After a year of non-stop bad news it is good to see little shards of light emerge from the darkness. The recent European Chamber Business Confidence Survey 2009, done in conjunction with Roland Berger Strategy Consultants, produces the necessary illumination.

The confidence booster is to be found in the fact that 37% of the 300 European companies surveyed said that China is now a more important market than in the past. Only 3% say China is less important and the remainder see no change. At the same time, almost all (98%) of the European companies had felt a serious short term recessionary impact on their operations in China.

The strategy that companies are taking in response to the economic crisis is also worth noting. Most are looking at increasing sales and market share, which suggests a basic level of confidence in the China market. Clearly, the domestic market is not as big as it should be but latent demand is seen in the China market, and the thinking seems to be that this can be stimulated if the government gives people confidence in the future. The stimulus package does not do this, but it may keep things ticking over until a more nuanced response can be developed.

But let’s not get carried away. While the companies see a better economic situation in China, and an earlier recovery, most do not see China as the driver of the world’s economy any time soon. 48% of them think China will the driver of global growth in the distant future, but a full 78% think it will not happen now.

At the same time companies are not optimistic about their profits in the short team. The worst is professional services, which have been hit very hard. Also hit hard are the makers of industrial products. The respondents in the survey did not feel that the stimulus package was sufficient to the tasking of restoring the market, and they suggest that China needs to change the structure of its industries. Cash will not fix this problem.

Respondents in the survey also had a little advice for the Chinese government. More competition was suggested, with the existing monopolies broken down. Ihope no one is holding any breaths.

War’s End

Perhaps as a result of these moves, the companies in the survey also seem to believe that China can recover earlier than other countries. The good news is that they intend to follow the logic of that belief and invest further in the country. This implies hiring, and the restoration of Chinese people’s careers.

The bad news for human resources is that the War for Talent is likely to come back in China faster than anywhere else. Even in a downturn European Chamber Business Confidence Survey respondents are citing a shortage of qualified staff (sic). Anecdotal evidence suggests that the premium for changing jobs is still around 25% for people with a strong skills base. For those who have lost their job there is flexibility, but amazingly many professionals still expect an increase.

At the same time localization of expatriates is a key strategy to reduce wage costs, and the fact that these two issues contradict each other, i.e., the shortage of qualified and experienced local Chinese staff and the need to localize expatriates, is not addressed in the report.

With the two forces in the job market pulling against each other, the worst case scenario is that expatriates get sent home, and a new War for Talent starts. Unlike the previous war, this one would no longer have the option of fixing a skills shortage by sending someone from the head office.

Fortunately, current talent demand can be met with people who have lost their jobs. So serious salary inflation, and the War for Talent, is still a distant threat.

Once the hiring freezes end, and they are ending now, this threat will move closer to home.

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