Jimmy sat on the dusty floor of his Guangdong mill chasing down the money he was still owed. His workers had been paid off, the machinery sold and even the office furniture removed after he shut the factory’s doors in October for the last time.
“The decline in orders and the constant lockdowns were all reasons why I wanted to close the factory,” he told the Financial Times. “But most of all, it felt like there was no hope. There was no sign of a rebound.”
Factory managers in southern China are reporting a fall in orders in October of as much as 50 per cent on the back of full inventories in the US and Europe, deepening the gloomy outlook for the world’s second-largest economy.
October is normally a particularly busy period for manufacturing and the sharp decline in activity has left blue-collar workers struggling to find jobs.
The setback presents Beijing’s state planners, who are already struggling with a spiralling property crisis, sporadic lockdowns and weak consumer sentiment, with yet another complication. Last month, China reported that third-quarter gross domestic product grew at just 3.9 per cent year on year, below a 5.5 per cent annual target.
“It’s supposed to be a busy time but in the last two months it was the worst . . . nobody dares to buy anything, nobody dares buy a sofa, nobody [in Europe] has money left,” said Christian Gassner, whose factories make furniture in Guangdong.
“Everybody is crying about the same thing. Orders are dropping 30 to 50 per cent in certain industries. Many people are closing their factories.”
Alan Scanlan, an executive in Hong Kong who works in sourcing out of southern China, said the slowdown was the inevitable result of the end of the ecommerce boom after buyers overstocked for 2022.
Nike, for example, reported in September that its North American inventories were up 65 per cent at the end of the third quarter, compared with the year before.
Last month, China’s manufacturing purchasing managers’ index dropped to 49.2, from 50.1 in September, a greater than expected decline, according to the National Bureau of Statistics.
On Monday, official data showed exports shrank 0.3 per cent; they had been expected to increase 4.5 per cent. Economists pinned the decline on a drop in orders as well as haphazard lockdowns under China’s zero-Covid policy.
“We are in a scenario where Chinese domestic demand is affected by lockdowns, plus externally we’re seeing this weaker demand from Europe and the US, which is driven by high interest rates globally,” said Gary Ng, an economist at Natixis in Hong Kong. “That can be quite problematic when we talk about south China . . . these provinces are important for China’s economy.”
An official in the city of Dongguan, a manufacturing hub in Guangdong, said local governments were struggling to maintain subsidies to help factories, as they also had to pay for Covid testing.
“What are we supposed to do? Let the factories and local economy go dead and waste all income from citizens on the endless PCR tests?” asked the official, who wished to remain anonymous.
Gassner said some industries were affected more than others, with electronics and renewable energy manufacturers cocooned from the carnage.
But the downturn has still rippled through the jobs market, according to factory managers who said it was easy to hire workers at short notice.
“When orders dropped, we were forced to cut costs and one of the biggest expenditures is in paying workers,” said Danny Lau, honorary chair of the Hong Kong Small and Medium Enterprises Association, who runs an aluminium factory in Dongguan.
“We had more than 200 workers early last year, but only about 100 this year . . . That was mainly because of a lack of orders.”
Chen, who only provided his surname, works for a Guangdong-based business that supplies global supermarkets. As his hours dried up, his income fell to Rmb50,000 ($6,900) this year from Rmb80,000 the year before.
“I used to buy bubble tea at full price without blinking an eye,” said Chen, 24. “Now I only go to those cafés providing [discount] vouchers.”
He estimated that orders at his company had dropped as much as 40 per cent since April, compared with a year earlier.
“Clients are losing confidence. They don’t dare to go all in on China anymore,” said Chen.
US-China tensions have also accelerated the shift out of China of manufacturing, which had already been moving to south-east Asia owing to rising wages on the mainland.
“There is no more luck being in China . . . [since Americans] no longer desire Made in China goods, it is best for us to clear up our mainland China operations,” said Suki So, executive director of Hong Kong-based Everstar Merchandise, who is planning to close her Guangdong factory.
So is moving the rest of her factories to south-east Asia, where she produces Christmas lights. “Demand for non-essential goods such as furniture has [dropped] as Americans get poorer . . . We had to rent warehouses [this year] to store the finished goods,” she said.
Source: Economy - ft.com
