CHINA
CONFRONTS DUMPING OF UNSOLD GOODS
Edited By: Dr. C.T.
William
A
|
fter
three decades of torrid growth, China is encountering an unfamiliar problem
with its newly struggling economy: a huge mounting piles 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 non-government survey of manufacturers in China showed that inventories
of finished goods rose much faster in 2012 than in 2004. The previous record
for rising inventories, according to the HSBC/Market survey, had 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.
Business
owners who manufacture or distribute products as varied as dehumidifiers,
plastic tubing for ventilation systems, solar panels, bed sheets 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.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 raised 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-controlled 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. Yet
businesspeople in a wide range of industries have little doubt that the Chinese
economy is in trouble
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.
Courtesy: Hilda Wang, New York Times.
