Why The Foxconn Riot Comes At The Worst Possible Time

Business Insider

2,000 workers at Foxconn's Taiyuan plant in Northern China clashed with guards in the worker's dormitory causing the plant to be temporarily shut down. Foxconn is the company most known for assembling Apple gadgets.

This is horrible timing for China, which is already experiencing a period of profitless growth, as corporate costs outstrip revenue.

Foxconn has previously faced severe criticism over poor work conditions and has increased spending in recent months to boost wages and improve work conditions. 

When Foxconn reported earnings back in April, it said profits were down to $509 million from $1.19 billion the previous quarter. This was in part caused by increased wages, worker benefits, and education. 

Current reports suggest that today's protests were sparked by a guard's attack on a worker. But the incident could spark criticism of worker conditions again and raise costs for the company.

Profit warnings filed with the Hong Kong stock exchange were at record levels in the first half, and for A-share companies that reported second quarter earnings, year-over-year growth earnings growth was mostly negative.

Declining orders, rising inventories, higher wages, and taxes are impacting corporate profits and many companies are going bankrupt. Bad debts are on the rise, and this along with the market's inability to accept lower growth rate has been drawing out the China bears that are predicting a hard landing.

This chart shows that Chinese industrial profits have gone negative.

Bottom line: At a time when profits are collapsing for big Chinese corporations, manufacturing shutdowns and worker unrest adds to an already tenuous environment.

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