Dongguan feels heat as overseas orders slow
The trademark clatter of machinery and the sight of workers pouring through factory gates at the end of their shifts in the industrial area of Dalang town, Dongguan, is undergoing a worrying change, says factory boss Wilson Shea Kai-chuen.
Shea, who founded and chaired the 300-member Hong Kong Small and Medium Enterprise Association in April, said the industrial town, which was home to many members, had been growing steadily more quiet since June as orders slowed down.
The outlook for China's export sector deteriorated further over the weekend on news that Standard & Poor's had stripped the US of its AAA rating with a 'negative' outlook.
This in turn increases corporate borrowing costs and sours consumer confidence.
Worries about a double-dip recession in the US and the unsettled debt crisis in Europe sent global stocks tumbling sharply as last week drew to a close, and cast another cloud over the outlook for manufacturers and exporters in the area, he said.
'The top two Chinese export markets are in trouble at the same time now. The prospects look even worse than the global financial crisis,' he said.
Shea, who runs a factory at Dalang producing gift and jewellery boxes and wrappings, said smaller exporters had frequently complained of overseas orders shrinking by as much as 30 per cent since April on the back of sharp inflation in costs and wages, a stronger yuan exchange rate and weakening consumer confidence.
'Since a so-called recovery in the first three months of this year, overseas orders have slowed down,' he said.
Growing worries of a global recession worsened significantly in the past week even though the US raised its debt ceiling at the 11th hour to avoid default.
'Exports will probably slow more quickly than we had expected,' Deutsche Bank chief economist Ma Jun said.
Exports and its related industries such as shipping, ports, raw materials and real estate faced 'new downside risks', he said.
For every one percentage point decline in the US and European Union's economic growth, China's exports would fall by seven percentage points and its economic growth would contract by one percentage point, Ma said.
Daiwa Capital Markets chief economist Sun Mingchun said growth in the mainland's fixed asset investments in the manufacturing sector slumped to 18.7 per cent in June from a 51 per cent rise in May, underlying a lack of credit lending and confidence.
Eddie Leung Wai-ho of the China Affairs Committee of the Chinese General Chamber of Commerce said smaller watch and clock manufacturers had been 'screaming' for orders since April.
'The US and European markets are jittery,' Leung said. 'The coming fourth quarter will be very tough.'