Quotes of the Day

HONG KONG, CHINA
Cash Crunch
Not long ago, American businessmen flocked to trade shows in Guangzhou, China, searching for bargains from the country's southern factories. "Americans are famous for one thing," says Ken Melwani, Hong Kong – based director of trading company Nikita, whose 10 Chinese manufacturing plants turn out women's undergarments for export to Latin America and Africa. "They don't care about quantity. They just want to know: 'What is the price?'" This year, Melwani noticed that U.S. buyers weren't coming anymore. And something else was different. His bank has stopped pushing loans. "Definitely things have changed from the beginning of this year," he says. "They are not as willing to encourage borrowing."

Hong Kong, the financial and managerial nerve center of the Chinese region often called the world's factory, is a wealthy city. But even here, the global credit squeeze is making it tougher for businesses to borrow money to cover their short-term needs. "Right now, we're facing trouble," says Tommy Lam, owner of a garment factory in Dongguan, a Chinese manufacturing hub near Hong Kong. "We're not getting repeat orders we're supposed to get. [And] banks are warning us they may cut our credit in the future."

Lam says his company is in sound financial shape and will weather the storm. But other Hong Kong companies — particularly those that invested some of their capital in property and stocks — are facing crippling cash shortages. On Oct. 9, U-Right, a clothing retailer with about 100 outlets in Hong Kong and another 500 in China, was forced to liquidate after it could not meet bank demands to repay its debts. Analysts say the company borrowed too much and expanded too fast in the rush to catch China's economic wave. As the global economy slows, that's likely to become a familiar refrain — and as a result, lenders are increasingly scrutinizing their customers' balance sheets and cash-flow statements for signs of stress that could lead to default. One Hong Kong businesswoman, who asked not to be named for fear of alarming already jittery creditors, says her bankers recently descended on her office to examine the books. "Next year will be the true test for a lot of companies," she predicts. "If there's no fresh money, there will be no other choice but to contract their businesses. If that happens, there will be lots of people without jobs."

— by Peter Ritter

NEW DELHI, INDIA
Dream Over
"No one dares mention the word shares in our house these days," whispers New Delhi software engineer Sandeep Goyal, "especially not when Dad's around." It's soon evident why. His father, a retired banker, is watching a religious sermon on a Sony flat-screen TV that, along with Sandeep's shiny new HP laptop, is a very visible sign of newfound affluence in the living room of the Goyals' modest home. "I warned him," the ex-banker says suddenly. "Never put all your eggs in one basket. He should have invested in government bonds and fixed deposits along with shares."

Like millions of other Indians emboldened by the country's booming economy, Goyal, 28, invested in stocks, confident that the seemingly sure profits would pad a comfortable lifestyle. The crash in global markets has been hard for him to accept. India's Sensex has fallen 45% from its peak in January; the Goyal family's net worth, built over years, has been decimated in weeks. From $12,000, their portfolio is down to $4,000 — a loss that totals more than half of Sandeep's annual paycheck from his job with a U.S.-based company. Leaving the room, the father fires a Parthian shot: "It's not good to be greedy," he says.

More bad news has been streaming across the Goyal's Sony over the past few weeks: India's economic growth rate is expected to slow from 9% to 8% or even less; unfounded rumors that the country's largest private bank, ICICI, had been caught in the subprime mess nearly caused a bank run; Jet Airways, the largest domestic airline, is laying off hundreds. Not the cheeriest atmosphere for a wedding. Goyal is getting married in two months. "I wanted to go to Singapore for our honeymoon, and buy a new car. It's ta-ta to those dreams now," he says wistfully. "We've seen some great years. They made you believe that if you worked hard you could rise high, and quickly." But his faith in the future is shaken. "I feel scared that if things continue this way, I may lose my job," he says, "But one thing I'm sure about is: I'll never buy a share again."

— by Madhur Singh

REYKJAVÍK, ICELAND
Frozen Assets
In the Icelandic language the words for money and sheep are the same. But under Iceland's current economic conditions, goes a joke doing the rounds, only one will put food on the table and a coat on your back (as long as you eat mutton and wear wool). With a flagging currency and a crippled banking industry, Icelanders are fast losing their jobs, savings and businesses. The government fears that some may even be losing their minds: a few days ago, the Icelandic Ministry of Health set up an emergency mental-health center in downtown Reykjavík to help citizens distressed by the nation's economic implosion. Located on the second floor of an old health clinic, it stands ready to treat a torrent of mentally anguished Icelanders. As yet, business has been slow. Dr. Ragnar Ólafsson, one of two full-time psychologists assigned to the clinic, was savoring a sandwich alone in his office at 1:30 p.m. on Oct. 13. "Not many people have come so far," he says.

At first glance, there are still plenty of signs of the good life to which this nation of 320,000 had grown accustomed. The parking lot of Kringlan shopping center in Reykjavík is filled with sparkling Audis, Range Rovers and Mercedes. But inside the mall, bleary, blond-haired Icelanders pace the floor like zombies going through the motions of their former existence. "How can I rest easy knowing that everything I've saved all my life is gone?" asks a red-eyed advertising consultant dressed in a woolly cardigan and slippers as he sits in the food court. At age 61, he has lost almost all of his retirement savings in the banking meltdown. "It's a matter of pride as a man and an Icelander," he says, "and it was yanked out from under from me."

Minister of Health Gudlaugar Thór Thórdarson agrees that Iceland has sustained a blow to its psyche, "especially when Gordon Brown uses antiterrorism laws against Iceland," he says, referring to the British Prime Minister's move to invoke an antiterrorism law to freeze Icelandic companies' assets in the U.K. "The people here not only suffer financially — it also makes us feel bad." Indeed, says psychologist Ólafsson," Icelanders have always seen themselves as an independent people, and now we simply can't be as self-sufficient."

Local businesses are trying to hearten people by throwing open their doors. One Reykjavík restaurant, Á naestum grösum, has changed itself into a soup kitchen offering downtrodden Icelanders a free bowl of barley-vegetable soup and a slice of bread, while just down the street a few local bars have begun selling "recession beer" at $2.60 a glass compared with the normal price of $6 or so. But with more layoffs and further turmoil expected, it will take more than hearty stew and a pint of cheap cheer to rescue this nation from economic despair.

— by Jonas Moody

HITACHI, JAPAN
The Mall is Closed
For Taira Kamoshida, the founder and the owner of a successful dry-cleaning chain in the small Japanese city of Hitachi (pop. 195,000), the bad news hit like a bolt from the blue. On Sept. 26, Kamoshida was told by his management office that Hitachi's main shopping mall was closing its doors — and one of his dry-cleaning shops located there was instantly out of business. "There was no sign at all of the closing down," says Kamoshida, 63. "On the contrary, my store finally started to break even and was even heading for a surplus. I was really looking forward to that."

Kamoshida isn't the only one caught by surprise as Japan deals with the cascading effects of the crisis. The mall, Sakura City, opened in late 2006 to much fanfare, and initially housed 60 stores, including the area's only supermarket. Its closure has cost about 400 people their jobs, and effects are rippling out into the community, says Tadayasu Yamamoto, chairman of the Hitachi Chamber of Commerce and Industry. "Shop owners of the nearby shopping arcades are in trouble and so are the consumers," Yamamoto says. "We cannot allow the city's ray of light to be extinguished."

But there's nothing he can do to keep the lights on. The mall's operators had been paying day-to-day expenses with financing obtained through a subsidiary of Lehman Brothers, the now defunct American investment bank. After Lehman's dramatic collapse in mid-September, the mall lost its funding source, couldn't pay operating expenses and was forced to liquidate. Tenants must be out within days. They have been told they will not be getting their deposits back. Kamoshida can't get over the feeling of being utterly blindsided. "I had no idea that Lehman Brothers had anything to do with it," he says. "When I heard that Lehman collapsed, I thought that it was somebody else's problem in a faraway place. But in the end I had everything to worry about, didn't I?"

— by Michiko Toyama

PARIS, FRANCE
Crash Diet
Wrapped in a brown apron as he greets visitors with a warm, booming voice, François Bonduel owns the kind of Parisian restaurant beloved by tourists and locals alike. But these days — with the euro still strong and economies seizing up around the globe — the foreign visitors that typically make up a third of Bonduel's clientele have been thinning out and spending less. To make matters worse, many French visitors to his restaurant, Au Bon Saint-Pourçain — a stone's throw from the Saint-Sulpice church in Paris' tony sixth arrondissement­ — are also eating and drinking less than usual. "I've checked the accounts, and I know I'll make no profit this month," says Bonduel.

With 20 years of work and savings under his belt, Bonduel, 57, feels he'll be able to ride out a bad patch. But he acknowledges that his guests' more modest outlays have forced some changes on him. "For the first time ever, I closed the restaurant in August and went on vacation because no one was coming to eat," says Bonduel. "I do the cleaning myself, and we've stopped sending the tablecloths out for laundering and pressing to save money. I also had to let one of the cooks go ... We'll be fine, but we are having to tighten the screws."

Not everyone is so lucky. Recent industry research shows that falling purchasing power and consumer fear of a looming economic downturn have caused spending in France's cafés and restaurants to slump around 20% this year. Nearly 3,000 of the nation's restaurants closed down or went bankrupt in the first half of 2008 alone. That wave of failure may well rise as newcomers to the sector who relied on credit to get started find themselves stretched to make their payments as revenues slump. "If I were 30, starting out with loans to reimburse, I'd be in big trouble," says Bonduel, relieved that most of his clients are residents of his restaurant's affluent neighborhood. "I'm fortunate things for me are only tight, rather than untenable."

— by Bruce Crumley

LA SAGRA, SPAIN
Hitting the Bricks
Spaniards refer to the crash of their once booming real estate and construction industries as a "crisis of bricks." In La Sagra, they take that phrase literally. Located about 40 miles (65 km) south of Madrid, the clay-rich county produces roughly 30% of Spain's bricks, and boasts the greatest concentration of brickworks in Europe. But right now, La Sagra's factories aren't making much of anything. "The warehouses are full," says Carlos Duque, general secretary for the Castilla-La Mancha branch of the construction workers' trade union MCA-UGT. "They just don't have anyone to sell to."

Residents of the county don't have to look far for the reason. The bursting of Spain's real estate bubble sent several major developers into bankruptcy and halted construction across the country. The number of houses built in 2008 is expected to fall by 70% from 2007. That's also fueling unemployment, which jumped by almost a third in September to reach 11.3%, Spain's highest rate since 1997.

La Sagra felt the pinch months ago. "Construction started to really slow in February or March, with the subprime crisis in the U.S.," says Duque, "and that's when the brick warehouses started to fill up." Many brickworks in the area closed for several months over the summer. Most in La Sagra have suspended workers temporarily in a program negotiated with the unions that allows employees to receive unemployment benefits for three months, and then guarantees their return to work. With recession looming, Duque worries about what lies ahead. "That's when we're going to start seeing factories closing for good," he says. "And then we'll have serious problems."

Rafael Martín, the mayor of the town of Alameda de la Sagra, says he's most concerned about the impact of the slump on his neighbors, some of whom are already in difficult circumstances because their mortgage payments have jumped while their shifts have been reduced. "It doesn't just affect the people who work in the brick factories," he notes. "It affects the truckers who transport the bricks, and the mechanics who take care of the trucks, and eventually even the bars where those workers go for a drink. It's like the fish that bites its own tail."

— by Lisa Abend