China Business

Shenzhen: No Manufacturing Jobs, No Cry.

China economy

Very interesting post on Shenzhen Undercover, entitled, Shenzhen’s Greater Plan: No Manufacturing, No Problem. Grossly summarized, put into my own words, and infused a bit with what I think is happening, the post essentially says reports of the death of China’s economy, as evidenced by the closure of thousands of toy factories in and around Shenzhen, is greatly exaggerated. This is merely part of Shenzhen’s (and China’s) long term plan to move up from low end manufacturing.

On the other hand, my friend David Dayton, over at Silk Road International, in his post, entitled, So, How Does the Carnage Look from Ground Level?  says things are much worse than the media is letting on. David does an excellent job laying out the ground level things he is seeing that tell him things are bad and getting worse. Oh, and where is the ground level from which David is writing? Why, Shenzhen, of course.

What do you think?

11 responses to “Shenzhen: No Manufacturing Jobs, No Cry.”

  1. Not as bad as people are procrastinating. BTW the Gov’t is dedicated on spending its way out of a recession and china is in a strong position to do just that.
    China OKs $292B railway plan
    2 trillion yuan on just rail revamping. Imagine how much more could be spent on health care and subsidized housing…

  2. Maybe this is just my mind running riot here, but when China’s economy comes crashing down to earth to join the financial markets, jobs are lost, salaries are pegged low, prices rise etc.,… how long will it be before someone turns around and blames these damn foreigners for causing all the trouble. It only takes a badly written editorial in one of the party mouthpiece rags to fan the flames of the burning mob and things could turn nasty for people living here permanently. When some just-made-unemployed factory worker drinks a bit too much and starts to see the face of his ex expat boss on any white face that happens to pass, and decides to get revenge – then the proverbial might hit the fan.
    Then again, at the same time – those (the majority) who will keep their jobs and do alright out of this will see that imports – from everywhere but the USA – have suddenly become dirt cheap and the new-middle class can live it up.

  3. Depends what kind of manufacturing, producers of cheapo plastic nick-nacks have been moving to the interior and Vietnam for some time now, but I don’t think that giants like Huawei and Foxconn are going to be closing their gates anytime soon.

  4. Dan.
    you have an interesting post in the the brewing here… as both are right.
    1) China has been pushing to move from the fragmented industry model (dive to the bottom) to the “national brand” model in many industries… auto, logistics, dairy, and more recently agriculture. It is a process that by its very design would remove the mom and pops through the various means (many healthy) that an industry consolidation goes through.
    2) the problem is that as this process is still a work in progress.. and as the global demand for exports is falling dramatically… it is severely disrupting the domestic economy.
    At this point, I would hesitate to say how bad China will get, but in 60-90 days I believe we will have a clearer picture of the real impact … new president … the end of first full manufacturing cycle since crisis.. and will be about the time that the first post-Christmas orders “should” be on the way or in production… a triple witch
    Anyway, continue looking into this. A lot of rumors, a lot of conjecture, and a lot of pieces still not visible.
    R

  5. For a long time China has been trying to follow the Japan model of starting with low value manufactured goods and moving to high value. Japan largely succeeded by building a national reputation for quality. So Far China has not crossed that bridge.
    The big difference is in the size of the labor pool. With a workforce that large it is impossible to walk away from low end manufacturing at a national level.
    Shenzhen has had intermittent reports of labor shortage so they may be in a very different position from many other cities. I certainly hope that Shenzhen makes that transition to higher value and higher wage jobs.
    Any way you look at it the wild ride should continue.

  6. Like this other article says, I too really believe that much of the slowdown is planned and much of the movement out of China has also been happening for some time now.
    But the auto’s for export industry is not yet here yet. Domestic infrastructure projects are not going fill the urban housing or commercial building glut. Nor will it restore confidence in the stock market or in Chinese quality standards. China’s domestic market is still relatively weak for it’s size and electronics still have to export a significant percentage of their total volume to become a saving factor–and that export market will NOT exist for the next two years. At least.
    Like the US economy, there needs to be some serious structural changes in China and those are just starting being implemented–and they’ll take years to pay financial dividends.
    Both positions can be true–next year will be worse for China, bank on it. But in the long run, hopefully, China will have the pieces in place to continue to compete and maintain stability.

  7. Right now I am in China auditing new suppliers for our business. I have to say that all the times I have been here during 2008 I have seen more work going at factories than now. And we are in peak season!!
    One of the companies we work with is a giant (Not like Foxconn or Flextronics) with only one production center in China and, from what they have told me, they are thinking of closing down parts of the factory and rent them to cut down operating costs.
    You have to bear in mind that most of China’s production is from sectors that have high sales during Christmas season (Basically toys and consumer electronics) and those companies loose money during Q1 and Q2, recover it during Q3 and start winning at Q4. With the current situation (Quite a large number of customers have stoped the orders as they can’t sell their stock) a lot of them will end up the year with huge losses for the first time, so, in my mind, their trouble is just starting and we will only be able to evaluate it during Q1’09, when some of them will just have to close their business.
    And people say that Chinese internal consumption can take a part of that production capacity, but what they don’t realise is that the Chinese market is still low-end so those huge corporations with high operational costs will really suffer from that.

  8. The problem with China’s attempt to copy Japan is just that…copying. Everyone is wise to China’s “unique” IP protection situation and so if China thinks they can continue to lure high end outsourcing they are fooling themselves, and China doesn’t yet have the base necessary for true innovation at home. And as long as everyone has to shell out tons of money for school tuition instead of an evenly enforced property tax situation, domestic consumption is going to be restrained. Same for health care and retirement.

  9. i have heard from friends in china that orders are down, production is down, businesses are closing and laid off workers are headed home early. China has two aces in the hole: 2 trillion in foreign reserves and a very cohesive society.
    The newly out of work will spend this Spring Festival a little leaner than last year, but the source of this crisis (Western Finance) and the national bonding that occurred here throughout 2008 will probably see China through the worst of this storm, socially speaking.
    The government reformed land-use regulations in favor of farmers and i expect to see more generosity from Beijing.
    Its a great opportunity for China, both domestically and internationally, to show its strength again.

  10. “China has two aces in the hole: 2 trillion in foreign reserves and a very cohesive society.”
    Now its up to 2 trillion? From 1.2 so suddenly? And the Economist (or was it FT) had an article after the bailout of AIG that 20% of China’s forex reserve was actually in AIG corporate debt. Other than piles of (foreign) cash in warehouses, where else has China been sticking its forex reserves and how much have they lost?
    As for cohesiveness, we know how the men in the green suits keep that going. But I imagine China will need to focus its cash reserves on domestic necessities.

  11. Perhaps it is a good thing for everybody in the long run. This will hopefully weed out a lot of shady factories that fight any efforts to make quality products. I do a lot of work in China, there are some sharp entrepreneurs but a lot of the factory bosses are just lazy. Because their price is so low, they have no competition in other countries. They intentionally fight your efforts to improve quality (and before you say, you have to pay more, we have offered to do so many times).

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