The wave of Chinese factories shutting down and cutting production in 2021: Downside and Opportunity
Dire time of China manufacturing...
A wave of shutdowns and production halts is sweeping through factories in China's southern manufacturing hub, as raw material prices are soaring, dwarfing profits and heightening concerns about the economy's inflation risks from the second-largest economy in the world.
Across Guangdong province, small and medium-sized enterprises in the industrial chain - which produce everything from cast steel to home appliances - complain that this year is more difficult to survive than last year, according to SCMP...
This information may come as a surprise, in the context that many foreign customers turn to China to place orders, in the context that many countries are focusing on dealing with the Covid-19 pandemic, especially India.
The pandemic has hit global supply chains hard, making it difficult for some Chinese manufacturers to source the raw materials needed to make goods due to high costs.
Modern Casting Ltd, one of Guangdong's largest iron and steel casting factories, has informed customers that it is unable to fulfil all orders because of soaring prices and shortages of raw materials.
"The cost of producing the material has outstripped the company's profit and reached the point where we can no longer bear the loss," the company representative said. Meanwhile, a representative of Jiang Xin Foundry Ltd said there was no other way but to cut production. The factory operates continuously for 4 days then closes for 3 days and so on.
Huo Huagen, the company's production manager, said the price of raw steel has skyrocketed to more than 4,500 yuan per tonne in recent weeks. “That means the more we produce, the more losses we make,” Huo said. “We lose 1,500 yuan for every ton of cast steel we produce.”
Huo predicts the company will cut production significantly this year, and possibly next year. The factory workers also faced difficulties, the salary dropped to 3,000 yuan instead of 8,000 yuan like when the factory reached maximum output.
“Our biggest customers are business partners and elevator operators in Japan. We have proposed a 15% price increase but have not seen them reply,” Huo said.
A similar situation is also observed at many manufacturing plants in Guangdong. Chinese manufacturers have not dared to raise the level of operation as usual, due to fear of losses due to the high price of raw materials.
According to Chinese manufacturers, it is not a simple matter of increasing selling prices to offset soaring raw material prices, as market demand has not increased.
Huo expressed hope that the Chinese central government will intervene to stabilize the price of raw materials. In the short term, factories have no choice but to close or cut production.
....Raise opportunity to the Western customer?
The serious decline in production capacity, as well as the fear of receiving orders from Chinese suppliers, will certainly seriously affect the global supply chain. However, after decades as the "world's factory", China is still a land of opportunity for Western customers who want to find a way to outsource products for their company.
The only solution here is that you have to find a reputable outsourcing agency, capable of accompanying you technically, sharing risks, and having many years of experience in the manufacturing industry in China. At China Outsourcing Ltd, we are confident about all of the above criteria. With more than 19 years of helping UK customers outsource their products to China, we have a network of suppliers with well-invested production lines. Moreover, having offices right in China and the UK gives us an edge over any commercial company in speeding up deployment time, optimising communication and leveraging our in-depth knowledge of the Chinese manufacturing market to choose the best suppliers and raw materials source for our customers.
Contact us today for a free consultation on how we overcome the fear of outsourcing to China in 2021.
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