Bags of toys stored at a shop in a wholesale market in Guangzhou, a city in southeast China. | Photo Credit: Forbes Conrad for The New York Times
By KEITH BRADSHER
August 24, 2012
GUANGZHOU, China – After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.
The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.
The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government – all part of an effort to prop up confidence in the economy among business managers and investors.
But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.
“Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, “Things are kind of crawling to a halt.”
Problems in China give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.
China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.
Corporate hiring has slowed, and jobs are becoming less plentiful. Chinese exports, a mainstay of the economy for the last three decades, have almost stopped growing. Imports have also stalled, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running. Real estate prices have slid, although there have been hints that they might have bottomed out in July, and money has been leaving the country through legal and illegal channels.
Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.
Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.
“Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.
Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.
“My supplier’s inventory is huge because he cannot cut production – he doesn’t want to miss out on sales when the demand comes back,” he said.
Part of the issue is that the Chinese government’s leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country’s largest industries: housing and autos.
Premier Wen Jiabao has imposed a strict ban on purchases of second and subsequent homes, in the hope that discouraging real estate speculation will improve the affordability of homes. The ban has resulted in a steep decline in residential real estate prices, a sharp fall in housing construction and widespread job losses among construction workers.
At the same time, the municipal government in Guangzhou, one of China’s largest cities, has sharply reduced this summer the number of new car registrations it allows so as to reduce traffic congestion and air pollution.
Municipal officials from all over China have been flocking to Guangzhou to ask for details. Xi’an, the metropolis of northwestern China, has already announced this month that it will limit car registrations, although it has not settled on the details.
The Chinese auto industry has grown tenfold in the last decade to become the world’s largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.
Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity – far below the 80 percent usually needed for profitability.
Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.
“I worry that we’re going down the same road the U.S. went down, and it takes quite some time to fix that,” said Geoff Broderick, the general manager of Asian operations at J. D. Power & Associates, the global consulting firm.
Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.
Yet dealerships’ inventories of new cars rose 900,000 units, to 2.2 million, from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining – a sharp reversal for an industry accustomed to double-digit annual growth.
“Inventory levels for us now are very, very high,” said Huang Yi, the chairman of Zhongsheng Group, China’s fifth-largest dealership chain. “If I hadn’t done special offers in the first half of this year, my inventory would be even higher.”
Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories. This prompted the government-
contro
lled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.
“We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm,” the association said.
Officially, though, most of the inventory problems are a nonissue for the government.
The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.
Yet business people in a wide range of industries have little doubt that the Chinese economy is in trouble.
“Inventory used to flow in and out,” said Mr. Wu, the faucet and sink sales manager. “Now, it just sits there, and there’s more of it.”
Hilda Wang contributed reporting.
9/11 Anniversary 2012: New York Ceremony Held For September 11
by MAM Team09/11/12 08:09 AM ET
But many felt that last year’s 10th anniversary was an emotional turning point for public mourning of the attacks. For the first time, elected officials weren’t speaking at the ceremony, which often allowed them a solemn turn in the spotlight, but raised questions about the public and private Sept. 11.
“I feel much more relaxed” this year, said Jane Pollicino, who came to ground zero Tuesday morning to remember her husband, who was killed at the trade center. “After the ninth anniversary, that next day, you started building up to the 10th year. This feels a lot different, in that regard. It’s another anniversary that we can commemorate in a calmer way, without that 10-year pressure.”
Commuters rushed out of the subway and fewer police barricades were in place than in past years in the lower Manhattan neighborhood surrounding ground zero. But blocks from the site, Ron Patiro needed to consult with security guards about where he could walk his two dogs. “It’s still a military zone,” he said.
Families had a mixed reaction to the changing ceremony, keeping politicians away from the microphone in New York for the first time.
For Charles G. Wolf, it’s a fitting transition.
“We’ve gone past that deep, collective public grief,” says Wolf, whose wife, Katherine, was killed at the trade center. “And the fact that the politicians will not be involved, to me, makes it more intimate, for the families. … That’s the way that it can be now.”
But Pollicino said it’s important that politicians still attend the ceremony.
“There’s something missing if they’re not here at all,” she said. “Now, all of a sudden, it’s `for the families.’ This happened to our country – it didn’t happen only to me.”
Political leaders still are welcome to attend the ground zero ceremony, and they are expected at the other commemorations, as well.
President Obama and first lady Michelle Obama plan to attend the Pentagon ceremony and visit wounded soldiers at Walter Reed Army Medical Center. Biden and Secretary of the Interior Ken Salazar are expected to speak at the Flight 93 National Memorial near Shanksville, at the site where the hijacked United Airlines plane went down.
Officeholders from the mayor to presidents have been heard at the New York ceremony, reading texts ranging from parts of the Declaration of Independence and the Gettysburg Address to poems by John Donne and Langston Hughes.
For former New York Gov. George Pataki, this year’s change ends a 10-year experience that was deeply personal, even as it reflected his political role. He was governor at the time of the attacks.
“As the names are read out, I just listen and have great memories of people who I knew very well who were on that list of names. It was very emotional,” Pataki reflected by phone last week. Among his friends who were killed was Neil Levin, the executive director of the Port Authority of New York and New Jersey.
But Pataki supports the decision not to have government figures speak.
“It’s time to take the next step, which is simply to continue to pay tribute,” Pataki said.
The National Sept. 11 Memorial and Museum – led by Mayor Michael Bloomberg as its board chairman – announced in July that this year’s ceremony would include only relatives reading victims’ names.
The point, memorial President Joe Daniels said, was “honoring the victims and their families in a way free of politics” in an election year.
Some victims’ relatives and commentators praised the decision. “It is time” to extricate Sept. 11 from politics, the Boston Globe wrote in an editorial.
But others said keeping politicians off the rostrum smacked of … politics.
The move came amid friction between the memorial foundation and the governors of New York and New Jersey over financing for the museum – friction that abruptly subsided Monday, when Bloomberg and New York Gov. Andrew Cuomo announced an agreement that paves the way for finishing the $700 million project “as soon as practicable.”
Before the deal, Cuomo, a Democrat, and New Jersey Gov. Chris Christie, a Republican, had signaled their displeasure by calling on federal officials to give the memorial a financial and technical hand. Some victims’ relatives saw the no-politicians anniversary ceremony as retaliation.
“Banning the governors of New York and New Jersey from speaking is the ultimate political decision,” said one relatives’ group, led by retired Deputy Fire Chief Jim Riches. His firefighter son and namesake was killed responding to the burning World Trade Center.
Spokesmen for Christie and Cuomo said the governors were fine with the memorial organizers’ decision.
Of course, it’s difficult to remember 9/11 without remembering its impact on the nation’s political narrative.
After all, “9/11 has defined politics in America” since 2001, said Costas Panagopoulos, a Fordham University political science professor. “At the end of the day, 9/11 was a public tragedy that affected the nation as a whole.”
Follow Jennifer Peltz on Twitter: @jennpeltz
Associated Press writer Verena Dobnik contributed to this report.
Western Cattlemen Sue WTO & USA
by MAM TeamBy PHILIP A. JANQUART
Thursday, September 06, 2012
The U.S. Country of Origin Labeling Act, aka COOL, requires all fresh produce, meat, chicken and fish to be labeled to reveal its country of origin.
The COOL Act, signed in 2002, led Canada and Mexico to file complaints with the WTO. Three WTO representatives, from Portugal, Pakistan and Switzerland, found that COOL violated the Uruguay Round of the General Agreement on Tariffs and Trade, and “imposes discriminatory burdens on meat imported from Canada and Mexico,” according to the complaint.
The WTO’s Appellate Body affirmed the decision, finding that COOL, “particularly in regard to the muscle cut meat labels, is inconsistent with Article 2.1 of the TBT Agreement [Technical Barriers to Trade Agreement] because it accords less favorable treatment to imported livestock than to like domestic stock.”
The cattlemen-plaintiffs object.
“The Country of Origin Labeling Act is not a barrier to trade of any kind,” the complaint states. “It was passed to give consumers information about where agricultural products came from. Consumers could choose not to buy raspberries from Guatemala because of a bacterial problem there, or could refuse to buy Canadian beef because of a Mad Cow disease problem there.”
Citing an unidentified “recent opinion poll,” the plaintiffs claim that 93 percent of U.S. consumers support the COOL Act.
The cattlemen also claim that the Uruguay Round Agreement, signed into law by President Clinton in 1994, states that U.S. law prevails in any trade conflict between the U.S. and other countries.
They claims that Section 102(a)(1) of the Uruguay Round states: “No provision of any of the Uruguay Round Agreement, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States shall have effect.”
The complaint continues: “The ruling by the WTO Appellate Body that declares COOL is a violation of the TBT Agreement, which was executed pursuant to, or under the auspices of, the Uruguay Round Agreement, and that attempts to intimidate the U.S. into modifying COOL to conform to the WTO’s interpretation of the TBT Agreement is inconsistent with the U.S. COOL law. Under Section 102(a)(1), U.S. law prevails over the ruling of the WTO Appellate Body because of the conflict.”
The cattlemen claim that their members will be harmed by the WTO’s actions.
“Plaintiff R-CALF USA and its members are harmed by any dilution of the country of origin law and do not want their domestic meat confused by the consumer with meat from Canada and Mexico,” the complaint states.
“Plaintiff Melonhead LLC is harmed by any weakening of country of origin legislation because it does not want Mexican and Canadian meat to be lumped together with meat from the United States. Melonhead’s customers desire U.S.-born, raised and processed beef and do no want confusion with Mexican and Canadian beef.”
The cattlemen ask the court to declare that the WTO ruling has no authority to override U.S. law and that its “decision concerning the Country of Origin Labeling Act is void in the United States and throughout the world.”
They also want the court to order Secretary of Agriculture Tom Vilsack to do his “legal duty” to enforce COOL and to order U.S. Trade Representative Ron Kirk to cease and desist from negotiating with Canada and Mexico an amended and “watered-down” version of the Act.
Both Vilsack and Kirk are named as defendants. The cattlemen claim Vilsack and Kirk have no “legal right to amend or contravene this law by regulations or negotiations.”
The beef industry is represented by Joel Joseph, of Los Angeles.
Chinese Manufacturing Is Crashing
by MAM TeamGordon G. Chang, Contributor
It’s hard to see how manufacturing will recover soon. Manufactured goods are stockpiled at record highs across China. “My supplier’s inventory is huge because he cannot cut production—he doesn’t want to miss out on sales when the demand comes back,” said Wu Weiqing to the New York Times.
Perhaps that explanation makes sense, but it’s far more likely that Wu’s supplier, which makes sinks and faucets, had been told by the local government to keep production lines going no matter what. And why would city and municipal officials do that? For one thing, local officials don’t want to deal with unrest that idle workers cause. Moreover, lower-level cadres are judged by growth in their districts. The value of a sink sitting in a factory’s inventory, even if never sold, is counted as gross domestic product. Mr. Wu’s employer, a wholesaler, has seen its sales fall 30% over the course of the last year.
Sinks are going down the drain, and steel is now heading in the same direction. Beijing reported that China produced a record amount of steel in July, but it was a title by a whisker. Steel production was mostly flat last month compared to a robust June—up in some measures and down in others. Daily output, according to one source, was 2.0 million tons in June and 1.99 million tons in July.
The past for Chinese steel is unclear, but the future is certain. The signs for the remainder of the year are, unfortunately, uniformly bad. The price of benchmark hot rolled steel has fallen 19% since April. In the first half of this year, the profits of steel companies dropped 96% from the corresponding period in 2011. Steelmakers have been defaulting on their obligations to purchase iron ore, a sure sign production will tumble soon. Daily output this month, according to the analysts at Mirae Assets Securities, could be as low as 1.85 million tons. Record production in the face of weak demand suggests inventories must be rising.
Carmakers have solved their inventory problems by forcing dealers to take autos they cannot sell. Inventories at the dealers in the first six months of the year increased 900,000 units. These retailers are now carrying 2.2 million cars in their showrooms. Even with dealers taking unneeded cars, the manufacturers are operating at around 65% of capacity when 80% is thought to be the breakeven point. Eventually, the automakers will have to slam on the brakes: retail sales of cars are probably declining at this moment.
And why do we not know for sure? Censors have stopped the release of statistics on car registrations, and fictitious reporting has hidden the size of the inventory buildup across China’s manufacturing sector. Yet government statisticians were unmasked by the HSBC Flash PMI. The inventory buildup this month was the fastest ever recorded by the survey, which began in April 2004.
In free-market economies, the sustained rise of inventories is a prelude to recession. In China, on the other hand, inventory accumulation can go on for years before it negatively affects growth.
So what does the current buildup of inventory say about the state of the Chinese economy? At this moment, factories no longer want to finance inventory, even though interest rates are coming down. Across the country, manufacturers are beginning to cut back on production so they can clear out the warehouses, where stored products are literally collecting dust. Said Anne Stevenson-Yang of J Capital Research to the Times, “Things are kind of crawling to a halt.”
Manufacturers are resorting to price wars, which will eventually make room at warehouses from one end of China to another. Moreover, they can start to export what they cannot sell at home. Yet exports may not be the solution this time. If July’s disappointing year-on-year export growth of 1.0% is any indication of what will happen this month, China’s manufacturers will be in for a rough ride. The Flash Index had gloomy news on this front as well: the new export sub-index came in at 44.7. That was the lowest result since March 2009.
Also at a March 2009 low was the HSBC sub-index for factory input prices. This mirrors the stunning 2.9% year-on-year fall in producer prices in July. The Flash Index for this month indicates there will be no pickup in manufacturing this quarter, and it’s hard to see a reversal of downward trends before the end of the year.
In every economic crisis there is a moment when observers say “Oh my gosh, this can’t be happening.” The Flash PMI for August, which triggered a tide of negative assessments of the economy, looks like it was that moment for China. Stevenson-Yang, in her latest e-mail note, summarizes the change of mood as “The Erosion of Belief.” Believe it: manufacturing in China is leading the way down.
Follow Gordon Chang on Twitter @GordonGChang
Growing U.S. trade deficit with China cost 2.7 million jobs between 2001 and 2011
by MAM TeamBy Robert E. Scott | August 23, 2012
The China toll: A Report By The Economic Policy Institute
“China is moving rapidly upstream into computers and other advanced technology products, which threatens core, high-tech manufacturing industries that still remain in the United States,” Scott said.
The states with the biggest net losses, in terms of the total number of jobs eliminated or displaced, were California (474,700 jobs), Texas (239, 600), New York (158,800), Illinois (113,700), North Carolina (110,300), Florida (106,100), Pennsylvania (101,200), Ohio (95,900), Massachusetts (92,700) and Georgia (87,300). In 12 states, the jobs lost or displaced equaled or exceeded 2.2% of total employment: New Hampshire (2.94 percent of total state employment), California (2.87 percent), Massachusetts (2.86 percent), Oregon (2.85 percent), North Carolina (2.67 percent), Minnesota (2.66 percent), Idaho (2.65 percent), Vermont (2.43 percent), Colorado (2.38 percent), Texas (2.26 percent), Rhode Island (2.24 percent) and Alabama (2.20 percent).
Hard-hit sectors in manufacturing other than computer and electronic parts include apparel and accessories, textile mills and textile product mills, fabricated metal products, plastic and rubber products, and motor vehicles and parts. Service industries, including administrative, support and waste management services, experienced significant job displacement as a result of eliminated or displaced manufacturing jobs.
“Increases in U.S. exports support job creation in the United States, but increases in imports result in job losses—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers,” Scott said. “Thus, growing trade deficits cost U.S. jobs.”
Currency manipulation by the Chinese government has exacerbated the U.S.-China trade deficit. China’s productivity has soared, but because China has pegged its currency to the U.S. dollar instead of allowing it to fluctuate freely, the yuan has not increased in value. Thus, U.S. goods are less competitive in China and in countries where U.S. exports compete with those from China.
“China’s currency policies have contributed to the dramatic growth of the U.S.-China trade deficit and the loss of 2.7 million U.S. jobs since China entered the WTO in 2001,” said Scott.
You can view the full report here.
The growth of the U.S. trade deficit with China since that country entered the World Trade Organization in 2001 has had a devastating effect on U.S. workers and the domestic economy. Between 2001 and 2011, 2.7 million U.S. jobs were lost or displaced. Using a new model, the study by the Economic Policy Institute reveals a first look at how growing trade deficits cost jobs in every congressional district, including the District of Columbia and Puerto Rico. You can see data for all 437 districts by clicking on the states in an interactive map you can view here, thanks to the Alliance for American Manufacturers
China Escalates U.S. Trade Row, Asks WTO to Judge Dispute
by MAM TeamAugust 23, 2012
WTO rules entitle China to demand adjudication after a 60 day period of consultations. China will make the demand for adjudication at a meeting of the WTO’s Dispute Settlement Body on Aug 31, China said in a statement circulated to WTO members this week.
The office of the U.S. Trade Representative said in May that China’s decision to bring the dispute to the WTO was “premature and not an appropriate use of dispute settlement system resources”, because the U.S. Department of Commerce was already working to address the issues raised by China.
But China’s statement said two subsequent rounds of talks, on June 25 and July 18, had failed to resolve the dispute, which includes wind towers, as well as certain types of steel pipe, wire, cylinders and wheels, aluminium extrusions, wood flooring, magnesia bricks, thermal and coated paper and citric acid.
China is by far the world’s biggest producer of steel and is also a leading maker of clean energy equipment such as solar panels and wind towers, helped by Beijing’s ambition of tackling carbon emissions without slowing China’s growth.
Foreign competitors complain that its oversupply is the result of a market that is driven by forces such as government edicts and subsidies rather than fundamental supply and demand, and China has created surpluses that distort the global market.
China decided to bring the latest WTO complaint, which it says affects exports worth $7.3 billion, after winning a previous WTO dispute last year over U.S. duties on imports of Chinese steel pipes, off-road tyres and woven sacks.
Many of China’s grievances might have been dealt with by a U.S. court decision last year, which struck down the Commerce Department’s ability to impose anti-subsidy duties on “non-market economies” like China.
But the U.S. Congress voted to restore it in March, ensuring U.S. duties on about two dozen Chinese goods stayed in place.
The case is one of several currently “live” disputes between the United States and China at the WTO.
The United States is challenging Chinese export restrictions on rare earths, tungsten and molybdenum and Chinese duties on certain U.S. car exports and U.S. chicken exports.
Last month China also lost an adjudication decision against a U.S. claim that it was discriminating against U.S. bank card suppliers. It could decide to appeal the decision but has not yet said whether it will do so.
China Says U.S. Support for Clean Energy Violates WTO Rules
by MAM TeamThe announcement, the final ruling in an investigation launched in November, comes as Beijing and Washington wrangle over duties on solar and wind energy products and U.S. presidential candidates trade barbs over renewable energy subsidies.
“The Commerce Ministry will adopt relevant legal measures, demands that the United States cancel parts of the measures that violate World Trade Organization rules and give Chinese renewable energy firms fair treatment,” the ministry said.
Western solar companies have been at odds with their Chinese counterparts for years, alleging they receive lavish credit lines to offer modules at cheaper prices.
The United States in May imposed duties of about 31 percent on solar panel imports from China. It also hit Beijing last month with a second round of duties on wind turbine towers from China.
Chinese solar companies warned of a trade war last month after European firms led by Germany’s SolarWorld asked the European Union to investigate complaints that Chinese rivals had been selling their products below market value in Europe.
President Barack Obama has tried to parry Republican presidential candidate Mitt Romney’s attacks on his economic record, accusing Romney of promoting policies that would hurt renewable energy and cost jobs in important political swing states. Romney says Obama is soft on China.
(Reporting by Michael Martina; Editing by Robert Birsel)
China Confronts Mounting Piles of Unsold Goods
by MAM TeamAugust 24, 2012
The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government – all part of an effort to prop up confidence in the economy among business managers and investors.
But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.
“Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, “Things are kind of crawling to a halt.”
Problems in China give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.
China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.
Corporate hiring has slowed, and jobs are becoming less plentiful. Chinese exports, a mainstay of the economy for the last three decades, have almost stopped growing. Imports have also stalled, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running. Real estate prices have slid, although there have been hints that they might have bottomed out in July, and money has been leaving the country through legal and illegal channels.
Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.
Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.
“Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.
Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.
“My supplier’s inventory is huge because he cannot cut production – he doesn’t want to miss out on sales when the demand comes back,” he said.
Part of the issue is that the Chinese government’s leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country’s largest industries: housing and autos.
Premier Wen Jiabao has imposed a strict ban on purchases of second and subsequent homes, in the hope that discouraging real estate speculation will improve the affordability of homes. The ban has resulted in a steep decline in residential real estate prices, a sharp fall in housing construction and widespread job losses among construction workers.
At the same time, the municipal government in Guangzhou, one of China’s largest cities, has sharply reduced this summer the number of new car registrations it allows so as to reduce traffic congestion and air pollution.
Municipal officials from all over China have been flocking to Guangzhou to ask for details. Xi’an, the metropolis of northwestern China, has already announced this month that it will limit car registrations, although it has not settled on the details.
The Chinese auto industry has grown tenfold in the last decade to become the world’s largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.
Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity – far below the 80 percent usually needed for profitability.
Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.
“I worry that we’re going down the same road the U.S. went down, and it takes quite some time to fix that,” said Geoff Broderick, the general manager of Asian operations at J. D. Power & Associates, the global consulting firm.
Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.
Yet dealerships’ inventories of new cars rose 900,000 units, to 2.2 million, from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining – a sharp reversal for an industry accustomed to double-digit annual growth.
“Inventory levels for us now are very, very high,” said Huang Yi, the chairman of Zhongsheng Group, China’s fifth-largest dealership chain. “If I hadn’t done special offers in the first half of this year, my inventory would be even higher.”
Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories. This prompted the government-
contro
lled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.
“We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm,” the association said.
Officially, though, most of the inventory problems are a nonissue for the government.
The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.
Yet business people in a wide range of industries have little doubt that the Chinese economy is in trouble.
“Inventory used to flow in and out,” said Mr. Wu, the faucet and sink sales manager. “Now, it just sits there, and there’s more of it.”
Hilda Wang contributed reporting.
MAM Certified Organic T-Shirts – Questionaire: How much are you willing to pay?
by MAM TeamStudy Predicts Impact of On-Shoring in North American Electronics Industry
by MAM TeamSurvey results showed that original equipment manufacturers (OEMs) were largely responsible for operations returned to North America from overseas since 2009, accounting for more than 90 percent of the value and number of jobs brought back. The electronics manufacturing services (EMS) industry was also a big contributor. One-quarter of operations that returned to North American since 2009 came from China, with other countries making up the other 75 percent.
The EMS industry accounts for the largest share of overseas operations that participating companies plan to bring back to North America in the next three years. New operations, however, represent a much larger share of future North American production and these planned new operations were reported primarily by OEMs.
Companies cited quality control as the primary reason for bringing operations back to North America from overseas. However, being closer to customers is the driving force for companies establishing new operations in North America.
The study reports detailed findings on industry segments and types of products manufactured by operations that have been returned to or established in North America since 2009. It also covers operations targeted for location in North America in the next three years, as well as the number of jobs these operations represent. Trends in the dynamics between outsourcing and domestic sourcing by North American electronics manufacturers are also covered. In addition, the study includes an analysis of the rationale (and deterrents) behind on-shoring and the future outlook for North American manufacturers.
On-Shoring in the Electronics Industry: Trends and Outlook for North America is 54 pages long, and is available to IPC members for $150. The industry price is $300. For more information or to purchase the report, visit www.ipc.org/on-shoring-2012.
About IPC
IPC (www.IPC.org) is a global industry association based in Bannockburn, Ill., dedicated to the competitive excellence and financial success of its 3,100 member companies which represent all facets of the electronics industry, including design, printed board manufacturing, electronics assembly and test. As a member-driven organization and leading source for industry standards, training, market research and public policy advocacy, IPC supports programs to meet the needs of an estimated $2.02 trillion global electronics industry. IPC maintains additional offices in Taos, N.M.; Arlington, Va.; Stockholm, Sweden; Moscow, Russia; Bangalore, India; and Shanghai, Shenzhen and Beijing, China.
Voters Want U.S. Manufacturing Back
by MAM TeamSCOTT PAUL
A substantial majority of voters rate manufacturing as the industry “most important to the overall strength of the American economy,” according to an Alliance for American Manufacturing national poll released in July. An impressive 89 percent of voters support a national manufacturing strategy to restore U.S. manufacturing competitiveness, and they want aggressive action by Washington to help create manufacturing jobs.
How important is creating manufacturing jobs to voters? It ranked higher than even such pressing issues as the deficit, cutting spending, and reforming immigration. Two-thirds of voters think the U.S. needs a strong manufacturing base if future generations of Americans are to thrive and succeed, vs. only 29 percent who think new areas like high-tech or services can fill the void if America’s manufacturing sector disappears.
Are the presidential candidates responding? So far, voters aren’t satisfied that either candidate is matching rhetoric with action. Even when politicians talk more about manufacturing, as they have in recent years, they don’t lay out clear plans to create more manufacturing jobs, according to the voters surveyed.
So what do voters want? The poll showed overwhelming support for government action to discourage outsourcing, strongly enforce trade rules, provide retraining and education, implement Buy America policies, and create incentives for U.S. investment.
Voters understand a fundamental truth about the erosion of America’s manufacturing base: It has occurred in large part because of misguided trade policies. The federal government has failed to systematically confront predatory practices, like currency manipulation and massive subsidies, used by our trading partners.
China was a top concern of the voters surveyed. More than two-thirds of respondents said that China’s trade violations were responsible for U.S. job loss. And 62 percent want the federal government to get tougher on China for violating trade agreements.
By keeping its currency undervalued relative to the dollar, China artificially raises the price of agricultural equipment, machinery, wood products and other goods made in Iowa and shipped to China, while lowering the price of Chinese products sold here — a practice that cost Iowa more than 21,000 jobs from 2001 to 2010.
Some argue that confronting China could “start a trade war.” But voters don’t buy it; more than 60 percent preferred a policy of confrontation over one of diplomatic passivity. And 83 percent had an unfavorable view of companies that outsource jobs to China.
Voters strongly endorsed the federal government’s 2009 rescue of the auto industry: Sixty-one percent of those polled supported the government’s action and 57 percent think the quality of U.S. cars has improved since the government acted. However, 72,000 workers in Iowa remain vulnerable to China’s massive subsidization of its auto-parts industry.
Iowa’s burgeoning clean-energy industry remains a manufacturing bright spot for the state, but its future is threatened by massive subsidies that many countries, including China, provide to their own manufacturers of solar panels, wind turbines and other renewable energy products. U.S. clean-energy manufacturers need their government to stand up for them with tax and investment incentives and other common-sense measures, such as requiring infrastructure projects to use American-made components.
In fact, 87 percent of voters support strong Buy America preferences to ensure that their tax dollars are spent on American-made components for the next generation of bridges, rail, and other infrastructure projects.
The most encouraging news from AAM’s national survey? Voters remain optimistic about America’s economic future. Though 56 percent say the U.S. is no longer the world’s strongest economy, nearly nine in 10 think it could be again. One sign of hope: the favorability rating of America’s manufacturers has risen from 68 percent to 91 percent in the past two years.
Voters fervently hope for a day when America again leads the world in making things. They want their leaders to share that dream — and to do what’s necessary to make it a reality. A presidential candidate who fails to articulate a bold national manufacturing strategy will have trouble winning in November.
ABOUT THE AUTHOR
SCOTT PAUL is executive director of the Alliance for American Manufacturing, a non-profit, non-partisan partnership of America’s leading manufacturers and the United Steelworkers. Contact: spaul@aamfg.org