China Stockpiles Mount

Business, China, Company Strategy, Economics, Japan, US

0824-biz-INVENTORYweb.jpg

Source: New York Times

 

By John Richardson

INVENTORIES of finished goods are mounting in factories across China as manufacturers continue to run hard, according to this New York Times article – perhaps in the hope that in 3-6 months time, everything will be alright again.

“My supplier’s inventory is huge because he cannot cut production – he doesn’t want to miss out on sales when the demand comes back,” Wu Weiqing, the manager of a faucet and sink wholesaler, told the NYT.

Here is another explanation, from Forbes:

“It is more likely that Wu’s supplier has been told by the local government to keep production lines going no matter what.

“And why would city and municipal officials do that? For one thing, local officials don’t want to deal with unrest that idle workers cause. Moreover, lower-level cadres are judged by growth in their districts. The value of a sink sitting in a factory’s inventory, even if never sold, is counted as gross domestic product.”

Carmakers have solved their inventory problems by forcing dealers to take autos they cannot sell, adds Forbes.

“Inventories at the dealers in the first six months of the year increased by 900,000 units. These retailers are now carrying 2.2 million cars in their showrooms. Even with dealers taking unneeded cars, the manufacturers are operating at around 65 percent of capacity when 80 percent is thought to be the breakeven point,” continues the magazine.

And yet, underlining our argument about the difficulties in changing China’s investment-focused growth model, auto production capacity keeps on increasing.

For example, over the next three years, auto production is set to rise by an amount equal to all the factories in Japan, and nearly all the factories in the US, says the central government’s National Development and Reform Commission.

And what is Beijing’s solution to the problem? Manipulate inventory data, according to both the NYT and Forbes as politicians try to understate the scale of the problem. This might well be motivated by the desire to keep a lid on social unrest during the leadership transition.

But the HSBC Flash PMI for August shows that inventories climbed by their fastest rate since the survey began in April 2004.

PREVIOUS POST

Recovery Always 3-6 Months Away

23/08/2012

By John Richardson THE recovery always seems to be three to six months away. Thu...

Learn more
NEXT POST

Multiple Energy Options In China

28/08/2012

Source of table: The Economist   By John Richardson WHEN you are an energy ...

Learn more
More posts
Developing world polymers demand unlikely to see quick rebound
20/09/2020

By John Richardson THIS IS a tragedy in the genuine sense of the word, not just in the so-often misu...

Read
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read
Pandemic and the developing world: No quick and easy solutions
01/09/2020

By John Richardson POVERTY alleviation in low-income developing countries could be set back a decade...

Read
The pandemic and petrochemicals demand: a whole new approach is required
30/08/2020

By John Richardson MONITORING demand has never been harder because of the pandemic. One of my collea...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more