A combination of a general global slow down and the impact of US tariffs is causing a growing number of Chinese manufacturers.
Giant trading firm Li & Fung recently said China's factory managers are getting "urgent and desperate" as US retailers and other firm continue to move soucing out of the country in the face of tariffs and other trade pressures.
Supply Chain Digest Says... |
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China will see more factory shutdowns as the trade war that's roiled the global supply chain exacerbates the trend, Spencer Fung, CEO of Li & Fung, told Bloomberg recently.
"US clients are definitely very, very worried," Fung said in the interview with Bloomberg. "Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried," he said, referring to the scale of tariffs threatened on all Chinese imports to the U.S. by President Donald Trump.
Li & Fung has long been a insightful and timely souce of insight on global trade issues, serving as something of an advanced scout on important trade trends, given its position in the supply chain.
There are signs as SCDigest reported recently that global supply chains arebeing permanently transformed. (See Trade Wars and the Supply Chain Part 2.)
"Nobody's investing, nobody's buying. The trade war is causing people to stop investment because they don't know where to put the money," Fung told Bloomberg. "Many people put the money into Vietnam with one tweet," he said, referring to reaction to President Trump's Twitter posts.
China's loss of manufacturing is naturally benefitting other Asian countries.
A recent AT Kearney analyis found that Vietnam, for example, has been the top beneficiary among Asian nations in picking up manufacturing out of China. But that success has now soaked up almost all of the country's manufacturing capacity.
Fung notes the lack of scale in Vietnam prevents other destinations from fully substituting for the lost capacity when their production was moved out of China.
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"Vietnam is full, completely full," Fund told Bloomberg. "There's no extra capacity for the US companies to get in."
 But Chinese companies are hardly standing still and watching the business leave.
Chinese factories are reducing prices sharply, creating an opportunity for companies to stay or move back some production to China on better terms. Li & Fung is advising its non-US clients - not affected by tarifffs, to move in and take advantage of the mature supply chain and now lower costs n China.
"It is a buying opportunity for European and non-US retailers," Fung said, "In China, there are a lot of factories with less and less orders. They're offering actually pretty good prices to anybody."
Once a dominant force in supply chain trade, LI & Fung has seen its fortunes fall substantially in recent years, as US and Euro retailers saw sales slow in the face of ecommerce, and many of them look to cut out the middleman.
Fung says, however, that the 113-year old firm believes it is "seeing the bottom."
Any reaction to Fung's observations? Let us know your thoughts at the Feedback section (email) or button below.
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Demosteenes Perez
GM, LSP |
Posted on: Aug, 16 2019 |
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