China Business, Internet

China: Find Me That Factory!

China Manufacturing Lawyers. China IP Lawyers

There is an old joke about a United Nations family planning conference. A speaker, trying to scare people about overpopulation, exclaims how there is a woman giving birth somewhere in the world every 3 seconds. A jokester at the back of the room stands up and says, “find me that woman!”

I thought of that joke today.

All Roads Lead To China just did a post, A Question of Chinese Toy Factory Closures, [link no longer exists] in which he asks all sorts of questions as to why so many Chinese toy factories have closed down when China’s overall economic statistics are still not all that bad. The post asks the following of those factories that have closed:

1) How many of these factories existed 6 months ago vs. which ones were brought online to cope with the Christmas rush?
2) How many of these factories closed due to the fact that many brands have been reducing the number of suppliers they use?
3) How many of these factories were really viable entities that competed in the market vs. those that simply were producing low end commodities that were uncompetitive?
4) How many of these factories were simply “shacks out back” vs. well capitalized?

All Roads goes to great lengths to emphasize that he is not minimizing the economic troubles of China’s factories, and I emphatically make that same statement. But — and I know this is going to sound strange — I have lately been asking my firm’s China clients just about every weekday for the last month how they have been impacted by the Global and China downturn and not one of them has mentioned factory closings. Indeed, I have asked many of them if they have experienced any problems from factory closings of their own or of their suppliers and the only response I have gotten is “no.”

So yes, like All Roads, I absolutely believe factories are closing in China and with that, massive worker and community dislocation.

But also like All Roads, I have very real questions as to what sort of factories those were. See yesterday’s post, Why Your Chances of not Getting Your First China Factory Order are so High for a plausible explanation of this disconnect. Companies that are smart about their China factories are not having problems whereas those who are not so smart are.

What are you hearing/seeing out there?

4 responses to “China: Find Me That Factory!”

  1. I’m inclined to agree with both you and All Roads. I think there are two factors here. One is the factories that are closing were set up to service the export markets rather than the home market. Ipso facto they are affected by the global economic downturn. The second point is, yes, these guys are most probably at the lower end of the toy factory and other manufacturing food chain. Not surprisingly many of them are going belly up and, also not surprisingly, disappearing without paying workers out etc.
    Like you, I’m not seeing or hearing anything so bad from my clients. Why? They’re selling into the Chinese domestic market, which despite some slowing remains strong. And the slowing of the domestic market was in the works for some time and not necessarily related to the global economic crisis. Now the government wants to get things going again and probably will. Serious businesses servicing the domestic market are unlikely to close down.
    And, from a personal point of view, we are seeing the busiest fourth quarter since we commenced business five years ago. Why? Because many of our clients have localised to such an extent we don’t have to deal with the usual holiday period slowdown as senior executives head back to Europe and North America – again a sign of the strength of the domestic economy.

  2. From my observations (mostly apparel factories in Guangdong), I didn’t see anything exceptional. Many factories have lost money over the last 1 or 2 years, but I don’t see more closures than usual. People talk a lot about large factories closing, but it’s always hearsay.
    On the other hand, I have a friend in the kitchenware business who tells me many of his small and product-specialized competitors have closed down. They expect to lose money in the coming years, and prefer to wait for better times. He gets new customers every week. They tell him they need an order produced urgently because the factory closed down.

  3. I’m also wondering how much of this is “the rooster coming home to roost” A coming together of all the other popular blog stories of the past months.
    Customer reaction from the last year’s lead paint scandal. Did customers source from other countries?
    Revaluation of the RMB?
    New labor laws?
    In the case of Dongguan, a concerted effort by the city government to reduce the amount of labor intensive low tech factories in Dongguan.
    Long lead times, as much as 18 months, for Dongguan to pay the VAT tax refund.
    Buyers couldn’t get into China because of restrictive Olympic caused visa issues?
    I’ve just finished a stint working for a Chinese-owned factory, in financial trouble because they over expanded and now overheads are too high. Another large factory I know is rumored to have borrowed 200mil rmb from Taiwan Mafia (not sure how much truth to that one) and the owners couldn’t pay back and bailed.
    Also rumors that the Dongguan Tax bureau is going after factories for back taxes, to the beginning of when they started business.
    9% growth rate is robust for most economies, but when you need 12% to stay even, maybe not.

  4. China: Find Me That Factory! Part II
    A few days ago, in a post entitled, “China: Find Me That Factory,” I wrote of how not a single client of my firm has been impacted by factory closures in China and I wondered what sort of factories it is that are closing: But, and I know this is going …

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