China's world factory: little Christmas order cheer

SHENZHEN/HONG KONG (Reuters) - In late summer, production lines across China’s “world factory” usually crank up to meet a surge in Christmas orders. Activity this year, however, has been relatively modest on weak Western demand.

For toymakers like Leconcepts, Christmas usually brings a 10 percent surge in orders, with container-loads of its plastic sword-wielding figurines, mythical dragons and gifts shipped off to major markets in time for festivities in December.

After an encouraging first-quarter start, when the firm took on extra workers in anticipation of strong growth and stocked up on raw materials, the European debt crisis broke and demand sagged substantially.

“The U.S. market has not come back and the European market is dropping,” said Leona Lam, CEO of the firm, which does around $250 million of business annually. “I don’t see a good Christmas this year for factories.”

China’s manufacturing economy staged a moderate in August rebound after slowing for several months under the onslaught of government steps to curb credit and deter property speculation.

The latest PMI figures show the export sector stabilizing. But the robust domestic economy still faces soft external demand that could slow exports in the coming months, especially as the glow of stimulus measures fades in the United States and Europe.

“We saw a much stronger rebound in exports in the first half fueled by a replenishing of inventory,” said Paul Tang, the Bank of East Asia’s chief economist.

“But many retailers are still very uncertain about the market in the second half as the risk of a double dip (recession) still remains, and it will have a negative impact on exports.”


Elsewhere in the Pearl River Delta’s grittier towns, players like Lai Xiao Wen, who runs a 50-worker plastic Christmas tree plant, see bleak times ahead as production costs and wages rise.

“It’s very tough,” said Lai. “I want to change business.”

Another maker of Christmas trees in Guangzhou noted a 30 percent rise in orders, but said it was proving tough to find skilled workers to manufacture more trees.

“The only way to find more workers is to pay them a lot more,” said Frank Shang of Pretty Xmas Tree Manufacturing, producer of 400,000 trees a year. “But we can’t afford that.”

A recent survey of 60 manufacturers by the Federation of Hong Kong Industries showed a third saying they could only withstand a wage increase of five percent. Wages have doubled in some places after minimum wage increases, spreading labor shortages and a spate of strikes at multinationals like Honda.

But prospects are not gloomy everywhere, said Danny Lau, the chairman of Hong Kong’s small and medium enterprises association who runs a factory in the Pearl River Delta. Better run plants, he said, expected single digit growth in orders, though from a low base as anemic demand persisted after the crisis.

He said firms had raised prices as production costs had climbed around 15 percent for many manufacturers in the delta.

Others, like Lam of Leconcepts, were building new factories in cheaper countries like Vietnam.

“It’s becoming a little insane now,” she added, referring to costs in China. “My eggs are not all in China.”

Editing by Ron Popeski