Rising desperation as China's exports drop

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Migrant workers who moved to coastal provinces in China to find jobs are now returning home in large numbers as factories close. (Sean Yong/Reuters )

Rising desperation as China's exports drop

By Keith Bradsher Published: January 1, 2009

HONG KONG: At the docks here, the stacks of shipping containers that used to loom above the highway overpass are gone. Logistics managers say they negotiate deeper discounts every week on ships that are leaving half empty.

In nearby Guangdong Province, so many factories are closing without paying employees that some workers are resigning pre-emptively and demanding immediate pay before their employers go bankrupt.

In Sichuan and other interior provinces, municipal officials are desperately searching for ways to provide jobs for millions of out-of-work migrant laborers whose families no longer need them for farming.

Those are the effects of millions of Americans' cutting their spending.

American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping, in contrast to the usual 30 to 45 days, requiring their suppliers to try to borrow more money to cover the difference. Some Chinese suppliers who cannot raise the money - many already operate on thin margins - are going out of business.

At the same time, retailers are demanding that exporters show that they have strong balance sheets and will not go bankrupt before completing orders. Exporters, worried the retailers will fail before paying for their purchases, are reluctant to let goods be loaded onto ships. And banks, for the same reason, have cut back on guaranteeing retailers' payments to exporters.

"Trade finance is collapsing," said Victor Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. "We've got orders we can't ship right now."

Fung estimates that 10,000 of the 60,000 factories in China owned by Hong Kong interests have closed or will close in the coming months.

Other business leaders say that the toll may be even higher and that factory closings are an even bigger problem among mainland Chinese businesses because these tend to be smaller and more poorly capitalized than those owned by Hong Kong businesses.

Government statistics show that Chinese exports slipped 2.2 percent in November when calculated in dollars, after seven years of rapid growth. But dollar figures do not come close to capturing the real depth of the downturn.

Convert the export figures into China's own currency, a much better measure of the effect on the Chinese economy, and exports plunged 9.6 percent in November. Factor in inflation over the past year and the plunge was 11.4 percent.

Indications are that the December data will be even worse.

Consumer electronics manufacturers have been hit the hardest, according to customs data. "No one has any money anymore, so demand for our mini hi-fi systems has declined a lot," said Lion Yuan, the sales manager at Shenzhen Yidashi Electronics, where exports have dropped 30 percent in a year.

In the past two weeks, Chinese officials have announced a series of measures to help exporters. State banks are being directed to lend more to them, particularly to small and midsize exporters.

Government research funds are being set up. The head of the government of Hong Kong, Donald Tsang, plans to seek legislative approval by late January for the government to guarantee banks' issuance of $12.9 billion worth of letters of credit for exports.

Particularly noteworthy have been the Chinese government's steps to help labor-intensive sectors like garment production, one of the industries China has been trying to move away from in an effort to climb the ladder of economic development, moving to more skilled work that pays higher wages. But now China has become reluctant to yield the bottom rungs of the ladder to countries with even lower wages, like Vietnam, Indonesia and Bangladesh.

China has been restoring export tax rebates for its textile sector, for instance, which it had been phasing out. Municipal governments have also stopped raising the minimum wage, which doubled over the past two years in some cities, peaking at $146 a month in Shenzhen, which abuts Hong Kong.

"China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries," Li Yizhong, the minister of industry and information technology, said at a conference Dec. 19.

Increased export incentives by China have the potential to create a trade issue for the incoming U.S. administration of Barack Obama, particularly regarding textiles.

U.S. quotas on the import of a wide range of Chinese garments expired Thursday. Even before the Chinese began announcing their latest programs for exporters, the United States filed a legal challenge Dec. 19 at the World Trade Organization, accusing China of having already provided illegal subsidies to exporters in a long list of industries as part of a program of trying to build recognizable export brands.

China denied Dec. 23 that there were any illegal subsidies, saying that many countries tried to help exporters and that its actions were no different.

In a letter to the National Council of Textile Organizations on Oct. 24, Obama stopped short of promising any protection from Chinese imports, but he said he favored close monitoring of them. "China must change its policies, including its foreign exchange policies, so that it relies less on exports and more on domestic demand for its growth," he wrote.

But shifting toward a greater reliance on domestic demand is not easy. Chinese households have one of the world's highest savings rates. And the Chinese social safety net is in tatters, with families receiving scant government help with education costs, medical care and retirement: The average hospital stay costs the equivalent of two years' wages for the average Chinese worker.

Important bureaucratic obstacles also exist. Chinese factories are allowed to import equipment while paying little or no duty, provided that the equipment will be used only to produce goods for export.

Obtaining approval to switch the same equipment to making goods for the domestic market can take two years and require the payment of much of the import duties previously avoided, a payment many factories cannot afford.

China's measures to help exporters are starting to cause concern in other Asian countries that compete with it, and raise the risk of a protectionist reaction against China. Indonesia, one of the largest Asian markets, imposed a series of administrative measures Thursday that were meant to reduce smuggling but will have the practical effect of making it harder to import Chinese goods.

In Indonesia, the third most populous country in Asia after China and India, the government is already acting to limit imports of garments, electronics, shoes, toys and food - five large categories in which Indonesian producers are struggling to compete with China.

Starting this year, importers of these products will have to be registered with the government, use only five designated ports for their shipments, arrange for detailed inspections of goods before they are loaded on ships or planes bound for Indonesia and then have every single container exhaustively inspected on arrival by Indonesia's notoriously slow customs bureaucracy. The plan, intended to comply with WTO rules, was adopted after heavy lobbying by Indonesian manufacturers and labor unions.

Boediono, the governor of the central bank of Indonesia, who uses only one name, said that Indonesia would be watching China's policies, but he added that he hoped Indonesia could stay competitive. At less than $120 a month, industrial wages in export zones near Jakarta, the Indonesian capital, are slightly below those in coastal regions of China.

"I'm not sure they can compete with us again by moving down the ladder," Boediono said, "because I think they have already moved up the ladder."

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I really feel sorry for the Communist. The government controlls the farmland.

Dixie

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American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping,

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Yes!! I noticed this in the Dollar Tree. We go there to buy Pears soap and there was a huge amount of stuff marked 50% off!!!! I have NEVER seen that before in that store (and you know their stuff comes from china mainly).[/quote]

I'm glad to see it. Perhaps this will force China to put their military war machine build up on hold.

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Chinese Military Build Up Sun Tzu and Chinese War Machine

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We are currently seeing a build up in China of their military, with 7 new classes of warships. Buying of 15 Billion worth of jet fighters from Russia, advances in Space which can lead to Intercontinental Ballistic Missiles, Electromagnetic Weapons, training and recruiting of personal for army. Taiwan is extremely concerned as is Japan, Russia is thrilled having been able to sell them technologically advanced weaponry. Our defense industry is upset seeing sales go to other countries, also alarming in our trade deficit and money flows out of our country to China, which is being used to buy the weapons in the first place. Airbus is establishing a military division to catch some of that money flow too, having watched Boeing which also sells military and commercial make major end roads to markets thru R and D partially coming from US Government, which as we know has been a debate in the EU and fair trade rules as Airbus is funded in part and subsidized by European governments who are simultaneously deficit spending. The selling of weapons in the world is quite alarming and makes the case for Iranian or North Korea's nuclear weapon ambitions a tough one, in that shouldn't a country have the right to defend itself? A worthy debate although a government, which has proved untrustworthy in the past obviously should never be trusted with such destructive power which once used would surely change the history of mankind.

China is aware of the World's concern with the largest population base in the World and expanding industrial might, such concerns are warranted. One issue of supreme insight would be that of Dr. Einstein; "You cannot simultaneously prepare and prevent war." China says it wants to defend itself. Which is a noble cause of any nation, right? Yes, but the question is from whom? No one country on Earth is up to a challenge of the Chinese Military, except maybe the US, which of course is a trading partner whose purchases are funding their economy and their war machine. Having the world's largest and most powerful Army, Air Force and Navy has been for over 25 years undisputed territory of the United States. Chinese war theory predicts forcing political will without use of force or if possible not fighting a single battle as adequate method. If China wishes to force its political will with Taiwan, then who might defend them? Will the US show up for a political game poker game where each side tries to bluff the other. Chinese culture is much different than Western Culture despite the closeness in the end goals of the civilizations (certainly worthy of discussion for another topic). China is well aware of the tension created by this build up and the power and what that means for its future forceful negotiations of will. China currently does not wish to rock the boat until it has the military might to play at the poker table with the EU or with the United States and has suggested a Hotline to Washington DC in the interim. Keeping up communication is important to peaceful solutions to military issues, but are we playing into a grander plan. By opening military force hotline are we in fact admitting and raising their status as a World Power?

China, US Discuss Setting Up Defense Hotline http://www.spacedaily.com/news/china-05o.html

"Beijing (XNA) Feb 01, 2005 - Chinese Defense Ministry and its US counterpart rounded off their first special policy dialogue here Tuesday with both voicing their satisfactions, a sign of warming ties between two militaries of the two countries."

China is also testing its power and practicing the modern art of war:

China, Russia To Hold First Ever Joint Military Drill http://www.spacedaily.com/news/china-05n.html

"Beijing (AFP) Feb 01, 2005 - Russia and China will conduct their first ever joint military exercises in August or September to better coordinate the fight against terrorism, state media reported Tuesday."

The United States if it really expects to remain the world leader militarily ought to take notes of these trends and set a course to maintain the ability to negotiate from a position of strength and be prepared to make an example of any nation which tries to force our their will against us or our allies with annihilating force so that China realizes that we are not into the bluffing game and will not tolerate imperialism from any other nation in the future periods. Without such a demonstration China will test us with Taiwan and then other allies to see how far we can be pushed. Such a series of signs will be very similar to a previous set of threats which history had showed us during Germany's build up to power. We should be ready to negotiate but not fear the ultimate example and display of power to put away any possible attempt for any other nation to bluff us into backing down on what we know to be right.

This should not be a considered a warning of future events to come, but we should be ready and prepared to defend the free world and use unheard of force if necessary and all those in the wake should know in advance that we do not do threats, we do not play with bluffers and we will prevail no matter what. Do not challenge the free world and never mistake the United States' acts of kindness for a sign of weakness.

"Lance Winslow" - If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs

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