Sunday, February 22, 2009

Doom and gloom: my first economic downturn1

For the past two working weeks, I had been in Shenzhen2 for some work-related affairs, returning to Shanghai for the weekends and Mondays. Both the workplace and accommodation had no internet access, thus cutting me off from the universe at large.

While at Shenzhen, I witnessed a company in the midst of downsizing. It was unpleasant yet morbidly fascinating, like how motor accident would draw curious onlookers.

The company retrenched approximately 2/3 of its staff and moved out of its rented office to operate from a flat. With the severe downsizing of staff, much of the company’s assets became redundant, including the company car, several computers, a handful of air conditioners and furniture.

Departing staff made cash offers for these items, knowing full well the management will not have the time or connections to sell them. Eventually they were sold at prices well below the items’ book values, with computers being sold for a meagre 500 RMB apiece and the split unit air conditioners, 300 RMB.

One of the more street smart employees told the general manager that his friends wanted to buy the computers too – obviously he was aware that of the arbitrage opportunity at hand. The general manager was quick enough to say the original price of 500 was for the staff member; other buyers would have to pay the ‘full price’ of 800. This was still agreeable to the arbitrageur, and he went away with 4 workstations and the company car for an undisclosed sum.

On the last 2, 3 working days for the retrenched staff, the motivation for (pretending to) work had clearly evaporated. They grouped together chit-chatting, watching videos, reading comics and surfing the net.

Even with the substantially reduced rental and salary costs, all is not rosy. The company is already committed to investments that require further capital before turning a profit, yet the company is barely making it for the month’s salary and retrenchment remuneration3.


1. I was too young in 1987 and 1998 to notice with much clarity
2. location name changed
3. Chinese labour law requires that employers pay retrenched employees one month’s pay for each full year employed.

Labels: ,