Slower economic growth and tighter consumer credit put pressure on finance chiefs in Asia.
The subdued mood among participants at a recent NeuGroup meeting of CFOs in Asia reflected the difficulty many members say they are facing as China’s economic growth slows and business conditions worsen, while expectations for revenue growth at corporate headquarters remain unrealistically high.
Managing expectations. The key challenge, then, for some members is managing the expectations of those in the C-Suite who still want 10% revenue growth. In other words, CFOs and their teams need to figure out how to successfully under-deliver. This topic—and how to deal with failure—will be discussed at the group’s next meeting in April in Shanghai (email us about your eligibility to attend).
Tighter belts. Dealing with the fallout from lower production has meant implementing cost-cutting initiatives, and some members expect the challenging business climate and the need for belt-tightening to last three to five years.
Pressure to produce. As demand slows, members say Chinese authorities are exerting pressure on corporates to build inventory to reduce the impact on the economy and keep employment high. Much of this pressure is indirect, through so-called window guidance, which is a part of life in China and the way government agencies influence corporate behavior with unwritten rules.
Credit, not tariffs. Although trade tensions between the US and China have added to the region’s challenges, the tightening of consumer credit in China ranked as a more serious concern for many participants, based on comments during the projects and priorities session at the meeting.
- Other concerns mentioned at the meeting include complying with China’s corporate social credit system and the wide-ranging reform of the country’s individual income tax that has implications for corporates.
Hope for the future. Members remain bullish on the long-term business prospects in China, thanks in part to the country’s population of 1.4 billion. But for now the pressure is on, and some members are searching for ways to reduce the stress. How else to explain why one finance team has created a “S— Happens Award?”