July 19th, 2008, 6:43 am

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No hiccups in our Taiwanese factories other than raising material costs.

July 30th, 2008, 10:01 pm

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From the China Daily newspaper

Rising level of wages adds fuel to inflation
By Lillian Liu (HK Edition)
Updated: 2008-07-18 07:20

Economists warn that a second wave of inflation in China is on the horizon, and it's not related to food costs. AFP

As food-driven inflation peaks, China faces a second wave of price hikes built on soaring wages and commodity prices, economists said yesterday.

And the non-food costs are expected to force many manufacturers to close down, and put additional strain on exporters.

But the consumer price index is still under control, and strong domestic demand is expected to offset the decline in exports.

Chinese consumer prices began to rise sharply in mid-2007 due to shortages of pork and grain; they were made worse by the severe snowstorms earlier this year. The food inflation is about to reach a peak, but wage growth is "worrying", according to Credit Suisse.

"Look at the listing companies' result reports - both of A-shares and H-shares - their wage costs jumped dramatically. McDonald's in China has lifted its wages by 20 percent," said Tao Dong, Credit Suisse's chief regional economist for Asia, excluding Japan.

"When McDonald's lifts wages, you know something is wrong," he told reporters yesterday.

The average first-quarter wages in China increased by 19 percent, year-on-year, according to the National Statistics Bureau (NSB).

Jing Ulrich, chairwoman of China equities for JPMorgan Securities, said that "although headline inflation may have peaked for the time being", higher prices in other non-food categories also fuel inflation.

"In the current environment, China's mid-stream processors, such as oil refiners and power generators, remain vulnerable to higher input costs and price controls on their output," she said.

The country's consumer price index fell from 8.5 percent in April, to 7.7 percent in May and to 7.1 percent in June.

The decline has been attributed to government efforts to cool inflation by paying subsidies to increase food supplies and imposing price controls on food, fuel and other basic goods.

The NSB didn't give June figures for food prices, but it said they rose 20.4 percent in the first half, year-on-year. JPMorgan estimated June's food-price rise to be 17.5 percent, compared with 19.9 percent in May.

Just across the border

Taking into account the rising costs of labor and materials, the yuan's appreciation, and austere environmental policies, Credit Suisse predicts about one-third of Guangdong-based manufacturers, mostly exporters, will close down within the next three years.

And rising costs in this year alone, according to Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association, may force Hong Kong companies to close or relocate 20,000 of their 70,000 factories in Guangdong.

China's golden age of exporting is coming to an end, Tao said, but for the time being, no other country in the world is able to replace China as a top global manufacturer.

Trade data released last week shows a sharper-than-expected drop in export growth, from 28.1 percent in May to 17.7 percent in June. In the first half of this year, export growth slowed to 22 percent, against 27.6 percent in the first half of 2007.

But in the first six months of this year, imports rose 30.6 percent. That's compared with an 18.3 percent increase in the first half of 2007.

JPMorgan said the accelerating import growth can be partly attributed to the rising cost of commodities, particularly in crude oil and iron ore.

For some time, Chinese authorities have been aiming to lessen the country's dependence on trade as a growth engine, instead targeting consumption as the most sustainable driver of economic expansion, Ulrich said.

And despite the high inflation, downturns in the stock and property markets, and bad weather and natural disasters, consumer activity has remained surprisingly buoyant, she said.

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October 27th, 2008, 8:39 am

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Another update:

The South China Morning Post

Closed signs litter 'factory of the world'
Ivan Zhai in Dongguan
Oct 27, 2008

As Guangdong braces itself for a winter of factory closures and mass layoffs, Dongguan - the heartland of the "factory of the world" - struggles to maintain a pulse, writes Ivan Zhai.

Real estate agent Tan Qundi is walking through one of Dongguan's industrial neighbourhoods, on her way to inspect a vacant workshop, just one of the many commercial sites piling up in her property portfolio.

She carries her cellphone constantly in hand, preferring to keep it close should a client want to reach her. But in the past five hours, she has received only one call - a manager who is scaling back his production and wants to move to a smaller workshop.

This time of year should be the one of the busiest for Ms Tan. Manufacturers often launch products immediately following the Lunar New Year, and they need new workshops to set up assembly lines. But the demand is simply not there this time round. She says the situation is the hardest she has seen in her four years in the industry.

If business doesn't pick up, she fears her company, Guanyi Estate, will join the list of roughly 450 real estate firms that have closed in Dongguan in recent months - about a quarter of the total - putting her out of work.

All you can do is wait and hope, she says.

Late last year, Guangdong began a concerted effort to transform its industrial base, forcing out low-end manufacturers to make way for hi-tech companies. But then changes in the domestic and global economies began to push up the costs of labour and raw materials. The yuan appreciated. Factories started to shut down. Provincial and city officials put the total at between 200 and 400. Business executives say the true number is about five times as high.

Ms Tan's boss, deputy manager Zhao Zaijun, says their workshop vacancy rate has climbed from 11 per cent to about 28 per cent in the past year. Rents have dropped by up to a third, a situation repeated in all of Dongguan's 33 districts.

Previously, Ms Tan would get a new client every month; now she waits an average of seven months for new business. Most are not interested in workshops bigger than 5,000 square metres.

"Most of our clients are shrinking companies," she says. "The ones wanting more space might be those combining existing workshops but not expanding."

In Dongguan, the heartland of the "factory of the world", everything is tied to the health of manufacturers. When they fall on hard times, it is not long before other businesses start to feel the pinch.

Some hotels are expecting a protracted downturn, and predict low-end hotels will go bankrupt. The Nation Tourism Administration said this week the number of overseas visitors dropped significantly last month, down by more than 15 per cent from the same month last year.

"We think the situation will last till 2010 or even 2011," one assistant sales director of a five-star Dongguan hotel says.

Chiu Che Hon, 58, who owns Lucky Metal & Plastic, has been cutting costs this year and says he is ready to leave the business.

"I have halved the 2,500 square metre workshop space. Step by step I have cut the payroll back from 300 employees to 30," Mr Chiu says, adding there would have been a "riot" if he dismissed all the workers at the same time.

A 40-year veteran of the metal industry, Mr Chiu says the current global financial crisis is clearly worse than the 1997 Asian financial crisis, when businesses still had demand from American and European markets.

It is also worse than the Sars crisis when only Hong Kong really suffered from a downturn.

"After the financial crisis broke, the deadly threat to our SMEs [small and medium-sized enterprises] was not the cost growth or the yuan's appreciation but the banks' tightened loan policy, because without banks we die immediately," he says.

Mr Chiu says that to avoid banks freezing their accounts, many indebted SME operators opened new accounts under the names of people unrelated to the company.

"Otherwise, once we put the goods payments into the banks from which we borrowed the money, they will automatically freeze it to repay loans. Then we have nothing ... and have to shut down," he says.

Mr Chiu says Lucky's souvenir orders from Europe and North America dropped almost two-thirds this year. To survive the crisis, he is grabbing as many orders he can, even from Russia and South America.

His only hope is that the Hong Kong government will launch more policies to provide enough cash flow for SMEs to survive.

"I know what the last step will be. [If it gets worse] I will have to close down my Dongguan factory and quit the career I have devoted myself to since I was 14," Mr Chiu says.

October 27th, 2008, 12:04 pm

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Wow, reminds me of the mid-west in the '90's.

Tim: I'd like to know what else is going down in China with the current financial problems (I'm saving the word crisis for for I lose my job).

Specifically, I've heard reports of real estate bubbles all over Asia and in China the last 5-10 years. Is that busting in all sectors, or just factory/warehousing space?

Thanks for the update!

November 5th, 2008, 12:06 pm

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I was in Dongguan last week and one of the factory engineers that I work with had his cell phone ripped off. He said the crime rate is out of control because so many people have lost their jobs (1.6 million in Guangdong province since the beginning of the year).

They said a lot of people don't go out after dark for fear of being attacked for their money or cell phone. I use to feel pretty safe in China, but I imagine that foreigners are targets now because of our (perceived) fat wallets.

The sky isn't exactly falling yet, but you can detect a significant change.
"Life is pretty simple: you do some stuff. Most fails. Some works. You do more of what works. If it works big, others quickly copy it. Then you do something else. The trick is the doing something else.”
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Timf wrote:3) Join the Chinese government in stopping the manufacturing of cheap junk and start producing higher value goods.

There is a little irony here.
summerdan wrote:At the famous designer's design, and see more of open the book thinking, read some books are always didn't harm
Come on I believe that you can

November 6th, 2008, 12:02 pm

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Chinese job losses prompt exodus
Workers in a factory in China
Chinese manufacturers who export have suffered in the credit crunch

Tens of thousands of migrant workers are leaving the southern Chinese city of Guangzhou after losing their jobs, railway officials say.

The increase to 150,000 passengers leaving the city's main station daily is being blamed on the credit crunch.

Guangzhou is one of China's largest manufacturing hubs, but many companies who export products have collapsed.

Chinese officials are worried that a sudden increase in unemployment could lead to social unrest.

The most badly hit export companies are toy, shoe, and furniture manufacturers.

There are already reports of demonstrations and social unrest in the provinces of Zhejiang and Guangdong.

An upsurge of labour disputes caused by bankruptcies and layoffs this week forced the boom-town of Shenzhen to issue an urgent notice calling for government departments and enterprises to work together to reduce tension.

BBC China analyst Shirong Chen says there would be a ripple effect in many inner regions of China too - the earthquake-hit Sichuan Province has 1.3m working in Shenzhen.

For the Chongqing municipality, three million migrant workers used to send home millions of US dollars' worth of local currency every year, but this source of funding is dwindling to a trickle.