Tag Archives: manufacturing

Happy New Year, We Can Only Hope

For those of you for whom it is, Happy New Year.

This Bystander took a short break but the global economic slowdown kept going regardless.  We return to find the latest monthly Purchasing Managers Index showing that industrial activity shrank in December for the third month running. At 41.2 the PMI is still well below the 50 level that is the tipping point between manufacturing contracting or expanding, and is in line with recent grim reports of export orders.

The thinnest of silver linings is that the PMI was above November’s record low. Whether that means Beijing’s measures to mitigate the effects of the worldwide slump on China’s economy are starting to work is anyone’s guess at this point. Perhaps we’ll just go away again until this is all over. But we fear that might mean we’d have a couple of years off rather than just a couple of weeks.

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Pearl River Delta’s Silver Lining

If the Pearl River Delta were an emerging sovereign economy, there would be reason to believe that it was moving up the development ladder despite the global slowdown being caused by the global financial crisis.

The delta is the heartland of southern China’s manufacturing industry and many small and medium sized labor intensive light manufacturers are suffering horribly. In the first half of the year, 15% of all firms with Hong Kong investment closed down, including half of shoe manufacturers and toy makers. Official figures show that 50,000 enterprises closed down in the first three quarters of this year, although provincial officials have said an offsetting number of new businesses have registered (those may be mostly mom-and-pop operations of the newly unemployed).

However, larger machinery and electronics companies are still showing robust growth with export orders holding up. Provincial GDP grew 10.7% in the first half of the year. Slow by recent standards but still above the national average.

The pattern emerging: low-end consolidation and a move to higher value production as the region’s price advantages are eroded. Classic emerging markets development.

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Smart Union Collapse Signals Deepening Economic Problems In Southern China

Workers seeking unpaid wages from Smart Union Group, a leading toy maker that went into liquidation on Friday, were still milling around outside the company’s Dongguan factory on Sunday, AFP reports.

The toy company stopped production at all its factories last week, leaving more than 6,000 workers looking to recoup unpaid back wages. Smart Union, which makes toys for Mattel and Disney, is the most high-profile casualty of the wave of bankruptcies sweeping through China’s toy exporters, half of which have gone out of business, Xinhua recently reported (see: “Toymaking Is No Child’s Play As Business Failures Soar“). Most are small operations, squeezed out of business by rising costs, falling demand and tighter product safety standards, so the Smart Union closure may point to an escalating problem that is starting to affect larger manufacturers.

Cost have been rising in the coastal manufacturing hubs while exports are at risk of falling away with the rise of the renminbi and falling demand in financial crisis struck U.S. and European markets. Appliance maker BEP shuttered a Shenzhen plant yesterday, laying off 1,500 workers. The company said the global credit crisis had made it difficult for it to get bank funding.

The prospect of rising bankruptcies and large scale lay-offs across China’s southern provinces will worry central and local governments alike.

As a footnote, this anecdote shows how global the fallout from the credit crisis can be: Chinese labourers on the Turks and Caicos are demanding back wages from Israeli contractors for work on a project stopped because of the collapse of the New York investment bank Lehman Bros.

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