Sat, Jan 23, 2016 - Page 9 News List

Slump in China’s industrial sector weighs on slowing economy

By Neil Gough  /  NY Times News Service, DONGGUAN, China

Walking around an abandoned furniture factory, Fang Minghua (方明華) pointed out the workshops where several hundred employees once toiled, transforming sheets of raw wood into TV stands or wardrobes for the aspiring middle class in China and other emerging economies.

The factory is relocating to a new facility two hours away, priced out by rising costs and falling orders. Fang estimated that as many as a third of the furniture factories around town had gone out of business, while many others were struggling.

“The economic slowdown is real,” said Fang, 46, who over the past 22 years had worked his way up from US$50-per-month worker to production supervisor.

The downturn in Dongguan, a once-thriving manufacturing hub, is part of the Chinese economic puzzle that international investors are trying to solve.

While China has been moving away from the type of low-end manufacturing that has been Dongguan’s specialty, the protracted slump in the nation’s vast industrial sector is a major threat to the nation’s already slowing economy. As the government tries to manage the situation, the risk is that the Chinese economy is worse off than expected — a concern that has put markets around the world on edge.

The latest signals from China do not offer much reassurance, with the economic weakness showing little sign of abating. On Tuesday, China reported growth of just 6.8 percent for the fourth quarter, its slowest expansion since the depths of the financial crisis in 2009.

For the full year, China expanded at 6.9 percent, just below the government’s target of 7 percent and the weakest performance since 1990 when foreign investment shriveled in the year after the deadly crackdown in Tiananmen Square.

When it comes to the economy, Fang said, politicians and business leaders talk about industrial innovation and upgrading, “but I think that is just a slogan. It is really hard to carry out.”

Dongguan is at the heart of south China’s Pearl River Delta. For decades, the region drove the nation’s international ascent in exports, rolling out furniture, garments, shoes and other goods.

However, the world’s workshop has been stumbling as cheaper production bases in Asia have gained ground. Last year, Chinese exports fell for the first time since the financial crisis — and for only the second time since the nation’s economy began reopening to the outside world in the late 1970s.

That position is likely to be further eroded by the Trans-Pacific Partnership. The US-led trade agreement deepens US ties with Asian nations like Vietnam and Malaysia, but it excludes China.

The slump has created a tricky situation for the government.

Officials have encouraged phasing out low-end exports in favor of promoting the service sector and high-tech manufacturing. While newer and more dynamic companies are on the rise in China, the risk is that they would not develop fast enough to offset the hollowing out of light manufacturing, which remains a shrinking but significant employer across the nation.

Some traditional manufacturers have responded to the downturn by relocating farther inland or overseas, where costs are generally lower. Others are trying to reduce their reliance on export orders by establishing their own branded products for domestic sale.

“This is an unfortunate pain being felt in traditional, older sectors,” Oxford Economics head of Asian economics Louis Kuijs said.

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