Many CN's factories may have to close due to weak demand, million Cnese will lose jobs, US is winning by increase interest rate to kill CN's factories.
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New recession pressure emerges as factories in China lose orders
15:44 | 11/07/2022
Chinese manufacturers are starting to see a drop in demand for consumer goods in advanced economies. This could be a less optimistic signal for the global economy.
New recession pressure
European sales of coffee machine maker HiBrew (based in Guangdong province) are dwindling after a solid year. Last year, pent-up demand from global consumers helped boost sales of Chinese consumer goods.
According to General Manager Zeng Qiuping, HiBrew's revenue has dropped 30-40% this year, in contrast to last year's 70% growth. According to Mr. Zeng, orders from the US by other export companies are also decreasing.
He said the rising cost of living in the US and Europe as well as importers waiting for Washington to ease punitive tariffs on Chinese goods had driven down sales.
Elsewhere, freight rates have also begun to cool down after climbing to a record during the pandemic. This signals that demand for logistics is easing, CNBC quoted analysts as saying.
That's good news for export and import companies in the billion-population market, but it's also another red flag.
"New trends [in demand for consumer goods in advanced economies] are pointing to fresh recessionary pressures"
CNBC quoted analysts as saying.
While merchants previously had to deal with fluctuations and bottlenecks in supply chains, they are now grappling with declining demand, especially in advanced economies.
Shabsie Levy, founder of supply chain platform Shifl, said that in fact, spot ocean freight rates between China and the east and west coasts of the US have gone down.
According to Mr. Levy, the decline stems from the weakening of consumer demand in the US, and many large retailers such as Target, Home Depot, etc. have a large amount of inventory.
“Decreased retail demand has led to a sharp drop in spot shipping rates …”, Mr. Levy emphasized. I wouldn't call this slump in demand a recession, but things seem to be getting worse and worse."
Mr. Levy added: “…some of our customers are seeing sales decline, especially in high value and less essential items.”
Excess inventory
During the pandemic, container shipping costs have skyrocketed due to supply chain disruptions. Shifl said that spot sea freight rates between the world's two largest economies increased nearly 3.5 times between January 2020 and May this year.
Higher logistics costs force manufacturers to absorb or pass on to importers or consumers, thereby magnifying inflationary pressures globally.
But now, new export orders from China to the US have slowed and businesses like Samsung U.S. - the 7th largest importer in the US, halved orders for July.
According to Shifl, Target - the second largest US importer, also announced its intention to cut orders due to high inventories.
Even after the blockade order in Shanghai was lifted, shippers in China received only an unsatisfactory response from foreign importers, Levy said.
The Drewry Composite Container Shipping Index is down more than 30% since last September. Shipping costs on major routes - such as Shanghai to New York and Shanghai to Rotterdam - are down 24% compared to 2021.
On LinkedIn, economist Marc Levinson commented: “The US distribution system is full of goods. Inventory of enterprises in April increased by nearly 18% over the same period last year.
“The reason for the high inventory? Simply put, consumers are withdrawing their wallets. As shopping habits return to pre-pandemic norms, inflation reduces purchasing power and home sales stagnate, demand for consumer goods also falters,” explained Levinson.
According to the economist, this trend is visible in Europe, North America and parts of Asia.
Consumers tighten their wallets
Economists are noticing difficulties in people's demand and consumption spending.
As the cost of staples like food and water increases, American consumers don't have enough money to spend on other discretionary items, said Nathan Sheets, chief economist at Citi.
“My feeling is that consumers, especially those with low incomes, are starting to falter. We see this trend in discretionary consumption,” noted Sheets.
There are signs that commodity spending is currently "flattening" in advanced economies, said Jennifer McKeown, senior director at analytics firm Capital Economics.
While people are still spending money on services such as food and drink, demand for goods is "adversely affected by rising prices and central bank policy interest rates, prompting people to switch to buying groceries." more durable consumer goods,” Ms. McKeown said.
Yung-Yu Ma, director of investment strategy at BMO Wealth Management, also agrees.
According to Mr. Ma, the demand for goods is under three pressures at the same time, which is the public's shift to service consumption, the strained household budget due to inflation and the fear of an endless recession.
If the economic downturn is not too deep or prolonged, perhaps next spring, the supply and demand situation will match. On the other hand, if the recession is more severe, the problem with inventories will be more complicated.
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