HomeBusinessThe factories on the...

The factories on the front line of China’s economic slowdown

From slowing global demand to rising geopolitical tensions and a tentative post-Covid recovery, China’s manufacturers are facing some of the strongest headwinds in years.

The tale of three factories — spanning footwear and electronics — illustrates how manufacturers are experiencing a slowdown in the world’s second-biggest economy.

Factory activity, one of the main pillars of economic growth during the pandemic, has slowed for four consecutive months to July 31, according to official statistics. The private Caixin/S&P index on Tuesday also showed manufacturing declined last month, posting a figure of 49.2. A reading below 50 indicates a contraction.

The Chinese Communist party’s politburo last week acknowledged the economy’s “tortuous progress” since the lifting of pandemic restrictions, vowing measures to “actively expand domestic demand”, such as spurring consumer spending.

“Things are pretty bad,” said Alicia García-Herrero, chief Asia-Pacific economist at French investment bank Natixis. Domestic demand “will only recover with a big stimulus”, she added, and “industrial production overall will underwhelm”.

This picture has been complicated by President Xi Jinping’s desire for “high-quality” growth, a strategy that favours tech industries over the vast manufacturing hubs that churn out basic consumer goods.

‘Our sector is in misery’

Feng Tai Footwear exemplifies the difficulties faced by the low-technology manufacturers on which China’s economic success has been built. Prior to the pandemic it sold some 5mn pairs of shoes a year to clients such as Walmart and Target. This year it will do well to sell 3mn. Orders for the second half of this year — typically filled by July — are down at least a third compared with last year.

“Our sector is in misery,” said chief executive Eddie Lam, who runs more than 10 manufacturing plants in China and employs more than 3,000 workers. “Orders often get cancelled halfway . . . Some buyers say they no longer have sufficient budgets. The sentiment is poor.”

“We are basically at a standstill,” he added. “Our workers are sometimes not even working their full-time hours.”

China’s monthly export delivery value of goods made with leather, fur or feathers as well as footwear has fallen more than a third from 2019, hitting nearly Rmb17bn ($2.4bn) in May this year.

The domestic market is tough, too, the company added, as shoes sell for a “much lower price” online. Still, that is where Lam is pinning his hopes for growth, along with new markets opening up under China’s Belt and Road international infrastructure development initiative.

Some of the company’s clients have asked if it can set up factories outside China, but Feng Tai has no plans to do so yet.

“The US knows very well that it cannot risk decoupling from China,” Lam said. “I just don’t see the advantage of moving production to south-east Asia with higher supply chain costs and additional investments required.”

Tien Sung Group

‘We can’t put all our eggs in one basket’

Geopolitical tensions between Beijing and Washington, as well as supply chain disruption during the Covid-19 pandemic, have spurred more manufacturers to shift out of China.

Rex Ho’s family business, which makes clothes for Adidas, Puma and New Balance, was an early adopter of a “China plus one” strategy, shifting some garment manufacturing to south-east Asia more than a decade ago.

“We have to consider [China] ‘plus one’ or even more,” said Ho, managing director of Tien Sung Group, referring to geopolitical tensions and supply chain disruptions. “We can’t put all our eggs in one basket.”

The Hong Kong-based company, which has about 5,000 employees, began operations at its second factory in Vietnam in April. It also has a factory in Cambodia and one in China’s southern city of Guangzhou.

About 80 per cent of its revenue comes from exports to Europe and the US. “Our clients are still talking about how they do not want their products to be ‘made in China’,” he said. Labour costs are also a factor. Sewers, for example, are paid about $800 a month in China, compared with roughly $400 and $600 in Cambodia and Vietnam respectively.

But moving out of China offers little protection from global economic headwinds. Ho, also of the industry group Hong Kong Apparel Society, said some of his peers reported orders falling 20 per cent or more in the first half of this year as retailers cleared excess inventory. With rising interest rates, some buyers have demanded payment extensions.

Anhui Tiger

‘Growth has been really, really rapid’

When Xi declared “forceful” measures this year to encourage high-end manufacturing development, electronic components manufacturers such as Anhui Tiger were in prime position to benefit from the policy shift.

The company, based in Hefei in China’s eastern Anhui province, makes electronic parts such as high-frequency transformers and power inductors for cars and green power generation.

They also supply components for clients including US-based Whirlpool and Swiss industrial group ABB.

While demand for consumer electronics has fluctuated, the company grew about 30 per cent annually each year during the pandemic, recording revenue of about Rmb150mn in the first half of 2023. “Europe is accelerating the transition to clean, renewable energy, so we’ve seen an increase in demand in these sectors,” said general manager Xing Xuhua. “Growth has been really, really rapid.”

This is part of a wider trend. China’s industrial production of electrical equipment and machinery rose 15.4 per cent year on year in May, according to Natixis. Exports of vehicles jumped 110 per cent year on year in dollar terms in the first half of the year, while the dollar value of textiles and garments exports dropped 8.3 per cent, customs data showed.

Western companies are highly reliant on Chinese equipment and products for their transition to clean energy, said Xing.

Still, Anhui Tiger is not immune to pressure to expand outside China. The company is in the process of setting up its first plant in Vietnam. “When clients threaten to drop orders,” Xing said, “we have to say yes.”

Additional reporting by Thomas Hale in Shanghai

Source link

Most Popular


Please enter your comment!
Please enter your name here

More from Author

Read Now

Pro wrestling legend, Four Horsemen founder dead at 81

STAMFORD, Conn. -- Alan Rogowski, better known as Ole Anderson and a founding member of pro wrestling’s famed Four Horsemen, has died at age 81.Rogowski teamed with Arn Anderson, Ric Flair and Tully Blanchard to create The Four Horsemen in 1986. The four “set a standard...

Cool Stuff: Celebrate X-Men ’97 With Arcade1Up’s Marvel Vs Capcom 2 Video Game Cabinet – IMDb

In March, Disney+ will be taking us back to the past with "X-Men '97," the continuation of the beloved "X-Men" animated series that was a staple of Saturday morning cartoons. With all the nostalgic excitement swirling around Marvel's mutants, the gamers over at Arcade1Up are releasing...

Dodgers learning quickly that Shohei Ohtani loves for details

PHOENIX — Back in 2019, ahead of his first season as exclusively a hitter, Shohei Ohtani had a request.He wanted to do his homework as he prepared to return from Tommy John surgery in May. Yes, Ohtani’s rookie season for the Los Angeles Angels had been...

Pokémon Trading Card Game Pocket Announced, Brings the TCG to Mobile in 2024 – IGN

Pokémon Trading Card Game Pocket is a new mobile game that brings the popular Pokémon Trading Card Game into the digital world via iOS and Android.During today's Pokémon Presents showcase, we saw players swipe to open virtual packs of Pokémon trading cards, which could then be...

Stocks are little changed Tuesday as traders assess fresh earnings and new data: Live updates

35 Mins AgoStocks open flat TuesdayU.S. stocks started Tuesday's trading session little changed.The Dow Jones Industrial Average slipped 42 points, or 0.1%.The S&P 500 and Nasdaq Composite inched up 0.1% and 0.2%, respectively. — Hakyung Kim43 Mins AgoHome prices posted a slightly higher than expected increase...

Disney World sued after NYU doctor tragically dies from allergic reaction to restaurant meal

A doctor from New York University allegedly died after having dinner at Raglan Road Irish Pub and Restaurant at Disney Springs. Her heartbroken husband has now filed a 19-page lawsuit against the park, blaming its incompetent employees. ...

NFL Draft’s quiet star was built for this moment — and he’s rising up draft boards

If you stand 10 feet from Quinyon Mitchell while he’s in a full sprint, you can actually hear how fast he is. If you stand 10 feet away and ask him a question, you might not hear his reply.A cornerback of world-class speed, Mitchell plays football...

Israel-Gaza war live: Israel-Hezbollah escalation puts ceasefire at risk, UN says

Israel-Hezbollah escalation puts efforts to find solution at risk, UN saysThe UN Interim Force in Lebanon said the recent escalation between Israel and Hezbollah has the potential to jeopardise efforts to find a political solution to the conflict."Over the past days we have seen a concerning...

Qatar ‘optimistic’ about ongoing Israel-Gaza ceasefire talks

Qatar 'optimistic' about ongoing Israel-Gaza ceasefire talks  Al Jazeera EnglishIsraeli military presents plan to war cabinet for evacuating Gaza’s population from ‘fighting areas’  CNNNetanyahu says hostage deal will delay Rafah operation  Axios Source link

Depardieu faces new allegation of sexual assault – BBC News

1 hour agoImage source, Getty ImagesFrench actor Gérard Depardieu is facing a new allegation of sexual assault, this time from a set designer.The complainant, Amélie, 53, alleges that Depardieu grabbed her and touched her breasts in 2021.The alleged assault is claimed to have occurred on the...

13-year-old tests Archimedes’ death ray for science fair project

Angle down icon An icon in the shape of an angle pointing down. Bettmann via Getty Images Scientists and historians have pointed out that Archimedes had other weapons at his...