China’s inventories pile up as demand flat-lines – by Carolynne Wheeler (Globe and Mail – September 3, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

BEIJING — You know it’s going to be a bad year for China’s exporters when all manner of goods – including the kitchen sinks – are gathering dust in storerooms.

“Of course [the slowdown] is affecting us,” Du Huayao, the manager at Foshan Nanhai Bigao Sanitary Ware Co. Ltd., which makes bathroom and kitchen fixtures, said in a telephone interview from his factory in Guangdong province.

“Sales this year from the foreign market have dropped from one-third to two-thirds.” Compounding Mr. Du’s woes is China’s slowing property market, which has pulled down his domestic sales as well. The company has already laid off 20 of its original 50 workers and has slowed production. “We don’t even have inventory built up now. Last year we did, but this year, the business was so bad that we dared not produce too much.”

As the country’s economic growth slows and its exports to North America and Europe drop off, inventories of everything from iron ore and copper to cars, liquor and designer goods are growing. Chinese exports grew just 1 per cent in July.

Now, makers of home appliances are warring with each other on discounts, trying to drum up business, and manufacturers are looking desperately to emerging nations to try to fill the gap.

The overcapacity stretches from the start of the production cycle to finished goods.

The glut in commodities, fed in part by steel mills continuing production this summer despite low prices, is bad news for exporting countries like Canada. Though mills are now thought to be slowing down, the depressed prices are expected to continue along with de-stocking until at least the end of 2012, analysts say.

“From anecdotal reports we have seen inventory rising in many sectors, including coal, iron ore, steel and heavy machinery,” said Janet Zhang, a macro economist at research firm GK Dragonomics. “It’s a little difficult [to measure] because inventory data is not a leading indicator, it’s a lag indicator … But there are no clear indications of recovery, we expect it may continue to increase for a few months.

“It means the commodity prices will continue to decline for a few months. We don’t expect a structural recovery any time soon.”

Commodities aren’t the only things hurting. The halls of a Gome appliance and electronics store in Beijing are empty on a Friday morning, despite the large red billboards outside advertising 35-per-cent discounts on top of an existing national rebate of 100 yuan per 1,000-yuan purchase on certain goods. They’re also promising to refund customers double the difference if they find a lower price within 30 days: a common enough practice in North America, but rarely seen in China.

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/chinas-inventories-pile-up-as-demand-flat-lines/article4515218/