China Works blog: China manufacturing news, analysis and insights

Manufacturers worldwide will be eagerly following the next stage of an escalating trade dispute between the United States. and China regarding vehicle tyre exports. Last week, President Barack Obama agreed to impose three-year tariffs on the import of all light truck tyres from China.

The tariffs have infuriated China, which responded by calling the move an “act of trade protectionism.” In addition, China says it will conduct its own investigation regarding “anti-dumping and anti-subsidies” of some automobile and chicken products originally produced in the United States. China is also referring the tyre tariffs case to the World Trade Organisation, of which it became a member in late 2001.

The dangers of this dispute escalating into a real trade war are real, particularly as US media is reporting that other industrial sectors in the United States are also lobbying for similar protective measures against cheaper and, often, subsidised Chinese imports that are resulting in slashed margins and job losses. If this happens, China will be forced to transfer its export focus elsewhere for products that attract imports tariffs into the United States. The Chinese government has already said that tyre exports will now be concentrated on the ASEAN countries, Africa, Eastern Europe, the Middle East and South East Asia. Manufacturers and distributors already operating in those markets should prepare for stiffer price and product competition in the coming months.

China’s manufacturing sector enjoyed a productive August, expanding at its fastest monthly rate so far in 2009, according to the Chinese Federation of Logistics and Purchasing. The Federation’s manufacturing purchasing managers index rose to 54, up from 53..3 in July – marking the sixth straight month of growth. The Federation’s index of new orders, however, remained unchanged from the July mark of 55.

We have long advocated running the official PMI through a seasonal adjustment program as even though the figures are claimed to be adjusted for seasonal effects they aren’t adjusted very well,” commented Eric Fishwick, Head of Economic Research, CLSA Asia Pacific Markets. “ Seasonal affects account for some for some of the August increase but not all – manufacturing is continuing to accelerate.”

A shortage of labour? In a country of 1.3 billion people? After millions of migrants were laid off when thousands of factories closed in the aftermath of the global economic crash?

China’s complex labour situation regularly confounds overseas observers – not least because the ‘free movement of people’ theory is simply not applied here. For unskilled (or even skilled) workers to obtain jobs in another city or province to that in which they are registered citizens requires an enormous amount of bureaucracy – and persistence.

Before the global crash, the system, of course, had a few inbuilt checks and balances – to ensure that the ‘Factory of the World,’ which relies heavily on migrant labour, could function. However, with millions of scorned (and often, unpaid) migrant workers having returned to the hinterland, attracting them back is not proving as quick or as easy as manufacturers might hope.

Hence, a report this week in state media that although east-coast factories in some sectors are noticing an upturn in export orders and production schedules, many are struggling to find workers to fulfil them.

According to the report, the factories suffering labour shortages tend to be small and medium-sized operators in the industrial heartlands of Zhejiang and Guangdong – both of which are major employers of migrant workers from inland China. Wenzhou, in Zhejiang province, a city where garment orders rose 10 per cent year on year in July, has a rural labour shortage of around 150,000 workers, according to official figures. Garments and shoes account for 45 per cent of the city’s exports.

Balancing the issue of labour shortages in fast-expanding cities and rapid urban migration is a major challenge for the Chinese government – which this week estimated that around 300 million rural Chinese will migrate to the cities in the next 20 years (see here for more details: http://www.bizchina-update.com/content/view/2576/2/).

China, Christmas has become big business for Chinese manufacturers in recent years – and not just because of the huge volume of toys, consumer electronics and gift items produced and shipped worldwide from the Middle Kingdom. China is also the largest producer of Christmas trees and decorations, which are traded to wholesalers in vast commercial marts like Yiwu, Zhejiang province.

The summer of 2009, however, is turning into a less-than-stellar sales period for the Chinese Christmas trade. June and July are typically the months when buyers from around the world head for places like Yiwu to purchase their supplies of Christmas trees, decorations and lights. But, as the attached article from the UK-based The Guardian newspaper reveals, Santa’s stocking may be a little emptier than expected this year