China has maintained the world’s leading manufacturing hub for twelve consecutive years. However, under the impact of the draconian zero-COVID policy, coupled with global inflation and waning domestic demand, the country’s southern factories saw a significant decline in orders last month.
According to a recent Financial Times report, managers in China’s southern manufacturing hub disclosed that the number of orders in October plunged by 50% from a year earlier due to U.S. and Europe customers already having overstocked for 2022.
For instance, Nike’s North America division reported in September that its inventories in the last quarter were as high as 65% compared with the previous year.
The outlet noted that October is usually a busy time for factories in China but a sharp drop in activity makes the working class struggle to find jobs.
Christian Gassner, owner of a furniture factory in Guangdong 广东, said, “It’s supposed to be a busy time but in the last two months it was the worst . . . nobody dares to buy anything, nobody dares buy a sofa, nobody [in Europe] has money left.”
Gassner added, “Everybody is crying about the same thing. Orders are dropping 30 to 50 per cent in certain industries. Many people are closing their factories.”
Another local mill owner named Jimmy told the Financial Times that the shrinking orders and the random lockdowns were the main reasons he wanted to close his factory.
He said, “But most of all, it felt like there was no hope. There was no sign of a rebound.”
Financial Times, citing official data, reported that China’s exports in October fell for the first time since the early stages of the COVID pandemic in May 2020.
Data show that exports in dollar terms last month dropped 0.3% yearly, missing economists’ expectations for a 4.5% increase.
Gary Ng, an economist at Hong Kong-based Natixis, said, “We are in a scenario where Chinese domestic demand is affected by lockdowns, plus externally we’re seeing this weaker demand from Europe and the U.S., which is driven by high interest rates globally.”
He added, “That can be quite problematic when we talk about south China . . . these provinces are important for China’s economy.”
An official in the manufacturing hub of Dongguan in Guangdong province revealed that local governments were struggling to maintain subsidies to support factories.
Gassner commented that some sectors had to suffer more than others, especially electronics and renewable energy.
As reported by Taipei Times, China’s household appliances exports witnessed the most significant decline over the last ten months, down 11.5% from a year ago. Furniture, lighting, and medical equipment also dropped sharply.
South Korean exports, the top indicator for international trade, fell in October for the first time in two years, with a 5.7% drop over the same period last year.
Financial Times noted that insufficient orders have also prompted many Chinese factories to reduce staff.
Danny Lau, honorary chair of the Hong Kong Small and Medium Enterprises Association, also the owner of an aluminum mill in Dongguan, said, “When orders dropped, we were forced to cut costs and one of the biggest expenditures is in paying workers.”
Therefore, his factory now has only 50% of the workforce, compared with 200 workers last year.
Chen, a worker at a Guangdong-based factory that supplies global supermarkets, complained that his annual income dropped to around $7,000 (50,000 yuan) this year from $11,300 (80,000 yuan) last year.
He calculated that his firm’s orders tumbled by 40% since April year on year.
Chen said, “Clients are losing confidence. They don’t dare to go all in on China anymore.”
Additionally, many Chinese factories have decided to relocate their manufacturing to southeast Asia under the pressure of the heightened U.S.-China trade war and soaring domestic wages.
Suki So, executive director of Hong Kong-based Everstar Merchandise, who is planning to shut down her plant in Guangdong, said, “There is no more luck being in China . . . [since Americans] no longer desire Made in China goods, it is best for us to clear up our mainland China operations.”