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Category Archives: Manufacturing

China Factory Activity Sinks, Weighing on Weak Economy

Joe Mcdonald wrote . . . . . . . . .

Chinese manufacturing’s recovery from anti-virus shutdowns faltered in July as activity sank, a survey showed Sunday, adding to pressure on the struggling economy in a politically sensitive year when President Xi Jinping is expected to try to extend his time in power.

Factory activity was depressed by weak global demand and anti-virus controls that are weighing on domestic consumer spending, according to the national statistics agency and an official industry group, the China Federation of Logistics & Purchasing.

A monthly purchasing managers’ index issued by the Federation and the National Bureau of Statistics retreated to 49 from June’s 50.2 on a 100-point scale on which numbers below 50 indicate activity declining. Sub-measures of new orders, exports and employment declined.

“Downward pressure is great,” said economist Zhang Liqun in a statement issued by the Federation. “The impact of the epidemic is still on the rise.”

The ruling Communist Party has stopped talking about this year’s official economic growth target of 5.5% after output shrank in the three months ending in June compared with the previous quarter.

The slowdown, which raises the risk of politically volatile job losses, adds to challenges for Beijing ahead of a ruling party meeting in October or November when Xi is expected to try to break with tradition and award himself a third five-year term as party leader.

An announcement Thursday by party leaders promised to “strive to achieve the best results” but avoided mentioning the annual growth target announced in March.

The party has promised tax rebates and other aid to help entrepreneurs after anti-virus controls temporarily shut down Shanghai and other industrial centers starting in late March.

The port of Shanghai, the world’s busiest, says activity is back to normal, but factories and other companies are operating under anti-virus controls that limit their workforces and weigh on production.

An index of production tumbled to 49.8 from June’s 52.8. New orders declined 1.9 points to 48.5. New export orders lost 2.1 points to 47.4.

Chinese leaders have avoided large-scale stimulus spending, possibly for fear of reigniting a rise in debt that they worry is dangerously high.


Source : AP


Source : Trading Economics

Chinese Automakers Want to Bring Assisted Driving to the Masses

Evelyn Cheng wrote . . . . . . . . .

As Chinese companies race for a slice of the world’s largest car market, they’re betting heavily on assisted driving technology.

China sold nearly 21.5 million passenger cars last year. That’s roughly the equivalent of sales in the United States, Europe and Japan combined, according to industry data accessed through the Wind database.

Electric cars have grabbed a growing share of that Chinese market. Tesla, start-ups like Nio and traditional automakers have jumped in. After initially competing on battery driving range and in-car online entertainment, companies increasingly emphasize assisted driving capability.

Chinese tech giant Baidu and automaker Geely are among those rushing to make a bet on making assisted driving a reality.

Just 15 months since the companies’ Jidu electric car project launched as part of a tie-up, the brand revealed Wednesday a concept car it says is 90% of what customers will get next year for about $30,000. Tesla’s Model Y runs closer to $50,000 in China.

<h3<Evolution of ‘smart cars’

“It’s a car, and, even more so, a robot,” Jidu CEO Joe Xia said during the livestreamed event in Mandarin, translated by CNBC. “We use a concept car to quickly prove our early stage design and idea.”

The four-seat vehicle, called Robo-01, has replaced the dashboard with a long screen extending across the front of the car and removed cockpit buttons — since the driver can use voice control instead, Xia said.

Theoretically, the half-moon of a steering wheel can fold up, paving the way for a cockpit seat with no window obstructions, once full self-driving is allowed on China’s roads. Two large external sensors for assisted driving can retract, for aesthetics and for protection in the event of an emergency.

Xia claimed Jidu “can become the standard for self-driving cars.” But the company declined to share what level of assisted driving software would come with the car.

Many electric cars, including Tesla, Nio and Xpeng, offer some form of tech-enabled driving assistance. In late May, Chinese self-driving tech start-up WeRide said it received a strategic investment from German engineering company Bosch to produce an assisted driving software system for mass production and delivery next year.

“I think the definition of smart cars has evolved a lot,” said Xuan Liu, vice president at autonomous driving software start-up DeepRoute.ai, said in a phone interview Wednesday.

“Consumers are considering two important factors in intelligent vehicles,” he said. “First of all, the most important one is autonomous driving. I think they are also interested in this so-called intelligent cabinet, so they want the interaction with the vehicle system.”

Jidu plans to launch a limited version of its first production model in the fall. Deliveries are set to begin next year, with a target market of family passenger vehicles priced above 200,000 yuan ($29,985), Baidu CEO Robin Li said on an earnings call in late May.

Jidu, Baidu’s electric car venture alongside Geely, revealed its first concept car on June 8, 2022.

Baidu has majority ownership of Jidu, and the search giant has rolled out commercial robotaxis in parts of China using its Apollo autonomous driving system. That’s the same system, along with other tech from Baidu, that will be used in Jidu’s concept car.

Co-investor Geely did not have an official release about Jidu’s concept car, after increasing its capital support earlier this year.

Geely has pushed into the electric car industry with its own vehicles, and announced in November a multi-year plan to build up the software component of the cars. The automaker said it aimed to commercialize full self-driving under specific conditions, called “Level Four” autonomous driving in a classification system, by 2025.

Earlier this month, Geely announced its subsidiary has launched the first nine of 72 satellites to support mapping and autonomous driving.

Competing for customers

Though electric car sales have surged, interest in Jidu’s first concept car appeared modest.

About 50,000 people viewed one of the main streams on the WeChat messaging app Wednesday night.

In contrast, Nio’s annual car release event in December drew about 200,000 views, though it included a musical performance. That event introduced a new sedan and custom augmented reality glasses that can impose digital images over the real, physical world.

For companies focused on self-driving technology, they’re looking at a market at least a year or two into the future.

For Chinese consumers, the main draw of self-driving cars is getting assistance during the commute home after a long day at work, Liu said. As for the business side, it’s the possibility that lower software costs will speed up widespread use, he said.

DeepRoute.ai in April announced it cut the price of autonomous driving software from $10,000 per car to $3,000. Liu said the company was able to slash the price by using cheaper sensors but better software, and he expected the price could fall further once the start-up is able to work with automakers for mass production and deployment from 2024 onward.

While regulators have yet to allow full self-driving cars on most roads en masse, companies like DeepRoute.ai, Baidu and others are building data records through their robotaxi operations.

Liu said such data can help improve algorithms for self-driving technology, and build a track record to support potential changes in regulation.


Source : CNBC

Chart: S&P Global Flash Eurozone Composite and Manufacturing PMI Down Below 50 in July 2022

Source : Bloomberg

It’s the Best and Worst of Times for Semiconductor Supply Chains

Nicolás Rivero wrote . . . . . . . . .

Chips are in short supply. Chips are over-supplied. Chip manufacturing has expanded too fast and surpassed demand, but also can’t scale up fast enough to meet demand. The chip business is booming. Chip stocks are falling.

It’s a confusing time to figure out what’s going on in the semiconductor industry.

To understand the contradictions in semiconductor supply chains right now, it’s important to keep in mind that there are many types of chips, built in very different ways. Older generations of chips used to control basic mechanical functions in cars and dishwashers are built using equipment that has been around since the 2000s, while the cutting-edge chips that render graphics and run AI models in the latest smartphones and computers require ultra-precise machinery.

The state of the semiconductor sector is so muddled because the production of some types of chips has already ramped up enough to meet demand, while manufacturing for other types of chips is still catching up. Overall, though, these conflicting storylines are a sign that the chip shortage is finally starting to ease.

Semiconductor supply is rising, and demand is easing

The overall production of semiconductors is rising around the world. TSMC, the world’s biggest chipmaker, increased its planned investment in new plants and equipment from $30 billion in 2021 to $44 billion in 2022. China has invested about $50 billion since 2014 to support domestic chip production, while US lawmakers are (maybe) on the verge of doling out $52 billion in subsidies and incentives for new semiconductor plants in the US.

Meanwhile, South Korea’s Ministry of Economy and Finance reports that Korean chipmakers are sitting on a rapidly growing stockpile of unsold chips. The country, which is the world’s biggest producer of memory chips for electronics like laptops and smartphones, hasn’t seen its semiconductor inventory rise this fast since 2018.

Plenty of chips for smartphones and laptops, but not for cars

Chipmaker Micron Technologies warned investors on June 30 about a looming glut of high-tech memory chips used in smartphones and laptops. Consumer demand for those devices unexpectedly dropped thanks to rising inflation, sagging consumer spending in China, and fears of an impending recession, according to CEO Sanjay Mehrotra. “Given the change in market conditions, we are taking immediate action to reduce our supply growth trajectory,” he said.

Micron Technologies predicted that its smartphone division would ship about 130 million fewer chips than expected this year and its PC division would cut sales by about 30 million chips—a 10% drop in both categories. The downturn will last at least half a year, chief business officer Sumit Sadana predicted, unless a recession hits and brings demand down further.

Meanwhile, automakers are complaining they still can’t find enough low-tech chips to keep their assembly lines running at full capacity. GM, Toyota, and Honda each told investors their sales had slumped in the most recent quarter because of the ongoing chip shortage. Collectively, automakers will build an estimated 3 million fewer cars this year for lack of semiconductors.

Semiconductor stocks are feeling recession fears

Investors are watching semiconductor supply rise while contemplating the possibility that inflation or a recession will cause a drop in consumer demand for everything that uses chips, including electronics, appliances, and even cars. As a result, chip stocks have been plummeting, even though semiconductor sales are still historically high and chipmakers are recording record revenues. The Philadelphia Stock Exchange Semiconductor Index, which tracks big chip manufacturers, has fallen nearly 40% this year, after doubling in value during the pandemic.


Source : QUARTZ

Charts: China’s Manufacturing Advantages Are Slipping

Source : Caixin

Charts: China Services and Manufacturing Activities Expanded in June 2022

Source : Caixin

Chart: World Production of EV Will be Constrained by Supplies of Lithium and Nickel


See large image . . . . . .

Source : The Information

How Singapore Got Back Its Manufacturing Factories

Jon Emont wrote . . . . . . . . .

The factory floor at GlobalFoundries Inc.’s Fab 7 beeps, whooshes and whirs—the sounds of robotic arms and other machines making chips for smartphones and cars. It is among the semiconductor maker’s most advanced facilities, and few of its 350-odd manufacturing steps require humans.

In courting factories like this, Singapore has become a rare wealthy country to reverse its manufacturing downturn. The city-state had faced industrial decline, with World Bank figures showing manufacturing falling to 18% of gross domestic product in 2013, from 27% in 2005.

Then manufacturing made a comeback in Singapore, rising to 21% of GDP in 2020, according to the World Bank’s latest figures. Singapore government data shows manufacturing made up 22% of its GDP in 2021.

General Electric Co. this year began using 3-D printing machines in Singapore to repair jet-engine blades. German semiconductor-wafer maker Siltronic AG and Taiwan’s United Microelectronics Corp. are building major new facilities here. Norway-based solar-panel maker REC Group uses advanced lasers in its Singapore facilities to split photovoltaic cells. Multinational companies are producing laboratory tools for DNA testing here.

Singapore has aggressively wooed highly automated factories with tax breaks, research partnerships, subsidized worker training and grants to local manufacturers to upgrade operations to better support multinational companies, among other enticements.

There’s a caveat: Singapore’s success has come by automating away many jobs. It has more factory robots per employee than any country other than South Korea, according to the International Federation of Robotics.

The manufacturing sector’s share of Singapore’s employment declined to 12.3% last year from 15.5% in 2013. The number of manufacturing workers has shrunk for eight years straight.

The country of 5.5 million people has long relied on migrant labor to bolster its worker ranks, so unlinking factories from jobs offers an economic benefit without hurting local employment rates. Singapore’s unemployment has remained steady over the last decade at around 2%, with a higher share of workers employed in the services industry.

For populous countries such as the U.S., which want the manufacturing industry to create jobs as well as products, this highly automated model could prove unpopular. But Singapore’s economy and labor market are well suited to this approach.

“Singapore is capital-intensive, it’s skills-intensive, it’s not labor-intensive,” said Bicky Bhangu, President, Rolls-Royce Southeast Asia, Pacific and Korea. The U.K. aerospace company’s Singapore factory produces 4,800 titanium wide-chord fan blades a year with a staff of around 200 workers.

BioNTech SE, the German vaccine maker, announced in May 2021 that it would build a new plant in Singapore to produce several hundred million Covid-19 vaccine doses a year. It plans a workforce of up to 80, including the corporate office. It cited Singapore’s talent base and good business climate as reasons for setting up.

Vacuum cleaner maker Dyson Ltd. has developed automated manufacturing processes here, with more than 300 robots assembling millions of vacuum motors, overseen by a small number of operators and engineers. “It is the availability of engineering and scientific skillsets as well as quality of manufactured product that determines where we site Dyson’s operations,” said Michelle Shi, its chief supply-chain officer.

At life-sciences firm 10X Genomics Inc.’s Singapore unit, liquid-dispensing robots pipette tiny quantities of chemical reagents into tubes, handing them off to robotic arms that plug on caps and box the tubes for shipment. The U.S. company said it set up in Singapore because of the country’s talent pool and manufacturing expertise.

Factory flight

Since Singapore became independent in 1965, the tropical-island country with few natural resources has sought industries in which it can be globally competitive. It found success making items ranging from matches and fish hooks to Ford automobiles. But production moved on as wages rose.

A Jardine Cycle & Carriage factory producing Mercedes-Benz cars ceased operations in the late 1970s and became a residential-property development. In 1980, Ford stopped production at its Singapore factory, now a World War II museum. By the late 2000s Singapore was best known as a financial hub as it saw a decline in manufacturing that rich nations have been experiencing for decades.

Now, Singapore is set to make cars again. Hyundai Motor Group says the manufacturing system it is building here for electric cars will use human power “only where necessary.” It says it chose Singapore because the country has a superb talent pool, top research institutes and a supportive government.

“Modern factories require much less land and labor,” said deputy Prime Minister Heng Swee Keat at an industry event last year. “This has made manufacturing activities previously unthinkable in Singapore possible again.”

In the U.S., manufacturing has settled at around 11% of the economy, 1 percentage point down from a decade ago and 4 percentage points lower than in 2000. Western countries including the U.K., France, Germany and Spain have faced declines.

The loss has been less pronounced in Asia’s developed countries, although South Korea and Japan have experienced gradual declines or stagnation, World Bank data shows.

The pandemic made automation a greater priority for businesses world-wide, which learned that fewer floor workers made it easier to maintain production during lockdowns. After restrictions ended, manufacturers have embraced automation to compensate for labor shortages.

Singapore received $8.5 billion in fixed-asset investment commitments in 2021 and around $12.5 billion the year before. Its policy makers say they aren’t competing to bring back low-cost manufacturing, focusing instead on products such as chips and aircraft avionics requiring advanced machinery and highly educated technicians. It is the world’s fourth-largest exporter of high-tech goods, according to the World Bank. The top three are China, Germany and South Korea. The U.S. is fifth.

Business executives say Singapore has succeeded because it has a welcoming, low-tax government and a strong base of English-speaking science, engineering and mathematics graduates and manufacturing managers. Relatively loose immigration laws make it easy to hire foreign engineers. The government gives grants to improve operations at local companies that work with multinational corporations, and it forms partnerships with the multinationals on labor-saving technology.

The density of tech talent means ideas and production methods spread throughout the city—biotech companies eager to improve manufacturing productivity sometimes poach chip-factory employees. The government has set up agencies to improve manufacturing efficiency and integrate new production methods like 3-D printing.

Singapore’s central location in Asia makes it easy to import raw materials and other goods from the region. Because Singapore has a wide web of free-trade agreements, companies can easily export anything they build in Singapore.

Government scientists helped Rolls-Royce introduce chemical-spraying robots into a Singapore factory that makes airplane-engine fan blades. A local supplier helped Rolls-Royce create a stable of new foundry robots in 2018 that maneuver fan blades into hot furnaces to shape their internal geometry, replacing human teams in full-body protection suits who did this work previously in Singapore.

Executives also say they trust intellectual-property protection laws in Singapore, unlike in places like China where they sometimes worry their partners will copy their products.

At GlobalFoundries’ factory—it makes chips for high-resolution touch screens and smartphones, and sensors and safety features for cars—hundreds of automated vehicles move pizza-sized containers of silicon wafers along a roughly seven-mile stretch of tracks on the ceiling. Upon reaching their programmed destination, they hoist the wafer pods down to processing machines.

Other wafer-toting robots operate on the ground, lifting and depositing their cargo before docking at charging stations. “They are more reliable than people,” said Jimmy Lo, deputy director of fab operations. GlobalFoundries is embarking on a $4 billion expansion of its Singapore operations.

White-collar work

Manufacturing is becoming a white-collar profession in Singapore. The country’s manufacturing labor force has declined by almost 18% between 2014 and 2021. But the share of manufacturing jobs held by resident workers classified as high-skill—professionals, managers, executives, and technicians—has risen by 8 percentage points to 74% last year, said Damian Chan, executive vice president of the government’s Economic Development Board. He said the manufacturing value added for each worker—a measure of productivity—doubled between 2014 and 2021, to around $230,000, thanks in part to automation.

“Higher productivity is actually the main way we see that we can sustainably increase wages in Singapore,” he said. “Even a slightly declining manufacturing manpower in Singapore is not a bad thing,” Mr. Chan added. “Because of automation then there is less foreign workers.”

As of December, it had 207,000 foreign manufacturing workers, down from around 281,000 in 2013. Foreigners were 46% of Singapore’s manufacturing employment last year, down from 52% in 2013.

Many foreigners head back to their countries after their jobs disappear, as the right to live in Singapore is tied to job status for many nonresidents. So they don’t show up in the country’s unemployment rate.

Even paper bags for takeout orders—which many rich countries typically import—are local. At an automated bag factory that a local company, Print Lab Pte., began operating in Singapore last month, cartons of paper go into a school-bus-sized machine that cuts, folds, and handles it, producing completed bags.

A push for high-tech production helped persuade Silicon Valley-based HP Inc. to open a new manufacturing facility in 2017 in Singapore for print heads, which dispense ink from cartridges to paper. Four years earlier, it had relocated the labor-intensive process of manufacturing lower-complexity print heads from Singapore to cheaper Malaysia. But it stuck with Singapore to make industrial print heads used in commercial printers for products such as books and posters. At the facility’s grand opening, robots poured guests glasses of wine.

Technological advances mean robotic arms that once could move in only one or two directions can now make nearly the same rotations as the human hand, equipping them for a much wider range of tasks. That dexterity is on display on HP’s production lines: A robot arm clutches a tab of adhesive liner and another peels from it, placing the sticky side on a cartridge to prevent ink from leaking.

“Imagine doing that job eight hours a day,” said Steve Connor, HP’s global head of inkjet supply operations. HP said the two robotic manufacturing lines in Singapore decreased manufacturing costs by 20%, compared with previous production methods.

The robots work 24 hours a day and are precise, leading to higher yield and fewer errors, said Mr. Connor. Small automated vehicles bearing trays collect batches of completed cartridges and deposit them while blaring Star Wars theme music, to make sure humans don’t trip over them—not that the music seems necessary. “I walk in here and go ‘Where are all the people?’ ” said Mr. Connor.

The company has retrained staff to work with the machines, tapping into government grants that subsidize training by lecturers from the city’s technical-training institutes. Operators who once loaded materials are taught to troubleshoot and fix basic mechanical problems. Some staff that once used microscopes to inspect cartridges for defects now train robots to do that. The humans verify that cartridges rejected by the robots actually have problems, helping to hone robotic judgment.

At another Singapore factory, 3-D printers print out some of their own parts, said Ng Tian Chong, HP’s managing director for greater Asia: “Our 3-D printer actually gives birth to itself.”


Source : The Wall Street Journal

How Bad Is China’s Manufacturing Exodus?

Yang Jinxi, Qu Yunxu, Du Zhihang and Denise Jia wrote . . . . . . . . .

China’s strict pandemic controls, which are blocking production and logistics, threaten to add impetus to the manufacturing exodus from the country that has been picking up speed over the past decade, international trade experts say.

The COVID policy disruptions add to pressures from rising labor costs in China and worsening Sino-U.S. trade tensions. With low labor costs and surging domestic demand, Southeast Asia and India have become the most popular destinations for investors.

In April, Apple said it started making its iPhone 13 at an Indian factory owned by Taiwanese contract manufacturer Foxconn. Prime Minister Narendra Modi’s government is pursuing a “Made in India” campaign, aiming to turn the country into a global manufacturing powerhouse by cutting red tape and attracting investment.

Still, China retains tremendous advantages as a manufacturing center built up over the past several decades, and its enormous and rapidly expanding domestic market provides a powerful incentive for investment in capacity of all kinds. Southeast Asian nations, and even India, still have enormous hurdles to overcome in competing with China, trade experts say.

So far, most of the manufacturing leaving China has been in lower-end processes and hasn’t hurt China’s dominant position, many industry participants say. But the trend is forcing a transformation and upgrade of China’s manufacturing toward higher-value goods, creating risks and opportunities for domestic manufacturers, they said.

A Chinese trade official said the outflow of foreign trade orders is controllable, and its impact has been limited.

Manufacturing moving out of China is “in line with the law of economics,” Li Xingqian, director general of the Ministry of Commerce’s foreign trade department, said June 8 at a regular State Council briefing. China’s position in global industrial and supply chains is stable as China has a complete industrial system, with advantages in infrastructure, industrial capacity and professional talent, Li said. China’s business environment is continuously improving, and the attraction of the domestic market is still growing, he said.

Uncertain export outlook

China’s exports grew 16.9% in May from a year earlier, accelerating from April’s 3.9% increase and climbing well above the 8% gain projected by economists, customs data showed. China posted a trade surplus of $78.76 billion in May, up from a $51.12 billion surplus in April.

Exports rebounded as COVID-related bottlenecks on production and logistics eased, but the outlook remained uncertain as global consumer demand cools amid economic slowdowns and high inflation.

All manufacturing bases, including China, now face worries about weak demand in developed countries. Inflation in Europe and the U.S. are at the highest levels in 40 years, eroding consumers’ purchasing power and willingness to spend on nonessential goods.

Export orders for delivery in June and July, usually the peak season for booking goods for the back-to-school and holiday seasons, didn’t come in as expected, several people in the export sector said.

Weak demand in Europe and the U.S. was reflected in declining shipping prices, said Lin Jie, founder of Worldwide Logistics Group. Shipping costs from Shanghai to U.S. West Coast ports declined by 5.1%, and to the East Coast by 4.6% in the week of June 17, compared with the same period last month, according to the Shanghai Shipping Exchange.

The drop in shipping rates means clients that placed orders earlier are paying higher transit costs. While this hasn’t led to widespread cancellations, it could affect subsequent orders if demand does not pick up by July, said Zhang Huafeng, Los Angeles chief representative at Transfar Shipping.

It may take until the end of this year for American importers to work down inventories built up last year, said Wang Huanan, general manager of the Xiamen unit of Hailian (China) International Freight. Only certain categories, such as auto parts, clothing and luggage, have relatively low inventories, Wang said.

Last week, U.S. President Joe Biden said that to help curb inflation he was considering lifting tariffs that his predecessor imposed on $350 billion a year of Chinese goods, including bicycles, baseball caps and sneakers, during a tit-for-tat trade war. But it’s not a simple decision, and advisers within the administration are divided on the matter.

Dropping the tariffs would boost China’s exports, but the key is the timing, Wang said. July is traditionally the busiest month for exporters as goods for year-end holidays need to be shipped by then, he said.

China still the world’s factory

Neither Southeast Asia nor India can replace China as the global manufacturing hub in the near future as they are mainly engaged in labor-intensive and low value-added manufacturing, several foreign trade participants told Caixin. They also face problems such as incomplete industrial chains and low labor efficiency to varying degrees, experts said.

To foreign companies, China is not only a manufacturing base but also a huge market, said He Xiaoqing, president of consulting firm Kearney Greater China. In 2020, global companies had $1.4 trillion of domestic sales, far more than their exports of $900 billion, showing the attractiveness of China’s local market, He said.

The share of finished products among China’s exports should slowly decline over time, said Gao Shiwang, director of the industry development department at the China Chamber of Commerce for Import and Export Machinery and Electronic Products. Taking machinery and electronics as an example, higher-value-added integrated circuit exports increased 32% to $153.8 billion in 2021, surpassing those of cellphones, Gao said.

Vietnam, especially, has been one of the biggest beneficiaries of factories leaving China. The country offers manufacturers access to the 10-member Association of Southeast Asian Nations (ASEAN) free trade bloc and preferential trade pacts with countries throughout Asia and the EU as well as the U.S.

In the first five months this year, Vietnam’s exports rose 16.7% year-on-year to $153.29 billion, compared with a high base in the first half of 2021.

China’s outflow of factories to Southeast Asia is mainly concentrated in textiles, furniture and low-end assembly of consumer electronics. From the fourth quarter of 2021 to the first quarter of 2022, about 5% of China’s textile, 7% of household goods and 2% of mechanical and electric goods orders moved to ASEAN countries, U.S. import data shows.

Among Apple’s top 200 suppliers, the number of companies setting up factories in Vietnam increased from 17 in 2018 to 23 in 2020, including seven Chinese mainland companies, according to Everbright Securities.

So far, Vietnamese electronics factories are still mainly engaged in low-end assembly. For example, Apple AirPods and iPhone manufacturer Lixun Precision’s subsidiary in Vietnam mainly produces connectors and computer peripherals. Chinese company Lens Technology makes iPhone glass in its Vietnam factory.

Even though many orders now go to Vietnam, more than half of them come from China, Transfar’s Zhang said. U.S. clients are still actually doing business with Chinese companies, it is just that the goods are shipped from Vietnam, he said.

The export capacity of the whole of Southeast Asia, especially Vietnam, is overloaded and has little room to handle more orders in the short term, Zhang said. In the medium to long term, Vietnam’s rapid growth in the past three years has reached a bottleneck, with diminishing land and labor cost advantages, he said.

Shipping costs from Vietnam and Indonesia to the U.S. are much higher than from China, as those countries have fewer direct shipping vessels, and transit times are about a week longer from Ho Chi Minh City to Los Angeles than from Shanghai, Zhang said. Normally, the shipping cost from a Vietnamese port is $300 per container more than from a port in China. In the first few months this year, the price premium widened to $3,000 per container.

Deng Shengpeng, whose company makes furniture hardware parts in Anji, Zhejiang Province, opened a factory in Vietnam in 2018. The skyrocketing shipping costs this year made it hard to land new orders, he said.

Labor costs are still much lower in Vietnam than in China, but its land cost advantage is diminishing. Workers in Deng’s Anji factory are paid about 7,000 yuan ($1,046) a month and work 10 hours a day, while those in Vietnam make 2,500-3,000 yuan a month and work 8 hours a day. Deng has also witnessed a surge in land prices in Vietnam in recent years. Before 2018, 1 sq. meter of land cost $20-$30. Now the price is $160 per sq. meter, he said.

Chinese companies’ factories in Vietnam rely on raw materials and parts from China. Supply chains blocked due to pandemic lockdowns earlier this year also affected production in Vietnam.

Yang Zhongwei is the production manager of a Chinese router parts maker’s subsidiary in Vietnam. The factory needs to import all of its materials from China, which usually take a week to arrive. In the past two months, materials from Suzhou and Kunshan were delayed by more than a month, causing clients to threaten cancellation of orders, Yang said.

Yang’s company is considering switching to local sourcing, but it is not easy because Vietnam has a weak industrial base and costs are higher. For example, carbon tapes on printers costs about 21 yuan per roll, three times the price of those sold in China on Alibaba’s Taobao, Yang said.

In India, Chinese smartphone makers set up factories aiming at the huge domestic market. With 1.4 billion people, almost as many as in China, and a high proportion of young people, India has drawn Chinese brands including Xiaomi, Meizu, Vivo and Oppo to build factories. Many Chinese phone parts makers have also set up factories there. Now Chinese brands account for nearly two-thirds of India’s smartphone market.

But India has been getting tough on Chinese companies since border tensions escalated two years ago. In 2020, India banned more than 200 apps, many of them Chinese, including the wildly popular video platform TikTok. India accused Xiaomi’s India unit of moving money out of the country illegally.

India does have an edge in software services, thanks to its education system and labor cost advantages, said Li Zhiqiang, managing director of China Telecom India. But in terms of network infrastructure and support, India still lags behind. For example, many Chinese companies’ factories in India don’t have fiber optic coverage, Li said.

India also has a shortage of smart manufacturing talent. India has a relatively successful elite education system, but its training of technicians in high-end equipment operation and maintenance can’t meet market demand, Li said.


Source : Nikkei Asia

Manufacturing Inventory Hits Record US$1.8tn Worldwide

Manufacturers from Samsung to Ford are seeing a sharp increase in inventory as consumer demand weakens amid surging inflation, prompting worries that companies will have to adjust production in the face of a looming protracted economic downturn.

Inventory held by 2,349 listed global manufacturing companies hit a record $1.87 trillion at the end of March, up $97 billion from three months earlier, according to a Nikkei analysis of information from QUICK FactSet. That was the highest level in 10 years, or since comparable data have been available.

This inventory buildup can be traced to factors such as difficulty in moving products due to supply chain disruption, and some companies intentionally stocking up in case they faced shortages. Some businesses also built up stock in anticipation of an increase in consumer demand with the reopening of economies following declines in COVID cases.

The problem now is that this high level of inventory, coupled with slow consumption, could lead manufacturers to slam their brakes on production and exacerbate an economic deceleration that is already underway.

The slowdown in consumer demand is particularly noticeable in electronics, such as smartphones and personal computers, as consumers feel their purchasing power has diminished due to inflation amid global commodity price hikes.

The $97 billion increase is larger than the $83 billion jump recorded in the first quarter of 2018, when worldwide inventory levels surged amid intensifying trade tensions between the U.S. and China.

In percentage terms, the rate of increase during January-March 2022 was 5.3%, the largest after the 6.1% gain in January-March 2018. This has resulted in longer inventory turnover, with the ratio declining by 3% in the first quarter of 2022 from the quarter before.

It took 81.1 days for businesses to sell off their stock, up 3.6 days from the fourth quarter, and the longest in the last 10 years, excluding 2020 when sales plummeted due to COVID.

Inventory increased in all 12 manufacturing sectors. Three sectors accounted for 61% of the total — electronics, autos and machinery.

Electronics registered the biggest spike, up $26.7 billion, or 6%, to $457 billion. Analysis of individual company levels show that raw materials posted the biggest gain, followed by work in process.

Of all the companies covered in the analysis, Samsung Electronics recorded the biggest inventory growth in dollar terms, of $4.4 billion, or up 13% from the previous quarter to $39.2 billion. Of the increase, $2.5 billion was due to an increase in raw materials.

Samsung reported flat sales for the first quarter, compared with the preceding quarter. Samsung suffered disruption in April in its procurement of raw materials for memory production and had said that it intended to build up inventory to avoid further such problems.

At Taiwanese PC maker Asus, sales dropped 9% while inventory grew 18%, as raw materials and finished products both grew by about $500 million. Asus did increase the stock of electronic materials, but also saw sales slow in Europe due to the war in Ukraine. Chief Financial Officer Nick Wu says that the company intends to keep the current level of inventory.

In the auto industry, the level of inventory grew $14.8 billion, or 6%, to $273 billion, as Ford Motor suffered an 8% drop in sales and a 21% jump in inventory to $14.6 billion, the highest in 25 years.

As many as 53,000 vehicles have been left unfinished due to the lack of components. Ford CFO John Lawler had said that inventory buildup is weighing on the company’s cash flow.

At Mercedes-Benz, stock jumped 9%. The German carmaker has seen an increase in unfinished products due in part to the lack of components and also to shipping problems amid the Ukraine crisis. CFO Harald Wilhelm said it was difficult to make forecasts given geopolitical uncertainty.

On the positive side, worldwide high inventory is not expected to result in a serious cash crunch soon. The amount of cash held by the 2,349 companies stood at $2.2 trillion at the end of March, 2.3 times their monthly sales. Any number above 2 is considered reasonable.

Samsung, for one, boasts that it is holding $100 billion in cash, or equivalent to five months of sales. Toyota Motor has 6 trillion yen ($44.19 billion) in cash, which is worth 2.3 months of sales.

Still, companies are right to be cautious. Both the U.S. and the eurozone have seen their purchasing managers’ index drop to around 50, the break-even level, in June, while in China, the index stayed below 50 for three straight months through May. Any number below 50 indicates an economic contraction.


Source : Nikkei Asia