End of the Chimerican Dream
Things are puttering out in China. Sales are down 50 percent for many dealers across sectors and inventories are eating up storage space. Although the Public Security Bureau has not issued data about slumping car registration nor issued information since 2008 about the number of empty apartments through the cities, and revised repeatedly steel sector data, the slowdown is clear to the naked eye. Amid a collapse of world trade, China is now encountering a problem it has not had in its three decades of growth. Accumulating as clutter, clogging car dealerships and filling factory warehouses, unsold goods are evidence of two short-sticks in the Chimerica faceoff.
The central non-government survey of manufacturers in China demonstrated on Thursday that inventories of completed goods increased much quicker in August than in any month since the survey started in April 2004. According to HSBC/Markit survey, the previous record for increasing inventories of unsold goods was set in June, though May and July also showed increases.
“Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong.
As the US and world remains in depression started by the 2008 banking crisis, China is suffering the consequences of the end of the “Chimerican” Dream.
As the world’s second-biggest nation-state economy, China has been hailed as the engine that would bring the rest of the world out of indebtedness and economic crisis. But, trade between China and the west is breaking down due to economic weakness as the sovereign debt crisis in Europe and staggering unemployment in the US cripple economic velocity.
Having begun in the center of the Chimerican Empire, the banking collapse in 2008 spread west into the east, as corporate hiring in China is slowing and the job market there is tightening like in the US. China has slowed significantly imports for items like raw materials such as iron ore, for industry is concerned over their ability to move product. Real Estate is softening, also, as hints that a bottom this past July grope for better days. China has also recently loosened its monetary policy.
Survey of the country uncovers owners and managers worried about mounting stockpiles of unsold goods. Over the last year, demand for items across the kaleidoscope of consumer choice has fallen. Dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steal beams for false ceilings all sit as collateral production of the economic crisis.
Across China, inventories of unsold cars are up at dealerships the nation over, with the overall car industry there operating at just 65 percent of capacity, 15% below profitability.
“I worry that we’re going down the same road the U.S. went down, and it takes quite some time to fix that,” said Geoff Broderick, the general manager of Asian operations at J. D. Power & Associates, the global consulting firm.
From December to June, dealerships’ inventories of new cars rose by 900,000 units, 2.2 million, from the end of December to the end of June. “Inventory levels for us now are very, very high,” said Huang Yi, the chairman of Zhongsheng Group, China’s fifth-largest dealership chain. “If I hadn’t done special offers in the first half of this year, my inventory would be even higher.”
Manufacturers are not cutting production. Dealers are under heavy pressure to accept delivery of cars under their franchise agreements, despite dealers being unable to find places to park them or even finance them. The government’s China Automobile Dealers Association was forced to issue an appeal to automakers earlier this month:
“We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm,” the association said.
I imagine the ghost fleet east of Singapore is seeing an influx of Chinese cargo ships: