China factory orders shrink as overseas demand falls

BEIJING • Investors wanting to gauge the health of global consumer sentiment should look no further than China's factories right now.

Makers of goods ranging from Christmas decorations to clothing to tents say orders from overseas customers are drying up, with some predicting that the best they can aim for is flat demand compared with last year, according to more than a dozen export managers interviewed by Bloomberg News.

The snapshots from factories in key Chinese hubs indicate that households worldwide, already tightening their belts to contend with a rapid rise in the cost of living, may be cautious for longer and add weight to warnings about a potential global recession.

"Consumers do not have the money to spend with soaring inflation," said Ms Wendy Ma, marketing manager at a textile-maker in the eastern city of Ningbo, adding that the decline in demand happened suddenly.

Orders for items including buttons, zippers and sewing thread dropped about 30 per cent last month and this month from a year earlier as demand from major markets such as the United States and Europe declined, she said.

The reports from manufacturers suggest that the resilience being seen in China's export data may fade. That said, the boom has been somewhat helped by price inflation as well as Chinese manufacturers making up for delays from pandemic lockdowns and orders that were brought forward in the light of ongoing supply chain distortions.

"The general direction is that export growth will slow down in the coming months, and it is possible to reach a negative territory by the end of the year," said Dr Larry Hu, head of China economics at Macquarie Group.

Still, the decline in demand for China-made goods will be gradual, instead of a collapse, he added.

Mr Clark Feng, whose Vita Leisure buys tents and furniture from local manufacturers to sell overseas, said export orders have been dropping since March and European clients are asking to buy only about 30 per cent to 50 per cent of what they wanted last year.

Workers in some of the factories he sources from have been laid off or sent on vacation, something he has not seen in his decade in the industry.

Overseas clients are looking to clear their existing inventories instead of ordering new products, Mr Feng said. "Our products were very popular last year and now, we swing from one extreme to another extreme and the demand is even lower than pre-pandemic. There is a sense of panic."

Chinese manufacturers will find it difficult to make up for the overseas shortfall in their home market.

The country's adherence to its zero-Covid-19 policy, which includes sudden lockdowns, constant testing and movement curbs, has weighed on consumer sentiment and wrought havoc on the manufacturing sector.

Yiwu city, the world's biggest hub for Christmas goods ranging from tree ornaments to plastic reindeer, shows how precarious business can be.

Over the weekend, the city extended a lockdown that continues to ban most residents from leaving their homes, as the outbreak that started this month topped 630 infections.

The city was also locked down in April, but the latest restrictions are a major setback for manufacturers in the middle of what is usually their busiest season for production and shipping.

Exporters have learnt from previous disruptions, and brought forward their delivery schedule by a month or more in anticipation of uncertainties, said Mr Cai Qinliang, secretary-general of the Yiwu Christmas Products Industry Association, which has 200 members who own 500 to 600 factories.

But it is not enough to support a full recovery. Mr Cai said that Christmas-related business was slashed by more than half in 2020 as the pandemic threw the global trade into disarray and major customers cancelled orders.

Sales improved last year, though they were still 20 per cent to 30 per cent lower than before the pandemic, and may hold at that level this year, he added.

BLOOMBERG