This was not a good week for foreign businesses in China. After much speculation, two large European companies finally admitted they got China wrong. Bertelsmann announced the closure of its ill-fated book club venture, while British home improvements chain B&Q has been forced to close some of its stores.
The issue of thin – and, very often, invisible – profit margins is not
exclusive to China, of course, although the assumption by overseas
entrants that China is a consumer-driven cash cow economy probably is.
But operating costs in China are increasing significantly, and profits
are hard to come by. One (relatively successful) Shanghai restaurateur
commented this week that rising prices – and flagrant profiteering by
suppliers – had seen his wholesale costs rise by 150 per cent in the
last 18 months (and, remember, inflation is officially running at 7.7
per cent). Meanwhile, rumours persist that one of Shanghai's
highest-profile luxury hotels has been operating with an occupancy
level of just 17 per cent.
Two other businesses dealt possibly mortal blows in Beijing this week
were English-language magazines Time Out and That's Beijing. The June
issue of the former has been suspended pending an inquiry into
licensing issues, although it has been publishing for three years on
the same terms. Even worse news at That's Beijing, where the Chinese
licence-holder has 'taken over with immediate effect' the production of
the magazine from publisher True Run Media. The latter is fighting back
by producing a new title under the name, The Beijinger, but media
analysts predict a short lifespan for a magazine that has now moved outside of state patronage.
Last update : Sunday, 15 June 2008
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