Thursday, November 13, 2008

Bad news from China?

If you needed confirmation that China is not 'uncoupled' from the US economy, as it was once optimistically put, and that there will be knock-on effects from the US economy to China's economy to Australia, this piece by Don Lee from the LA Times would be of interest:

Shaoxing, China -- First, Tao Shoulong burned his company's financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And just like that, China's biggest textile dye operation -- with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million -- was history.

"We're pretty much dead now," said Mao Youming, one of 300 suppliers stiffed last month by Tao's company, Jianglong Group. Lighting a cigarette in a coffee shop here, the 38-year-old spoke calmly about the bleak future of his industrial gas business. Tao owed him $850,000, Mao said, about 60% of his annual revenue. "We cannot pay our workers' salaries. We are about to be bankrupt too."

Government statistics show that 67,000 factories of various sizes were shuttered in China in the first half of the year, said Cao Jianhai, an industrial economics researcher at the Chinese Academy of Social Sciences. By year's end, he said, more than 100,000 plants will have closed.

As more factories in China shut down, stories of bosses running away have become familiar, multiplying the damage of China's worst manufacturing decline in at least a decade.

Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-material costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold -- prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories -- many operations were pushed over the edge.

China's engine slows

China's industrial decline is a main factor in the sharp economic slowdown of late. The nation's gross domestic product grew at an annual rate of 9% in the third quarter, the lowest in five years and worse than what analysts had forecast. China's GDP expanded 11.9% last year. Now, economists worry that the one big remaining engine of global growth is rapidly losing steam.
For more read here.

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