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Global Recession: China’s manufacturing base is in crisis

Posted April 22, 2008

by J. Christoph Amberger

Baltimore — (TFN): If you follow the financial media, especially the output of dollar-phobe analysts, you might think that “Pork problems perturbing Peking” are the worst concern China is dealing with right now. But rising prices for moo-shoo pork due to increasing middle class appetites and upticks in inflation may be the least concern to Beijing.

While analysts are sticking to their guns that the American Century is over and Asia a whole new kettle of koi, it looks like the Chinese economy is about to catch a heck of a cold as America’s consumers sniffle.

Light export industries are experiencing massive losses. Growth in China’s textile industry production in January and February 2008 came in at just 5.7 percent, compared to last year’s 19 percent. That’s the slowest growth rate since 2003.

Guangdong’s industry was hit by a whopping 11.3 percent drop in output, with textile output falling an incredible 32.9 percent — due in part to February’s massive snowstorms, but mostly to weakening demand from the US and Europe.

Reportedly, almost half the companies in 17 Chinese provinces are considering shutting down, and 44 percent were trying to sell export-oriented products on the domestic market.

Almost 10 percent of the 60,000-70,000 Hong Kong-owned factories in Guangdong’s Pearl River Delta will close in 2008 due to revenue and cost pressures. In Guangdong, approximately 1,000 firms shut down in 2007. The shoemaking industry laid off between 150,000 and 200,000 workers and cut roughly 15 percent of production capacity.

Companies are shedding jobs and outsourcing either abroad or to low-wage regions of China.

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Global Food Crisis!

Pork prices leapt over 63% in China. Tortilla prices are up 51% in Mexico… Bread prices up 35% in Egypt… Rice prices doubled in Philippines…Soybean prices jumped in Argentina, leading to riots…

But as some go hungry, others will feast on profits as big as 616%, 962% and 1,006%. Learn how right now.

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The dollar has fallen 14 percent against the Chinese currency since 2005. Each percentage point increase in the yuan means a half a percentage point loss in a company’s foreign exchange earnings.

Soaring energy and commodities cost, rising wages and much-touted green policies, are forcing employers to shift production to poorer regions of China, as well as to Pakistan, India, Vietnam, and Myanmar.

Maybe Beijing’s one trillion dollars in foreign currency reserves may come in handy as China’s export cash flow start drying up by the fall. Watch for the numbers to become better popularized after the Olympic Games this summer. And get ready for the second, far more powerful wave of economic calamity as the Chinese economy belly flops.

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Posted by J. Christoph Amberger · Filed Under International Investing 

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