Thursday, March 19, 2009

How Stimuli are Affecting China

Despite the anecdotal evidence I provided the other day of the frenzy that is Guangzhou's bustling streets, things down here aren't all rosy.

From The Associated Press:

Photo from

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.

Read On
As the article goes on to say, some of the people involved in China's manufacturing industry are optimistic that China's massive stimulus package will get things going by the end of the year. There appears to be little relief from such programs at the moment though. Orders are down and factories who used to pick and choose who they wanted to work with are now desperate for business with anyone. These people are truly struggling to stay afloat.

To contrast this struggling, China's stimulus funds are already benefiting one of America's most important, and desperate, brands.

From Bloomberg:

Photo from The New York Times

March 19 (Bloomberg) - General Motors Corp. can thank U.S. taxpayers for $13.4 billion in loans that have kept it running. The carmaker can also thank China’s government, which is kicking in subsidies of as much as $1,170 to help it sell vans.

The automaker’s China minivan venture boosted sales 32 percent in the first two months after a cut in retail taxes on small vehicles. The government is now giving out 5 billion yuan ($731 million) in subsidies to spur auto sales in rural areas.

GM doubled its 2009 forecast for China’s market growth as the tax cuts and subsidies revived demand, helping the country pass the U.S. as the world’s largest auto market so far this year. By contrast, the Detroit-based carmaker’s domestic sales have plunged 51 percent, forcing it to seek as much as $16.6 billion more in government aid.

“Every farmer in China wants a new vehicle, all 800 million of them,” said Yale Zhang, a consultant at CSM Asia in Shanghai. “It looks like the government wants to make that happen.”

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Minivans, huh? You see a lot of minivans around China. I'm not surprised to hear that China is getting into buying the things. It is amazing to think that Chinese peasants buying minivans fueled by tax incentives from the Chinese government is what is keeping Detroit's dying car industry afloat though.

While it's debatable whether spreading America's gasoline-addicted living across the globe is a good thing, it is clear that China is serious about stimulating domestic demand and getting more of its citizens to become drivers.

Comparing the factories in Guangzhou that are struggling or that have already closed with the farmers who are currently buying new minivans is interesting. On the one hand, people are struggling for their survival or have already returned to the countryside. And on the other, poor farmers are buying what they think will help take them out of poverty.

It seems like a contradiction that such events could happen simultaneously in the same country.

On the surface, it appears as though the West's attempts at stimulating the economy are failing (China's idle factories) and that China's are more effective (a large number of first-time car buyers).

Time will eventually tell whether this is actually the case though. If the West's economy stays depressed, I doubt that China's new consumer class will be able to prop the world's (or China's) economy.

1 comment:

Thomas said...

China is not keeping GM US afloat, though: Their China operations are a JV, and I highly doubt that they are sending any dividends across the Pacific...