China’s makers of lockdown goods eyeing next windfall as coronavirus shutdowns return to the West
- China’s exports have boomed as factories churn out goods for work and play amid renewed coronavirus lockdowns in Europe and the United States
- While second windfall may not be as big as the first, factories across China’s manufacturing heartland expect the good times to keep rolling well into next year
As they churn out goods being consumed around the world, manufacturers in China are licking their chops at the prospect of an end-of-year windfall amid fresh coronavirus outbreaks and economic upheaval in Europe and America.
It marks a remarkable turnaround from the start of the year. China’s industrial heartlands ground to a halt in the first quarter as the pandemic spread like wildfire, leading to bankruptcies, mass lay-offs and the nation’s first-ever official economic contraction.
But China’s relatively quick containment of the virus resulted in factories being up and running in time to produce the electronic goods, household appliances, furniture and medical supplies that the world needed as the virus fanned out across the planet.
Now, with fresh lockdowns in the West, factories are struggling to keep pace with overseas orders. The second lockdown boom may not be as big as the first – people are unlikely to again deck out their homes with office equipment, and a second home video projector purchase might be too extravagant.
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But in busy factories around China, manufacturers are not inclined to complain.
At Guangdong Xinbao Electrical Appliances, which makes household goods such as bread makers, blenders and coffee machines, the order book is full until March. European and American buyers now have to pay 80 to 100 per cent up front to secure their goods.
“Our sales in the first three quarters of this year have surpassed the sales for the entirety of 2019,” said Liu Sui, a company executive. “We are also very optimistic about next year’s exports. This has been a surprise, and we think that China’s export sector will be running at full production capacity until at least the end of 2021.”
Germany, France, Spain, the Netherlands, Belgium, Austria, Ireland, Britain, Sweden, the Czech Republic and Poland have all implemented lockdowns in one form or another to contain new surges in coronavirus cases that show little sign of abating, according to logistics company DHL.
In the United States, total cases surpassed 10 million this week, according to figures from Johns Hopkins University, and the pump is primed in China’s factory belt to continue reaping dividends.
“These are not normal times. China has benefited from the shift in global demand away from services and toward the medical kits, home appliances and laptops it produces in great quantities,” wrote Brad Setser, an economist with the Council on Foreign Relations, in a recent note, while also pointing to the dangerously unbalanced nature of China’s economic rebound.
“China’s recovery remains vulnerable to a fall-off in global demand, as it has not been entirely home-grown,” said Setser, who this week was seconded onto US president-elect Joe Biden’s transition team to advise on international trade.
From January to October, shipments of medical devices surged 46 per cent compared with a year earlier; furniture rose 5.8 per cent; data-processing equipment, including computers, was up 8.4 per cent; and home electrical products rose 16.7 per cent.
China’s overall shipments to the European Union and United States grew by 3.7 per cent and 1.8 per cent, respectively, in the first 10 months compared with the same period in 2019. In October alone, exports to America were up 21.2 per cent, year on year.
Kevin Huang’s company in Guangdong province, just across the mainland border from Hong Kong, mass produces household goods ranging from window frames and grills to kitchen knives. While he is wary of the potential “for black swan events” such as a US-China military conflict that would disrupt shipping channels, or more trade-war tariffs, his business is booming at the moment. His immediate concerns revolve around how to accommodate surging demand from the West.
“Since September, orders have increased significantly compared with the same period in previous years. Orders placed in October will not be shipped until March,” Huang said, adding that staff shortages are plaguing the industry, forcing many to consider automating production processes. “Although orders are up, we are still very anxious.”
Analysts said that, while the second lockdown boom may not be as lucrative as the first for China’s exporters, it will still be a boon as the Christmas season approaches, with online shopping set to replace in-store purchases in many parts of the world.
“A lot of the electronics purchasing activity tied to remote working has already settled. Working from home is a way of life now, and so demand for new equipment has probably moderated, even if upgrade demand persists,” said Nick Marro, the lead analyst for global trade at The Economist Intelligence Unit.
America is a maxed-out market; nobody can miss it
“That said, we are entering into the holiday season, and this is a year where people haven’t really spent money on travel or other big-ticket purchases. So, a lot of that demand might be redirected towards Christmas sales, for example,” Marro added.
When the pandemic hit, John Leung – like many Chinese manufacturers – decked out his vinyl-flooring factory in Jieyang city, Guangdong, with mask-making production lines to capitalise on the demand for medical goods in virus-hit parts of the world. In April, he was making a million masks a day, but a month ago he sold the mask-making machinery and resumed making vinyl flooring.
“Someone bought all of the production lines, and they pay me to use the factory space – the prices were so good I could not refuse,” Leung said, adding that soaring demand for his flooring products amid a home-improvement boom in the US encouraged his decision.
“We are seeing increasing orders,” he said. “America is a maxed-out market; nobody can miss it.”
