China and the Olympics boom

from today's Business Week Asia newsletter (8/18):

August 14, 2008, 5:00PM EST text size: TT

China's Economic Torch Won't Outlast Olympics
Growth will cool after the Beijing Games as slowing global demand and rising costs at home hurt exports and profits
by Dexter Roberts and Frederik Balfour

"China spent some $43 billion and the better part of a decade preparing for the Beijing Olympics. But now, like a party host surveying the house as the revelry winds down, it is contemplating what will happen when the Games end on Aug. 24. Toymaker Shanghai Haixin, for instance, has sold millions of Fuwa, cuddly plush toy versions of the five mascots for the Games. "It's pretty unlikely that people will buy these things after the Olympics," says Shanghai Haixin executive Shan Yingkun. "Orders will be few and far between."

But the demise of the Fuwa is far from Shan's only worry. Like companies across China, Shanghai Haixin is grappling with rising labor costs, high fuel prices, and the strengthening Chinese currency. Indeed, while the country may heave a collective sigh of relief after the Games, "China's economic and financial-market challenges have little to do with the Olympics and more to do with slowing global demand, rising input costs, and domestic imbalances," says Jing Ulrich, chairman of China Equities at JPMorgan Securities (JPM).

That's not to say the Chinese economy is in danger of a hard landing. Gross domestic product growth this year will fall to 9.9% from 11.9% in 2007, Standard Chartered Bank predicts. Next year, growth is expected to cool to 8.6%—slow for China, but a miracle in most countries. And despite the billions plowed into infrastructure for the Games, the investment represents less than 1% of China's nationwide spending on bridges, roads, and factories last year. So the "Olympics effect"—where a host country's economy slows following the binge of construction for the Games—is unlikely in China. That's a good thing, since growth in the mainland is one of the few bright spots for the world economy." ...

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