A possible “V” shaped recovery: The first quarter of 2009 is likely to be a mirror image of last year's fourth. The Spring Festival holiday, coupled with the continued effects of the global economic crisis, will result in slow economic growth in the early months of the year. Given the depressed statistics, it's understandable that many are predicting a long and slow recovery. However, there is growing opinion that the impact of China's stimulus package could begin to be felt as early as the second quarter, setting the stage for an economic recovery that gains momentum throughout the year. New funds allocated for infrastructure projects and other stimulus measure s are being injected into the economy quickly.

Continued competition for loans: Al though China has lowered interest rates and increased available credit, new bank loans are likely to favor large state-owned companies and infrastructure projects. Private companies, small and medium-sized enterprises, and foreign invested enterprises have historically had trouble obtaining bank financing, and this situation is likely to continue into 2009.

Increased scrutiny by the government: The global economic crisis caught everyone by surprise, including the Chinese government. China's leaders are very concerned about the potentially destabilizing effects of unemployment, particularly among the country's large migrant population, and will keep a watchful eye on the employment plans of all companies doing business in the country.

When the dust settles, and companies and investors once again look to expand their businesses, identifying growth opportunities will be one of the few ways to increase investment returns. Even at the lower eight per cent rate of growth which the government is projecting for 2009, China remains one of the few large, growing economies in the world. Rather than cutting back on China plans, foreign companies should consolidate what they have in country and prepare to take advantage of the new opportunities that may arise from the current crisis.

What should foreign companies and investors do to navigate China's more difficult economic waters?

Be flexible: Forecasting market trends in China is difficult in any year. With little reliable empirical evidence in recent months to serve as a guide, this will be a particularly challenging exercise in 2009. While caution dictates that companies adopt conservative sales, production and expansion plans for the year, it will be more important than ever to closely monitor and adjust to actual experience in the marketplace. A quick turn in the economy could present unexpected opportunities.

Be cautious in extending credit: Many seemingly healthy Chinese companies derived a significant portion of their profits in past years from stock market and real estate gains. Others that have borrowed heavily against property and stock portfolios may now find themselves under pressure from banks to repay these loans as the value of the underlying collateral shrinks. Falling profits and cash flows, as well as loans being called in by nervous lenders, are hurting company balance sheets. As companies facing liquidity issues try to shift their burden to trading partners, receivables are lengthened and return to the days of “triangular debt” becomes a greater possibility. In today's environment, extra caution in extending credit and increased vigilance in collecting receivables is essential.