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  • caseysxyz caseysxyz Sep 20, 2012 10:42 AM Flag

    China will be announcing their Manufacturing numbers soon

    Here is an anecdotal tale to consider before making a call on macro Chinese activity.

    About a month ago, I was catching up with Chinese colleague. She runs a small refrigerator manufacturing company. She only sells in the Middle East no domestic production. She said, business was very bad right now. Her explanation for the source of the problem was she was selling too much. As Chinese have trouble with adjective and adverbs, I started explaining her problem was she was not selling enough. She stopped me in the middle and elaborates on her problem.

    She had to have her sales staff stop selling and forced them on the manufacturing floor. They ultimately ended up quitting. They had no problem selling refrigerators. She could not get anyone to work in the factory. So, the sales people would sell the refrigerators. The customers would not get delivery and cancel. Now she has phones ringing off the hook and an empty manufacturing floor. Her problem is in fact, she is selling too much.

    Is it possible the Chinese “slow down” is literally the country running out of labor and not running out of sales? If that is possible, no amount of monetary policy is going to goose growth.

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    • Sorry to cut in on this thread, but I have to be able to see Casey's post because he brings
      up a number of issues while discussing his friend's business. First there is a labor problem or
      so I've read. I think some of this stems from putting the cart before the horse in China. China
      built many cities, hoping to entice the Chinese, to move into the cities. That's well and good
      but as we can see from the number of ghost cities, they didn't come the way the gov thought
      they would. Why is that? Might very well have something to do with wages and the cost of
      living. With the building boom inflation went up drastically. These people could be working
      24/7, but they wouldn't be able to survive financially. This is how govs create underground
      economies. You become very creative when it comes to your survival. In order for the stimulus to work the last time, China manufactured goods on a grand scale and until recently that hasn't slowed down very much, and the domestic demand is just not there for
      the amount that is being produced. You have a glut in so many areas, it's scary. Now China
      will start dumping that excess in other countries, which is a whole other story.

      So I can understand your friend's problem. On top of that I think you can add the following.
      He/she is an exporter. I would think since the gov continues to provide stimulus, this is going
      to domestic providers. About 2 or 3 months ago China added 26B stimulus for appliances, but that is solely for domestic consumption. That is what the gov was supporting, not for
      appliances being exported. Now I just read an article that China is going to provide more
      stimulus for exporting. It's something like the gov's push for low cost housing right now.
      labor, and funds will go to those companies that will assist this initiative. Sounds like this
      is what your friend has got caught up in. Labor will go to government supported plans.
      There is a lot more to the story but it would takes many posts and I don't think we need it.

    • For me, a Chinese national, Chna's short-term manufacturing fall-off can be stopped by billions of public projects. In the long run, i.e. five years beyond, China's structural problems will be more and more apparent. There will be a day when the central government and local governments just could not afford to make more public projects anymore.

      Also China's current economy slump does not just apply to manufacturing. I have a few friends in retail business there. The retail climate there is lousy too. Many Chinese retailers do not believe a win-win. Rather, they prefer to damage their competitors as much as themselves. On the other hand, foreign consumer product companies with a valid brand equity are doing much better. I went t a shopping center this year in Beijing. Foreign brand stores are full of traffic while the domestic names are more empty.

      People who cite China's 7% GDP growth to indicate China is still doing well than the US are basically naive about economics in China. Most GDP growth in China comes from public investments that yield little corporate profits while most GDP growth in the US comes from consumer spending. The key is corporate profit. One big reason why US stock market is doing much better than the Chinese stock market is that most US companies show corporate profits weigh above 2008 level while most Chinese companies' profits have fall to almost 2008 level.

 
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