China’s firms get desperate as orders drop

Published by rudy Date posted on March 19, 2009

GUANGZHOU, China (AP) —Desperate for new customers, Chinese factories have been bombarding Josef Jelinek with e-mails everyday. One wants the British businessman to order a shipment of whirling toy helicopters. Another touts a multi-media gizmo called the V-disk.

“They’ve been coming thick and heavy over the last few months. This never happened before,” he said.

Jelinek has no interest in toys or electronics. His main job is scouring China for lead pipes and other construction materials for a shopping mall project in Cairo.

The blind, mass-mailing approach targeting him, however, highlights the growing anxiety among Chinese exporters as they near a crucial period—the time when they get the bulk of their orders for the summer season and Christmas.

The early signs are pointing to a bleak year. The phones aren’t ringing. Web sites aren’t getting clicks. Old customers aren’t visiting plants.

Companies are already complaining that orders are sharply down. Industry experts say thousands of factories are idle or haven’t even bothered to open since the Lunar New Year holiday ended in late January—which usually marks the start of the busy season. Millions of migrant workers are jobless, especially here in southern Guangdong province—one of the world’s biggest manufacturing hubs and the source of one-third of China’s exports.

“Peak season is May to September. That’s when this place is booming. I don’t think it will be booming this year,” said Rick Goodwin, the American chairman of Concept Holdings, a company that links up foreign buyers with Chinese suppliers.

Goodwin said his firm deals with about 400 Chinese suppliers, making everything from T-shirts and hunting knives to ceramics and lapel pins. But after the Lunar New Year holiday, he said 15 percent to 20 percent of the factories closed or are in the process of folding and can’t take orders. But Goodwin believed China’s 4 trillion yuan ($586 billion) stimulus package would begin to kick in by the end of the year and provide a boost.

The e-mail Jelinek received about the V-disk—a thumb drive-like gadget that can be used to store DVDs—was sent by Ivan Lee, a salesman at SSA Digital Co. Ltd. in the city of Shenzhen, near Hong Kong. Lee said he was spending his days trolling the Internet looking for new customer leads with little success.

“So far this year, our orders are down by 50 percent from last year,” he said.

Things were worse at the company that sent the e-mail about toy helicopters. “We’ve practically had no orders,” said Sylvia Yu at the toymaker, Canton Trade International Co. in Guangzhou.

Yu said the company had initially planned to rent a booth at next month’s Canton Fair, the nation’s biggest trade show—an event many factories rely on to collect all their orders for the rest of the year. But Yu said her company decided not to go after several foreign customers said they weren’t flying to China to attend.

Some Western buyers like Jelinek are benefiting from the downturn. In past years, he said he would send e-mails to 30 or 40 suppliers asking for bids, and most would never respond or they would reply once and never again. Business was good and factories could ignore small orders.

“In the past three or four months, things have really changed. They started being super keen,” said Jelinek, who works for Inecko HK Ltd and is based in Guangzhou, the capital of Guangdong. “The percentage rate of replies has shot up by 90 percent.” Suppliers that in the past have ignored him are now sending him e-mails about price cuts.

Another businessman who has found a silver lining in the economic woes is Frank Carroll, an Irishman who sells chairs, coffee tables and other furniture he designs and has made in China. A little more than a year ago, Carroll was worried that he would have trouble finding factories that had time to do his orders. Now, he said manufacturers have told him that they would be closed if it weren’t for his business.

“The factory that makes my chairs used to need 55 days to complete my order. Now they said they can do it in 15 days,” he said.

Last year, there was much talk about a wave of factory closures in Guangdong, especially in the province’s heavily industrialized southern region, the Pearl River Delta. Estimates of the bankruptcies have varied wildly, and officials have been reluctant to provide figures.

Last week, the provincial governor, Huang Huahua, told reporters that 4,900 factories collapsed or relocated last year, including about 2,400 that were foreign invested. This was slightly more than the year before, he said, without providing a figure.

Danny Lau Tat-pong, chairman of the Hong Kong Small and Medium Enterprises Association, estimated that since the holiday, about 3,000 Hong Kong-invested factories were closed or idle while waiting for orders. He made the estimate by surveying his association’s membership and collecting information from trade groups involved in the plastics, metals and other industries.

Lau said the government’s numbers don’t reflect the severity of the situation because many factories have closed but they’re still in the middle of the arduous process of shutting down a plant. He reckons that about 2,000 to 3,000 factories began the process in the third and fourth quarters of last year.

“When you close a business, it takes six months to three years. You have to go through different departments,” he said. “More factories and businesses will close. More people will lose their jobs.”

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