2012-03-29

Shenzhen signals major economic slowdown

If the data coming out of Shenzhen is any indication of a trend, a significant economic slowdown is already underway in China. Manufacturing leads the economy and any broad economic slowdown will be experienced first in the manufacturing intensive region in Guangdong.

Slowdown in Shenzhen mirrors national gloom (socionomic indicator right in the title)
Shenzhen, which has blazed the path of economic reform on the mainland for more than 30 years, has reported rare plunges in enterprise profits and trade in the latest sign that the country's economy is slowing amid global uncertainty.

The city's statistics bureau said on Monday that the profits of major industrial enterprises fell 3 per cent year on year in the first two months of this year, the Yangcheng Evening News reported yesterday. Their sales fell by 5.4 per cent.
The numbers are even worse at the factory level, with companies unable to take on new business due to high real estate and labor costs:
Chai Kwong-wah, president of the Hong Kong Small and Medium Enterprises General Association, said a survey had found that more than 40 per cent of its members planned to close their factories in Shenzhen and the rest of the Pearl River Delta.

"I started to run a toy factory in Shenzhen in the 1990s," Chai said. "But I've never seen such inflation before. I have to say that this year will be the toughest one for all factories, especially in the export-production industry. We see little hope. No government measures can save us."

Chai said that even though the euro-zone debt crisis was easing and manufacturers were not short of overseas orders, skyrocketing rentals and labour costs meant they would suffer immediate losses of 10 per cent to 20 per cent on taking up orders.
The shorts have done well in March, but this is likely the early stages of a larger move in the financial markets as people become aware of the situation.

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