Amid turmoil, some China factories prosper, some don't

McClatchy NewspapersOctober 15, 2008 

GUANGZHOU, China — Global financial turmoil has sent gale-force winds across some factory floors in China, and barely a breeze across others. The differing fates of factory owners such as David Xu and James Jiang illustrate why China Inc. displays some resilience in the face of the global crisis.

Xu's factory makes television sets of such low quality that they can't sell in the United States and Europe. So he markets them in the Middle East, and sales are brisk.

"We don't feel much," Xu said of the financial turmoil. "I'm not worried."

It's a different story for Jiang. His factory makes low-cost musical keyboards for hobbyists and students. They sell in Target's Australian stores and Fred's Inc., a discount store chain in America's Southeast and Midwest. Orders now only trickle in.

"Nobody has money," Jiang grumbled. "I think the orders may drop in half."

Over the past few years, China has opened up vast new markets. Today, only half of its exports go to the United States, the European Union and Japan. The rest go to expanding markets in places such as South Africa, Russia, India and oil-rich Middle Eastern states. So in times of crisis, some factories may suffer severely while others escape unscathed.

A stroll Wednesday through the opening day of the Canton Trade Fair, the largest such fair in China and one of the biggest in the world, underscores the acumen of China's strategy of diversifying markets. Arab merchants in dishdashas walked beside Russian vendors, German middlemen and Sudanese importers. Chatter occurred in a dozen languages. Translators were a hot commodity.

Some vendors reflected on the crisis roiling Western banks and stock markets in major world capitals as if the events were as remote as bank failures in Iceland.

Jackie Kim, whose Buyang Group sells wooden doors, listed the destinations for the output of his factory in coastal Zhejiang province: "Iran, Russia, Sudan. . . . " Then he added, "The countries we export to are not rich but they are developing quickly." They're oil exporters riding the crest of a boom.

Xu's Unitron Electronics Co. in Zhuhai, in far southeastern China, produces conventional and flat-screen televisions. Most of them don't have the safety and quality listings required for developed markets. Instead, Xu sells to merchants in Saudi Arabia, the United Arab Emirates, Qatar and other places. He said his goods sold well.

"In my opinion, products with 'Made in China' on them are quite competitive," Xu said.

The city of Guangzhou is at the heart of the Pearl River Delta region, which has been called the factory to the world for its vast output of shoes, garments, electronic products and other low-cost goods. Surrounding Guangdong province has more than 60,000 factories employing some 45 million workers.

In the first nine months of this year, Guangdong shipped $57.8 billion worth of goods to U.S. shores, an increase of 7.9 percent from a year earlier, according to Guangzhou Customs Office statistics.

However, the volumes of some categories going to the United States are suddenly stalling, the statistics show, including apparel, toys and plastic products, indicating an imminent slowdown.

At a trade show in Shenzhen, a boom city across from Hong Kong, manufacturing tycoon Simon Cheung wore a long face.

"Our orders have fallen more than 40 percent from a year or so ago," Cheung said as he stood next to a display of electric vehicles he sells to police departments, resorts, airports and big factories, largely in the United States.

Cheung's factories produce and export a variety of products, including home adornments and fittings for recreational vehicles. With gas prices rising, his exports to RV industries in Indiana have dried up, Cheung said.

Since he started out in 1976, he couldn't recall a more difficult period, he said.

The distress of Hong Kong factory owners operating in Guangdong who export to the United States is so severe that Hong Kong government officials have intervened to seek relief.

"We've been talking to Pearl River Delta municipal governments ... and urged them to be more helpful to these factories in chasing them for tax payment to let them get over these difficulties," said Peter P.Y. Leung, the head of the Hong Kong Economic and Trade Office in Guangdong.

Hong Kong-owned factories employ about 11 million workers in Guangdong, Leung said.

As credits from Hong Kong banks dry up, some factories are having difficulty with payrolls and other costs, he added.

"Banks have been in a near-panic situation. They've tightened up credit to all sorts of companies, healthy or not," Leung said.

Some mainland companies barely feel such effects. They're partly owned by township, city or provincial governments and have special access to state banks, and they can tap credit easily.

"It's better than being a private company," said He Yan, a marketing manager for Glip Sanitary Ware, a maker of shower heads and faucets in Guangdong's Foshan City.

Still, she said the company was taking precautions, demanding tougher terms of new customers and keeping a watchful eye on old ones, afraid that they might get caught up in the global banking turmoil.

"We request that they pay balances before shipment," she said, "or we ask that they buy (export) insurance. Even some old customers ... pay the balance late or they don't pay at all."

Surrounded by stylish electronic keyboards, Jiang looked glum as he fretted about U.S. consumers' drop in disposable income for the kinds of goods he produces.

"Our items are for fun, for entertainment, for kids," Jiang said.

He said his China Joy Keyboards Co. in Fuzhou employed some 500 people and could produce 56,000 keyboards a month. It's one of 20 or so electronic keyboard factories in China, nearly all of them started to produce knockoffs to take business from Japanese giants Yamaha and Casio at a fraction of the cost.

He said he expected dire market conditions for two years, although he added some unsolicited advice to U.S. consumers: "Even in hard times, everybody still needs to have fun."

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McClatchy Newspapers 2008

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