Drop In Demand From The US Puts Additional Pressure On Factories In China

After zero-Covid, some Chinese factories are not moving at full speed.

According to CEO Jay Foreman, all 20 of the Chinese factories that U.S. toy manufacturer Basic Fun works with have instructed staff members not to report back to work right away following the Lunar New Year holiday.

According to him, this is due to an abundance of inventory in the first half of last year that went unsold as U.S. consumer prices soared over the summer and into the fall. Tonka Trucks and Care Bears are among the products made by Basic Fun.

The Chinese Lunar New Year holiday officially ended on January 27, but travel is still permitted until February 15. For the more than 170 million migrant workers in China, the festival is typically the only opportunity they have to travel back to their hometowns each year.

“Every factory I spoke to said they’re going to have less people employed this year than last year,” Foreman said. He expects U.S. consumer demand to pick up later this year.

According to data from China’s customs that Wind Information has access to, about 6% of all exports from China to the U.S. fall into the category of toys, games, and sports. The data showed that in 2022, exports of toys in that category to the United States slightly decreased.

“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

A similar fate was being faced by the consumer electronics segment, he said.

“For other industries, the picture is much better. Some are struggling to keep up with trailing orders and catch up with everything they had to deliver last year,” he said.

In December, China abruptly ended its zero-Covid policy. But for the majority of 2022, there were strict limitations on business activity, including a lockdown of Shanghai for about two months in the spring.

Retail sales in the United States, China’s biggest trading partner on a country-by-country basis, have decreased recently. In 2022, China’s exports to the US barely increased, and in 2023, it’s anticipated that the US economy will continue to contract.

This is on top of the rising bilateral hostilities and tariffs over the past few years.

“We expect we will continue to grow, but the pressure is very great,” Ryan Zhao, director of Jiangsu Green Willow Textile, said in Mandarin, translated by CNBC.

“What I heard about the market, 2023 will be very hard. U.S. demand is declining. The Russia-Ukraine war hasn’t ended.”

Orders from some American clients have vanished.

Zhao claimed that his business was collaborating with a prestigious New York bedding and textile company that had declared bankruptcy the previous year. He claimed that the business is switching to less expensive products that are preferred by younger customers in order to survive in the “shrinking” market.

Zhao will need to sell more products than before in order to increase revenue, and in the coming months, he plans to add 10 more local employees to his factory of 30 people in China.

In response to a question from CNBC in January, China’s customs administration acknowledged the pressure that a slowing global economy was putting on the country’s exports. They also noted growing risks of a global recession.

According to trade data, there is a growing demand for Chinese products in other markets, like Southeast Asia.

According to Qingtuanshe, a job search platform within the Alipay mobile app, employers have increased the percentage of part-time positions since China’s Covid wave peaked, and manufacturers are increasingly paying workers weekly rather than monthly.

The pay range for factory jobs sharply decreased during the pandemic, but there hasn’t been a discernible change in wages since the reopening, according to Qingtuanshe.

The decline in global demand for Chinese goods reveals a more pervasive employment issue: a shortage of highly skilled factory workers.

“It’s generally becoming more difficult to find workers and to find the right workers,” Annell said.

“You have some high youth unemployment and there is a pool of labor, but when you start looking into it in a specific city, it’s hard to find both the qualified supervisors” and technical workers, he said.

Construction workers make up 11% of the labor force in China, according to Dan Wang, the chief economist for Hang Seng China, based in Shanghai. She added that the majority, however, only have, at most, a middle school education, making it difficult for them to switch to another industry.

Since rural unemployment is not included in official statistics on urban unemployment, she anticipates that there will be more than 1 million unemployed people in rural areas. She attributed it to the drop in exports and China’s drive toward automation, which coincides with a drop in the demand for construction workers in the real estate sector.

Consumption growth that isn’t as strong also affects how quickly the services sector can hire new employees, as it did before the pandemic, according to Wang.

“It looks like the ultimate solution is still on some government-sponsored training. As time goes by, more of those workers need to be trained to actually earn a living.”

(Adapted from CNBC.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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