Business / Industries

Festival 'end of the line' for some plants

By ZHONG NAN/YU RAN (China daily) Updated: 2015-02-25 07:45

Nearly 100 manufacturing businesses along the coast failed to re-open as Spring Festival drew to a close on Tuesday, underscoring the weakness in global market demand and adding pressure on the world's second-largest economy to upgrade its export sector.

State broadcaster China National Radio on Monday reported that some 100 factories that made garments, furniture and daily necessities remained closed or suspended, the victims of declining foreign orders and rising operating costs. The factories are in Wenzhou, Zhejiang province and Dongguan, Guangdong province. Both provinces are part of China's traditional industrial bases.

"Market demand has shrunk dramatically in both domestic and overseas markets, which has led to the ongoing closure of factories in Wenzhou," said Zheng Chen'ai, chairman of the Wenzhou Chamber of Clothing Commerce.

"In the past two years, more than 10 percent of the garment factories in Wenzhou have had to shut down or reduce their operations due to the rising costs of labor and materials, overcapacity and narrower profit margins," Zheng said.

Zheng said the factories' former international clients had shifted about 20 percent of their orders to Southeast Asian countries.

Chen Yaohua, chairman of the Dongguan Association of Textile and Garment Industry, said that even though many Dongguan garment factories are now less dependent on the foreign market, exports are still the mainstay because original equipment manufacturing accounts for most of their business.

These factories rely largely on their own working capital to complete orders. The biggest concern for Dongguan's garment, shoe and furniture exporters is that foreign companies pay only after goods are delivered.

"I know that hundreds of medium-sized factories in Dongguan shut down before the Chinese New Year and more will close because they have been under pressure from constantly decreasing demand in the past two to three years," said Gong Ying, general manager of Dongguan Hongxu Shoes Co.

That company has cut the number of production lines from seven to four since the end of 2013.

The Purchasing Managers Index, the main gauge of manufacturing activity, fell below 50 in January for the first time since October 2012. Exports fell by 3.2 percent and imports plunged 19.7 percent in January from a year earlier.

Yao Jingyuan, former chief economist of the National Bureau of Statistics, said that weakening international and domestic demand will intensify deflationary pressures in China and further reduce the number of factories.

"As the Chinese economy has entered the 'new normal', a transformation of the growth model is necessary to focus more on efficient resource allocation, innovation and higher productivity," said Yao.

Cai Jin, vice-president of the China Federation of Logistics and Purchasing, which helps compile the PMI, said that because many domestic factories are labor-intensive operations that require experienced workers, many business owners have turned to automation and robots to tackle the problem.

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