- SHAOXING, China — This was a city that globalization built. Not long ago, 20,000 textile and garment factories were bustling here, crowded with workers knitting and sewing for six, and sometimes seven, days a week to produce the wares sold at big American retailers like Gap and Wal-Mart. Now, demand is waning in the United States, and Shaoxing, a coastal city that is one of the world’s biggest textile centers, has fallen victim to the global downturn.
- Shaoxing (pronounced SHAOW-shing), about 100 miles southwest of Shanghai, took off in the 1980s, as its rice paddies were turned into small businesses producing chemical fibers like nylon and dyeing fabrics for big-name retailers. Before long, hundreds and then thousands of textile factories came to life. The city’s population grew to four million as hundreds of thousands of migrant laborers from China’s inland provinces gravitated here to live in company dormitories and toil long hours.
- With the boom came new roads, BMW and Lexus dealerships, lakeside villas and luxury residences, with names like “Global New York,” “Victoria Gardens” and “Money King Tower.”
- Factories here are closing. Some bosses have fled town, leaving thousands of workers in the lurch. And other owners are worried about mounting debts and the prospect of bankruptcy. Qian Jin, an industry expert, says Chinese textile companies are suddenly in a “struggle for survival.” A warning from Beijing last December was dire, too: As many as two-thirds of the country’s textile and apparel companies could go broke.
- “We’ve seen our orders cut by a third over the past few months,” says Yang Baolin, president of the Siris Knitting Company, which operates a factory in Shaoxing with about 1,800 employees. “All the exporters are failing.”
- Worried about the factory downturn, Beijing has responded with a series of measures aimed at supporting textile producers — tax credits and rebates, forcing state-owned banks to approve low-interest loans to factory owners and reducing water fees, among others.
- And the problems in the textile industry are just the start. China’s once roaring economy is witnessing its sharpest slowdown in three decades. As many as 20 million migrant workers are already believed to be out of work. And with demonstrations over factory closings erupting in a string of coastal cities, Beijing has grown increasingly concerned about social and political unrest.
- ....few sectors are as crucial to China’s economy as the $450 billion textile and apparel industry — proof of China’s global trading prowess and a symbol of its development model, which is based on low-cost exports. Last year, the industry accounted for $153 billion of China’s $300 billion trade surplus, far more than any other industry. “This industry absorbs a lot of employment. And this is important for social stability,” says Sun Ruizhe, vice president of the China National Textile and Apparel Council.
- The head of the Jianglong Group, one of Shaoxing’s biggest dye factories, ran off in November, leaving behind 4,000 workers and more than $200 million in debts.
- Shen Ye, the owner of the Jinyu Textile Import and Export Company, whose orders are down as much as 80 percent, said some struggling factories were desperate but were afraid to seek bankruptcy. “If a factory files for bankruptcy, it has to pay back taxes to the government, salaries to the employees or money owed to the bank,” he said. “What’s left goes to private lenders. How much can be left? None! In order not to be beaten to death, they have to run.”
Not to worry though - the next time we get any momentary relief in the market we can begin chanting China rebound thesis together. We'll point smugly to this or that commodity chart that is down 80% in 8 months, rebounding 7% and say "see, evidence everywhere of the comeback of China". We'll laugh, we'll cheer, we'll clap like seals. Thesis baby... thesis.
