Credit Crunch effects in China
May 6, 2009
The FT story makes the following key points:
– A rapid deterioration in the ability of Chinese companies to pay their suppliers “is significantly increasing the risk of doing business in China.”
– Chinese companies are facing “a liquidity crunch” due to China’s plummeting exports. “Many of them were also unable to access bank loans to tide them over the tough times, especially if they were small to medium-sized private businesses.”
– Though Chinese banks have “ample liquidity,” they usually do not lend to small private companies.
– Many Chinese companies have turned to their suppliers for credit, “thus forcing the pain up the supply chain.”
– Chinese suppliers are extending credit now more than a year ago. This is “bad credit management.” “Now is not the time to extend credit, it is time to restrict it.” “Most Chinese suppliers, however, have never experienced such a downturn.” “A lot of these companies never had to deal with the problem of not getting paid, because sales had always been increasing,” he said, “There’s not enough financial resource, not enough management.”
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Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)
February 13, 2009
What is CEPA?
The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded by the Mainland of China and Hong Kong. The main text of CEPA was signed on 29 June 2003.
CEPA opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong.
CEPA adopts a building block approach, and the two sides have been working closely to introduce further liberalization measures continually. The agreed liberalization measures for various phases of CEPA are stipulated in the CEPA Legal Text.
CEPA is a win-win agreement, bringing new business opportunities to the Mainland, Hong Kong and all foreign investors. For Hong Kong, CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. CEPA also benefits the Mainland as Hong Kong serves as a perfect “springboard” for Mainland enterprises to reach out to the global market and accelerating the Mainland’s full integration with the world economy. Foreign investors are also welcome to establish businesses in Hong Kong to leverage on the CEPA benefits and join hands in tapping the vast opportunities of the Mainland market.
Implementation
CEPA covers 3 broad areas:
Trade in goods – All goods of Hong Kong origin importing into the Mainland enjoy tariff free treatment, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs) being agreed and met.
Trade in services – Hong Kong service suppliers enjoy preferential treatment in entering into the Mainland market in various service areas. Professional bodies of Hong Kong and the regulatory authorities in the Mainland have also signed a number of agreements or arrangements on mutual recognition of professional qualification.
Trade and investment facilitation – Both sides agreed to enhance co-operation in various trade and investment facilitation areas to improve the overall business environment.
Source: Trade and Industry Department
The Government of the Hong Kong SAR
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Qi says hard times for steel to continue
December 8, 2008
For the buyers importing steel from China or having domestic demand to Chinese suppliers must keep on suppliers. Here is the latest news from Chinese supliers:
CHINA’S steel industry has entered a hard time after seven years of rapid expansion, and a turnaround is unlikely until the second quarter of next year, according to Qi Xiangdong, deputy secretary with China Iron and Steel Association.
Slackening demand at home and overseas has hit the country’s 71 major steel makers, said Qi.
Their profit totaled 126.8 billion yuan (US$18.5 billion) during the January-October period, down 0.93 percent from a year earlier.
Forty-two large or medium-sized steel companies posted losses in October. The combined losses reached 7.8 billion yuan.
The proactive fiscal policy and moderately loose monetary policy as well as the central government’s efforts to boost domestic demand and fixed asset investments would all have a positive impact on the development of the steel manufacturing industry in 2009, Qi said.
Last month, China unveiled an estimated 4-trillion-yuan stimulus package as part of its bid to offset adverse global economic conditions by boosting domestic demand.
The money is to be spent over the next two years to finance programs including low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.
Although the elimination of export duties on 67 types of steel from December 1 would help cut the cost of exports, Qi expected steel exports to slump next year due to dwindling global demand.
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China, difficult for manufacturers to leave
October 10, 2008
It is being recently told that costs are rising in China, like all over the World. But it is hard to move your sourcing away China. An Article written by Venkatesan Vembu published in DNA India explains why :
“ For all the hand-wringing over the rising cost of sourcing from China, the country’s scale of manufacturing operations, the depth of its supply base and its famed infrastructural advantages make it a difficult country for manufacturers to leave for elsewhere, say economists, business consultants and businessmen.
“Where else but in China can you source the huge quantity of goods that Wal-Mart needs, for instance?” asks Jing Ulrich, chairman of China equities at JP Morgan Securities. Countries like Vietnam and Bangladesh may be able to take some marketshare from China in some industries, but they’re not going to be able to replicate the huge scale of manufacturing that China has built up over the past 30 years, she adds.
China still offers cost advantages in many verticals, points out Richard Brubaker, managing director of China Strategic Development Partners, a Shanghai-based business consultancy. “It’s hard for many manufacturers to leave China because there is no business case to move.”
China’s supply base is huge, and entire industries – such as automobiles and computers – have Tier 1-3 suppliers in place in China, observes Brubaker. “If a particular group decides to move out of China, for whatever reason, it loses out on the scale of support.”
Hong Kong-based garments manufacturer M Arunchalam, who sources from China for the world markets, agrees. Earlier this year, he moved a fifth of his supply lines from China to Vietnam and Bangladesh citing rising wage costs and tighter enforcement of pollution control laws. But even he acknowledges that it is hard for him to go to India, for instance, and replicate his China model, given the limitations of infrastructure there.
“If I want to make 2 million pairs of jeans and I have the fabric, I may go to Chennai, but I cannot wash it because there is no water,” says Arunchalam. “The entire processing industry is dying in India because of inadequate infrastructure.”
Ulrich notes that China remains a competitive producer of many goods, but that it feels the need to exit low-end manufacturing industries such as textiles, garments and shoes, which operate on thin margins. “In low-end manufacturing, which is labour-intensive and materials-intensive, China is not going to be as competitive as it once was.”
China, she adds, is looking to move up the value chain into machinery manufacturing, including high-end goods and telecommunication equipment. “This is where the bright spots will be.” And in these high-end industries, especially machinery equipment, China is beginning to command higher marketshare globally, she points out.
“If you take a look at China’s overall composition of exports, nearly 50% of it this year will be in the machinery sector. This is clearly where China’s overall competitiveness lies.”
Going forward, she says, she expects China to take on global players in their home markets. “Who knows, years from now, Chinese high-end machinery equipment may be sold in Germany, the US and Japan, not just in emerging markets.”
In that context, says Ulrich, moving elsewhere is not a solution for manufacturers.
In any case, Brubaker points out, many firms are not manufacturing in China solely for export. “Many of them are now manufacturing for the China market and are doing very well in that endeavour. For them to move to another country would not only add costs to bring those goods to the China market, it would also create higher barriers.”
And then, says Brubaker, there’s the comfort factor. “China is a known place: firms have already negotiated and closed their deals here. To start over in a country like India or Vietnam would be a long-drawn process where relationships would need to be established, deals negotiated, staff hired and capacity developed.”
Article by DNA India: Why China is so hard to leave
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Ten Reasons to Use Global Sourcing
July 2, 2008
“Made in America.”
The imprint means innovation, high quality, safety and reliability. So why should companies even consider exchanging that stamp for “Assembled in USA” and components manufactured in other nations?
Not so long ago, the main reason was to gain lower prices for labor-intensive goods. That’s still a good reason, but there are several other circumstances in which “Made in America” isn’t the best choice. [Read more]
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