Pressure on China’s factories grows as U.S. demand falls

Employees work on an electronics production line on Feb. 2, 2023, at a factory in Longyan, Fujian province in China.

China News Service | China News Service | Getty Images

BEIJING — For some factories in China, it’s not full steam ahead after the end of zero-Covid.

All the factories that U.S. toy maker Basic Fun works with in China — about 20 of them — told workers not to return immediately after the Lunar New Year holiday, said CEO Jay Foreman.

That’s because of a flood of inventory in the first half of last year, which didn’t get sold as consumer prices in the U.S. surged over the summer and into the fall, he said. Basic Fun’s products include Care Bears and Tonka Trucks.

The official Lunar New Year holiday in China ended Jan. 27, but the travel period runs until Feb. 15. The festival is typically the only time each year that migrant workers — more than 170 million people in China — can visit their hometowns.

“Every factory I spoke to said they’re going to have less people employed this year than last year,” Foreman said. He expects U.S. consumer demand to pick up later this year.

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China’s exports to the U.S. in the toys, games and sports category account for about 6% of all exports to the country, according to China customs data accessed through Wind Information. That category of toy exports to the U.S. saw a slight drop in 2022, the data showed.

“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

He said consumer electronics was seeing a similar situation.

“For other industries, the picture is much better. Some are struggling to keep up with trailing orders and catch up with everything they had to deliver last year,” he said.

China abruptly ended its zero-Covid policy in December. But restrictions on business activity were tight for most of 2022, including a lockdown of Shanghai for about two months in the spring.

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Source: https://www.cnbc.com/2023/02/09/pressure-on-chinas-factories-grows-as-us-demand-falls.html