Adnan Faruqi
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China workshops struggle, but tougher times ahead
BEIJING: A broad and bruising downturn is sweeping through Chinas giant manufacturing sector, ensnaring thousands of factories already fighting for survival in the face of plunging profit margins.
While the misery has not yet reached levels seen in 2008 when global financial turmoil caused trade to seize up, Chinese exporters across industries are battling hard times as Europes crisis and tight credit conditions at home pummel sales.
The tough times are clear from Chinas trade data released this weekend, which showed exports growth in November at its most sluggish in two years. Sales to Europe, Chinas biggest market, rose in single digits for the third straight month; a sharp slowdown considering growth averaged more than 18 per cent in the first eight months of 2011.
I expect next year to be even worse, said Danny Lau, chairman of Hong Kongs Small and Medium Enterprises Association, whose members include China factory owners. He said factories already report a 15 per cent annual drop in orders.
Its like the whole of Europe has no water, no money. If this continues, it will be extremely troublesome for us.
Most think the worst can be avoided if Europe survives its troubles, but the stakes are nonetheless high: millions of factory jobs are on the line and retrenchment would bring unwanted social instability to China ahead of a once-a-decade transition of Chinas top leadership due late next year.
Already, a wave of industrial disputes has hit factories around the country, from the manufacturing heartland Pearl River Delta in southern Guangdong province to the Yangtze river Delta near the countrys financial capital Shanghai in the east.
Beijing is not taking any chances. It signalled a shift in monetary policy in November by cutting for the first time in three years the amount of cash banks have to keep in reserve to soothe a local credit crunch mostly punishing smaller firms.
It is not clear if the policy turnaround can stem factory closures in China, the worlds top exporter in 2010, but Lau is not hopeful. 12 other company officials Reuters spoke to from sectors ranging from steel to textile were also not optimistic.
China may use a downswing to push manufacturers up the value chain by letting labour-intensive factories shut to make way for more capital-intensive ones, Lau said.
Officials tell you they wont sacrifice us, but in reality they are sacrificing us, he said. Theres nothing we can do.
On the ground, few businesses appear immune to a swooning economy even those that rely on domestic demand thanks to massive increases in the price of raw materials and the inability of firms to pass them onto price-savvy consumers.
Price increases among Chinas raw materials suppliers have averaged 9.7 per cent over the last nine months. Consumer goods makers have had to absorb more than half of that, managing an average price increase of just 4.4 per cent in the same period.
As was the case in 2008, manufacturers high up the supply chain such as raw material producers, were first to feel the headwinds of cooling demand.
Our orders for December will fall 10 to 15 per cent from November as customers demand has shrunk, said an official at Chinas Maanshan Iron & Steel, one of Chinas largest state-owned steelmakers.
We are trying to accept small bookings, such as even a 50-tonne deal in an effort to retain the market, but this also leads to higher cost.
In better times, large Chinese steel mills typically take bookings of at least a few thousand tonnes. The gloom percolates down the supply chain. Taiyuan Heavy Co Ltd, which sells machines to Chinese factories including steel makers, said demand is flat because its customers are struggling.
With businesses suffering, workers are shopping less, and firms from textile mills to car makers feel the squeeze. Alibaba.com, Chinas biggest e-commerce firm that sells everything from doors to sweets, had its worst quarter in almost two years from July to September. It expects Chinese consumption to take considerable time to rebound.
Textile makers are also worried. We are not optimistic about next year, said Chen Shiwei at Jiangsu Miaotong Textile Co. Ltd, a textile mill in Chinas eastern province of Jiangsu. Production will definitely slow. Chinese cotton prices already betray the strain, down 40 per cent from Februarys record peaks.
To be sure, the downtrend is not hitting all firms evenly. Those favoured by Beijing in subsidised, strategic sectors such as green technology have a buffer from economic anxieties, said Keith Olson, director at Environmental Investment Services Asia Ltd, a regional fund focused on environment and clean energy.
Luxury consumption is another bright spot. Diamond seller Pluczenik Group reckons that Chinas growing rich make diamonds a necessity, not a luxury purchase.
China workshops struggle, but tougher times ahead | Business | DAWN.COM
BEIJING: A broad and bruising downturn is sweeping through Chinas giant manufacturing sector, ensnaring thousands of factories already fighting for survival in the face of plunging profit margins.
While the misery has not yet reached levels seen in 2008 when global financial turmoil caused trade to seize up, Chinese exporters across industries are battling hard times as Europes crisis and tight credit conditions at home pummel sales.
The tough times are clear from Chinas trade data released this weekend, which showed exports growth in November at its most sluggish in two years. Sales to Europe, Chinas biggest market, rose in single digits for the third straight month; a sharp slowdown considering growth averaged more than 18 per cent in the first eight months of 2011.
I expect next year to be even worse, said Danny Lau, chairman of Hong Kongs Small and Medium Enterprises Association, whose members include China factory owners. He said factories already report a 15 per cent annual drop in orders.
Its like the whole of Europe has no water, no money. If this continues, it will be extremely troublesome for us.
Most think the worst can be avoided if Europe survives its troubles, but the stakes are nonetheless high: millions of factory jobs are on the line and retrenchment would bring unwanted social instability to China ahead of a once-a-decade transition of Chinas top leadership due late next year.
Already, a wave of industrial disputes has hit factories around the country, from the manufacturing heartland Pearl River Delta in southern Guangdong province to the Yangtze river Delta near the countrys financial capital Shanghai in the east.
Beijing is not taking any chances. It signalled a shift in monetary policy in November by cutting for the first time in three years the amount of cash banks have to keep in reserve to soothe a local credit crunch mostly punishing smaller firms.
It is not clear if the policy turnaround can stem factory closures in China, the worlds top exporter in 2010, but Lau is not hopeful. 12 other company officials Reuters spoke to from sectors ranging from steel to textile were also not optimistic.
China may use a downswing to push manufacturers up the value chain by letting labour-intensive factories shut to make way for more capital-intensive ones, Lau said.
Officials tell you they wont sacrifice us, but in reality they are sacrificing us, he said. Theres nothing we can do.
On the ground, few businesses appear immune to a swooning economy even those that rely on domestic demand thanks to massive increases in the price of raw materials and the inability of firms to pass them onto price-savvy consumers.
Price increases among Chinas raw materials suppliers have averaged 9.7 per cent over the last nine months. Consumer goods makers have had to absorb more than half of that, managing an average price increase of just 4.4 per cent in the same period.
As was the case in 2008, manufacturers high up the supply chain such as raw material producers, were first to feel the headwinds of cooling demand.
Our orders for December will fall 10 to 15 per cent from November as customers demand has shrunk, said an official at Chinas Maanshan Iron & Steel, one of Chinas largest state-owned steelmakers.
We are trying to accept small bookings, such as even a 50-tonne deal in an effort to retain the market, but this also leads to higher cost.
In better times, large Chinese steel mills typically take bookings of at least a few thousand tonnes. The gloom percolates down the supply chain. Taiyuan Heavy Co Ltd, which sells machines to Chinese factories including steel makers, said demand is flat because its customers are struggling.
With businesses suffering, workers are shopping less, and firms from textile mills to car makers feel the squeeze. Alibaba.com, Chinas biggest e-commerce firm that sells everything from doors to sweets, had its worst quarter in almost two years from July to September. It expects Chinese consumption to take considerable time to rebound.
Textile makers are also worried. We are not optimistic about next year, said Chen Shiwei at Jiangsu Miaotong Textile Co. Ltd, a textile mill in Chinas eastern province of Jiangsu. Production will definitely slow. Chinese cotton prices already betray the strain, down 40 per cent from Februarys record peaks.
To be sure, the downtrend is not hitting all firms evenly. Those favoured by Beijing in subsidised, strategic sectors such as green technology have a buffer from economic anxieties, said Keith Olson, director at Environmental Investment Services Asia Ltd, a regional fund focused on environment and clean energy.
Luxury consumption is another bright spot. Diamond seller Pluczenik Group reckons that Chinas growing rich make diamonds a necessity, not a luxury purchase.
China workshops struggle, but tougher times ahead | Business | DAWN.COM
lol
have such intricate knowledge of the internal workings of the mainland Chinese government? From the vantage point of either Taiwan or HK?
