36.2 per cent. In Yanqi, property prices are sliding and the small vendors that lease An Da’s commercial space are struggling. The company was forced to discount rent last year to struggling retailers.
So, An Da is racing to switch up its business model. It plans to ditch shoe, hat and clothing vendors who can’t compete with online stores, and replace them with education providers, facilities for seniors to exercise and be entertained, and a food court that sells local specialties. It’s an attempt to cash in on the services sector that remains China’s strongest economic segment, and An Da is moving fast. Renovations should be done by August.
“We haven’t considered other kinds of investments,” Mr. Ren said. “Even if we did have some other plan, we have no money to do it. Our money is tied up in our projects here.”
Mr. Ren is leaning heavily on his daughter, Ren Jiaying, who will soon take over the business. As the second generation, it falls to her to remake the company her father built.
“It’s a big change for us, because we’ve been operating the old model for 10 years. But if we keep going in that vein, things will get more and more difficult,” she said. “The transformation is a must-do, now.”
For some local businesses, bad times have arrived with shocking suddenness.
At Xinjiang Gold Stone Vegetable & Fruits Co. Ltd., an exporter of sun-dried tomatoes and dried chili peppers, orders from Russia and South America vanished after November. The effect of the high yuan had become too great for foreign buyers to bear.
Owner Tao Liangzhi now hopes to boost sales to Europe and the United States. But he is constrained by product quality, which is too poor with his existing equipment. Fixing the problem requires pricey upgrades, but “today in China, labour costs are higher and financing costs are also higher,” said Mr. Tao, who goes by “Mr. Tomato” on his English business card.
The trouble has hit at both ends. He previously sold tomatoes to Chile in exchange for wine, which he sold locally. Now wine sales, too, are falling. “Not too many people want to buy goods or products,” he said. “Everybody can feel the change in the market.”
It’s an example of how, even at its geographic fringes, China’s efforts to boost consumption are being hindered by consumer confidence.
With China’s economic planning, “the intent is to take the market off of the government largesse” and shift toward more consumer spending, said Bill Russo, managing director at Gao Feng, a Chinese-based advisory consultancy. That’s not always a tidy process. “We’re seeing the training wheels come off and the bicycle wobbling a bit, as the market tries to find its footing going forward.”
Mr. Tao remains confident, though, in part because he has already moved money to a place with better prospects. Four years ago, he invested in a biomedical company in the United States.
“I’m a dog,” he said, referring to his Chinese zodiac sign. “I could smell it, that in China, someday the growth rate would start to fall. Now, it has started.”
With a report from Yu MeiReport Typo/Error