Factory Shutdowns Begin in China; Is Japan Winning the Currency War?

China's manufacturing industry expects an explosion in factory closings this year and the first wave is hitting now.

Citizen closed a watch factory ahead of Spring Festival, affecting 1,000 workers. Watch factory to pay more
Most of the workers at a well-known Japanese company in Guangzhou, Guangdong province, that shut down last week have signed contracts to leave the company of their own accord after mediation from local labor department and trade unions by Monday noon.

Foreign manufacturer exodus from China
A recent case in point is the decision of Citizen China, which produces Japanese Citizen watches, to fold its production base in Guangzhou, on the heels of Microsoft which announced on Dec. 17 its decision to close the mobile-phone factories of Nokia, under its auspices, in Beijing and Dongguan by the Spring Festival moving facilities to Nokia's factory in Hanoi.

A number of other foreign enterprises are scheduled to join the exodus this year, including Panasonic, Sharp, Daikin, and TDK, all Japanese firms, which plan to transfer some capacity from China back to Japan or to other countries. Others, such as Uniqlo, Nike, Foxconn, Funai, Clarion, and Samsung, are setting up new factories in Southeast Asia and India, while scaling down their Chinese operations.
Notably, Japanese companies are moving back to Japan, in part due to the cheaper yen and perhaps expectations of further weakness in the yen. China, on the other hand, is squeezing its low cost manufacturers with a stronger yuan.

Hundreds of factories have shut or ceased operations in Dongguan ahead of the holiday and Wenzhou's industry is fading:
Industry insiders estimate that there are more than 100 large scale factories closing before the Spring Festival, in Dongguan hundreds of large factories closed down or stop operations. Furthermore, known manufacturing capital, to manufacture glasses, shoes, lighters the world famous Wenzhou, the manufacturing industry is currently experiencing a hollowing out, shoes, lighters and other industries, their one proud aura is gradually fading.
Low cost manufacturing is moving overseas because costs in China are rapidly rising. I posted this demographic chart of China back in 2011, highlighting the entry level workforce demographic:

In 2015, the entire cohort from 2010 has moved up, so the entry level workforce has declined by roughly 10%. Since most of the low skill labor in factories is female and Chinese demographics are skewed male due to the one-child policy, the decline in labor force is more acute.

China's goal is to move up the value added chain, but some areas haven't adapted:
Counselors' Office of the State Council Research Fellow Yao opinion, the problem lies in China is big but not strong. "Our machines accounted for 38% of world production, but we basically rely on imported high-end CNC machine tools. Our steel production is number one in the world, but the high tonnage cranes at the ports use imported steel rope. We are first in the world in aluminum production, but we have to import aluminum for aircraft. We give the average person to do three sets of clothes a year and a half, but so much of the export garment basically OEM. "

In this regard, some experts said the fact that Chinese manufacturing industry for so many years, most remain at the low end of the industry chain, low profits, do not keep up with new technology. There are many domestic and international phenomenon indicates that manufacturing companies refused to spend capital to upgrade, you have to face the nightmare of shutting down.
This is not a long-term crisis for China. The change has been planned for and its one of the reasons why China is keeping the yuan relatively strong. A strong yuan and tighter credit conditions forces a rebalancing away from low cost manufacturing and intensive infrastructure investment. The issue in 2015 is whether or not the economy can handle major changes in several sectors at once. The soft landing for the economy is a relatively smooth transition over several years. A hard landing occurs if the rebalancing is concentrated in time.

iFeng: 业内预计中国制造业倒闭潮或在2015年爆发

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