Mr Green said there has been “some consolidation” but that there’s more to it than that. He also reckons the worst is yet to come. “We still haven’t seen the real drop-off. It is coming in the next three to six months.
“Everybody’s just been through the holiday season. Now they are back, retailers will see how bad things are and start seriously ratcheting down their orders. And that’s when when factories will go out of business,” he said.
Yangtze River Delta road trip
– China’s rescue plan a load of spin? (Telegraph):
There’s a bold claim in People’s Daily, the mouthpiece of the Communist Party, today. In the next three years, China is aiming to sell 600 million white goods throughout the countryside. 600 million means that almost every farmer in the country is going to have to buy a new fridge or washing machine. The scheme will pour £160 billion into the coffers of white goods manufacturers.
– Chinese businesses ask: “What’s wrong with Britain?” (Telegraph):
His factories make pet accessories, primarily for Worldwise, a US company that boasts of its environmentally responsible toys for dogs and cats. “The reason I ask,” said Mr Wu. “Is that I supply the US, France, Germany, Australia and the UK. But only the UK has cancelled its orders. Are things very bad?”
He added that his buyers had asked him to reduce the quality, and consequently the cost of his products a little bit. “They want me to use a cheaper material for the dog collars,” he said.
The magnificent Aolun shoe factory, Wenzhou
For all those people curious to know the identity of the giant factory in Suzhou that is closing – it’s Delphi, a company that supplies General Motors with parts.
Delphi says it is merely idling one part of the plant and laying off a hundred or so workers, but when we visited the factory we met suppliers who said the whole place was going to close. And it is very large indeed.
One trend we have noticed is that while Chinese companies are still open for business, foreign firms are pulling people and investment out of China rapidly. This is particularly true in Shanghai, where a raft of big companies have culled staff and closed down facilities.
I would be curious to know if their problems are in China, or whether their operations here are being sacrificed to raise cash because of problems elsewhere.
Meanwhile, I came across a company that offers foreigners a smarter way of doing business in China. Panjiva is an American start-up that promises to tell you, if you are a company that buys goods from Chinese factories, whether or not your supplier is going to go bust.
Panjiva’s whizzy MIT graduates have designed a program that tracks each and every shipment from China’s ports and monitors when factories either have a spike or a fall in their output. A move in either direction could spell trouble because it would mean suppliers have either overextended themselves or have failed to earn enough cash to keep going.
With 77,000 suppliers across the world in the clothing industry alone, it’s not a bad idea for companies to have an idea who the good ones are and who can’t be trusted. And while there are plenty of people scouring through Chinese factories to make sure they are up to scratch, there is a matching number of wily bosses who can cover up any problems.
“Weakness can appear anywhere from two to six months before a company goes bust. We flag all companies that are showing weakness as early as possible,” said Josh Green, the chief executive.
I asked Mr Green what his software showed us about the Chinese economy in general, and whether there really are tens of thousands of closing factories. The figures he gave me show that there has been a drop in the number of companies shipping to the United States, but a much smaller one that you might expect.
Between November and December last year there was a six per cent drop in the number of Chinese suppliers. Between December 2007 and last December, there was a nine per cent drop.
What his information doesn’t tell you is how big the shipments were, or if the number of suppliers dropped because smaller companies have been bought out by bigger ones.
The Chinese government has been encouraging smaller companies to merge or go out of business by placing all sorts of administrative burdens on them. China wants bigger companies that can compete globally, invest in their plants and produce better products.
Mr Green said there has been “some consolidation” but that there’s more to it than that. He also reckons the worst is yet to come. “We still haven’t seen the real drop-off. It is coming in the next three to six months.
“Everybody’s just been through the holiday season. Now they are back, retailers will see how bad things are and start seriously ratcheting down their orders. And that’s when when factories will go out of business,” he said.
Malcolm Moore is the Telegraph’s Shanghai Correspondent. He arrived in China in July 2008 after nearly three years in Italy as the Telegraph’s Rome Correspondent. Before that, he was the paper’s Economics Correspondent and a business reporter.
Posted By: Malcolm Moore at Feb 17, 2009
Source: The Telegraph