Global Economics

Storms Freeze China's Retailers


The true economic impact of the powerful snowstorms won't be known for months, but they've already hurt traditional Chinese New Year's spending

Last year, before Tang Hao went home to the central province of Hunan for Chinese New Year, he spent more than $70 to buy cigarettes and clothes to take back as presents for his parents. This Chinese New Year's, though, Tang, 24, will stay in Beijing, where he works as an editor in a research institute. He can't get train tickets to his village in Hunan because of the severe snowstorms. "I haven't given much thought about buying presents. If I can't go back home, there's no way to get them to my family," he says.

For retailers and consumer-goods companies in China, the worst snowstorm to hit the country in more than half a century couldn't come at a worse time. Like Christmas in the West, Chinese New Year is China's hyperbuying period. Migrant workers and white-collar workers alike return home with their savings and bonuses to give to their parents. Children receive "hong bao," or red envelopes filled with money from relatives. Much of that is promptly spent on cell phones, clothes, and other coveted items.

With Chinese New Year starting Feb. 7 this year, most Chinese will be boarding trains, planes, and cars to go home next week, if they haven't done so already. But if the weather continues to prevent tens of millions of Chinese from returning home, economists say China's retail sales, which grew at a swift 16.8% pace in 2007, could dip in January and February (BusinessWeek.com, 1/29/08). "Most sons and daughters will give the money they earn to their parents so they can buy things. If these people can't go home, this should affect a portion of consumption," says Qi Jingmei, an economist with the State Information Center, a government think tank.

Travelers at a Standstill

The severe snowstorms (BusinessWeek.com, 1/30/08) have closed China's highways, railroads, and airports, stranding people in central and southern China for days. Li Qing, a senior manager in Shanghai at Xiangcai Securities, went to Hunan province on a business trip last week and tried to return home starting Jan. 26. Because flights and trains were canceled for days, he couldn't get home until Jan. 31. "I have a lot of friends from Hunan in Shanghai. Although they have booked tickets to go home for Chinese New Year's, the trains have been canceled so they can't take the train home. They've also booked flights, but they still don't know if they'll be able to go back," he says.

While the economic impact of the snowstorms won't be known for several months, Taiwanese tech company MediaTek, a top designer of chips, has already cited the severe snowstorms as one factor why it is projecting a slight decline in first-quarter revenues. Taiwan's largest supplier of semiconductors for low-end handsets in China is concerned the snowstorms preventing Chinese from returning home will cut into mobile-phone sales bought as gifts. "There's a lot of uncertainty," Chairman Tsai Ming-kai said on a conference call with investors Jan. 30. "The snow could hurt demand and distribution for mobile phones," Tsai said.

After letting up for several days, the snowstorms returned with a fury Feb. 1, particularly in the southern provinces of Hunan, Jiangxi, and Zhejiang. For shopkeepers, this is troublesome. Stores, particularly in second- and third-tier Chinese cities, have been unable to receive shipments of products after authorities closed down some highways. Also, bad weather will discourage shoppers from going out, even if it is the Chinese New Year. Lu Xiaomei, a schoolteacher in Nantong in the eastern province of Jiangsu, went out to stock up on groceries Wednesday after she heard a weather report calling for more snow this weekend. "Because it's difficult to travel when there's snow on the roads, most of us don't want to go out," she says. "We'd rather stay at home. So that will hurt the stores."

Temporary Supply Shock

Traditionally, Chinese New Year's is a time for Chinese to take trips with their family or co-workers, booking their vacations three or four months in advance. This year was supposed to be a very good year for travel agents. More domestic Chinese tourists were planning to travel during Chinese New Year's than previous years because the International Labor Day holiday in May is being canceled this year to better manage the flood of tourists during the weeklong break. But one-third of the travel packages booked for Chinese New Year's have been canceled due to the extreme weather in southern China. "After looking at what happened, these tour groups had to cancel," says Nicole Wang, a sales manager with China Merchants International Travel.

While this natural disaster will likely knock several tenths of a percentage point off China's gross domestic product, economists also point out the severe snowstorms will only cause a temporary supply shock. Most Chinese expect the economy to bounce back fairly quickly. Chu Xiuqi, secretary general of the China Commerce Assn. for General Merchandise, a trade association for department stores, says, "The snowstorm affects only some cities and provinces. Moreover, the impact shouldn't be very big because this disaster is just a phase. We'll resume supplies very quickly."

Tschang is a correspondent in BusinessWeek's Beijing bureau.

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