World Trade - February 2009 - (Page 32)

GLOBAL TRENDS The Impact of China’s Economic Slowdown on U.S. Supply Chain The toy sector illustrates problems in reliability, quality control, and capacity as China deals with the collapse of demand. BY ANGELA VALDEZ I n the 30 years since China’s economic reorganization, the nation’s insatiable industrialists have built thousands of factories, fueling furious economic growth that reached the low double digits in peak years. Recently, all that productive capacity has begun to exceed any reasonable expectations for demand. As the economic crisis ripples through Chinese plants, the drop in orders has offered a painful dose of reality, and some analysts say its impact has yet to be fully felt. Exports, which represent nearly 38 percent of China’s economic output, dropped by just over 2 percent from November 2007 to November 2008, the largest dip in almost 10 years. Economic growth may fall below six percent. Factories have begun closing by the hundred in the pop-up cities built around individual industries-- shoes, textiles and toys—in the industrial provinces of South China: Guangdong, Jiangsu, Fujian and Zhejiang. The implications for this slowdown are global, as China has emerged as the world’s factory over the past decade. Experiencing its ﬁrst real cyclical swing since embarking on its course of ‘socialist free enterprise’, the foundations of the country’s economic explosion are being tested. Labor, for example, has become restive, with protests and even riots in several factories in economically developed areas where reforms have made it easier for workers to strike. Political dissent, prompted by falling income, is a mounting concern to the Communist Party, whose post-Mao model is to maintain state control while enabling economic enterprise. The trade-off for the people is to obey the government in return for income and improved social conditions; the bargain, which includes shifting the focus of the economy from low-value-added export to higher value-added production for both domestic and international consumption, is put at risk by the deteriorating conditions. The shift in China’s manufacturing focus can be seen across several sectors. U.S. apparel companies have begun turning to Vietnam, Bangladesh and Honduras, a change reﬂected in the closures of more than 10,000 garment and textile factories in the ﬁrst half of 2008, according to Chinese government ﬁgures. Furniture retailers, who abandoned U.S. factories in droves over the last decade, have already shifted manufacturing to India, inland China and even 32 WORLD TRADE FEBRUARY 2009

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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