Friday June 24th – and today is potentially the most important day in the six years I’ve been writing this blog.
As you read this, you’ll know whether we’ve voted to remain in the EU, or whether ‘Leave’ has won the day.
I’m writing these notes on Wednesday: I hope – and I have to believe – that common sense and a vision of the UK really playing its part in the wider world will have prevailed. I hope we’ve voted Remain by a significant margin – enough to settle the issue not just for a generation, but for several generations to come.
So now let’s talk about Chinese Corporate Debt…
If you’ve given up on your football team and started supporting the International Monetary Fund instead, you’ll know that its First XI were recently playing away in China. And after a fortnight of meetings with Chinese bankers and high-ranking Communist Party officials they came away issuing stark warnings.
The source of their displeasure was Chinese debt.
You may at this point say ‘what debt?’ And on the face of it, you’d have a point. After all, China regularly generates a trade surplus of $40-50bn every month. The economy may be slowing down – but growth of 6.7% in the last quarter is something George Osborne can only fantasise about.
But the IMF believe much of this growth has been built on unsustainable levels of corporate debt – especially among State Owned Enterprises (SOE’s). These organisations produce only 22% of China’s output but account for 55% of its corporate debt – which in total, is equal to one and a half times GDP.
Why am I making this point on the morning of the Referendum result?
For this reason. The IMF believe that the current level of Chinese corporate debt is unsustainable. If they’re right – and if the chicken comes home to roost – then there’ll be significant sectors of the Chinese economy unable to fulfil orders, unable to pay their suppliers and unable to service their loans.
Cue problems for the banks, cue problems for the rest of the Chinese economy – and therefore, cue problems for the wider world economy. And possibly, for your business as well…
So you may or may not be celebrating this morning. The question I’m asking is, ‘Will the victory for Leave or Remain be a key factor in the success of your business?’
I’d suggest the answer will be ‘no.’ I’d suggest that over the next five years other events in the political and economic arena will be at least as influential as what happens today.
Political and economic events may shape the landscape – but it’s how you react to them, how you navigate the landscape that makes the difference. As business owners we’re the masters of our destiny. The four horsemen of the PEST analysis – Politics, Economics, Social and Technological change – may make the waters choppy, but the most important factor will always be how we sail the ship.
I appreciate that the last few weeks have been difficult for many TAB York members: like stock markets, businesses need certainty and “I’m sorry about your cash flow but I can’t make a decision at the moment” has been heard all too often in the past few weeks and months.
This morning – for good or ill – we know where we stand. From now on it’s the quality of the decisions we make about our lives and our businesses that will determine our success – however we choose to define that success. But – and as always, this is a big ‘but’ – the one thing we can be sure of in the future is change. If the champagne corks are popping at Leave HQ, the British political landscape won’t be quite the same again. Then there’s Trump vs. Clinton, the continuing threat of terrorism – and the Chinese corporate debt…
What can we be certain of? That whatever difficult decisions you have to make in business, TAB York will be there to help. That seven brains are better than one: that the collective wisdom of your colleagues will help you make better decisions – and, when it’s needed, keep a sense of perspective.
So if you’re depressed by the result of the Referendum, take heart. If you’ve backed the winning side, remember it doesn’t automatically guarantee the success of your business. That will always be down to you, to the decisions you make, and the support team you build around you.