did around 20 percent of the apparel and textiles facilities.
This is both good and bad. Mediocre producers, people with poor financial controls, are going out of business. Their work is going into better facilities.
In today’s depressed economic environment, the logical question and the one our clients are asking me every day, is: “With the economy so bad, why can’t I get a better price?”
Well, you can…..but, how much is reasonable? Chinese factories still in business have been full. This is because, again, thousands of facilities have gone under, and so the orders are now going into relatively fewer, very large multi-national producers. This, we anticipate, will change by second quarter 2009, when decrease in overall demand catches up to the reduced supply.
To put the situation in perspective, let’s consider recent developments in China.
In 2008, the Chinese government started changing the labor laws. Many people believe that this had to do with the Olympics. The new environmental laws, the labor laws that came into being at the end of 2007 and the beginning of 2008, were intended to help China put on a good face.
What these labor laws did was better define the Chinese employer’s responsibility. Many factories in China have for years been enjoying what might best be described as a “fuzzy gray area” of responsibility. The previous laws, while protecting the workers, did a good job of facilitating business and exports.
Another factor in the government’s revisiting of the labor
laws was unrest around China. The goal was to calm down the workers and the unions. A new law defined how much money workers would get if they were fired or resigned. It actually supported lifetime employment; as a factory owner, once you hired someone, there was a contract between your plant and the employee that prohibited you from firing that person without compensation.
As a result, many companies went ahead and “rehired” employees under new contracts that protect the factory. This, too, caused unrest within the labor pool. However, the greatest effect of these new labor laws has been to increase human resources expenses by over 10 percent. This does not include salary; rather, it represents the cost increase to companies of facilitating and complying with the labor laws, in the form of documentation needed for the regional governments.
The new labor laws were also designed to help slow the economy, because it was on fire. In 2006, China saw growth of 10. 7 percent. In 2007, it was off slightly, to 10. 4 percent. But the first half, it was 11. 5 percent. In Guangdong province, in the south around Hong Kong and Macau, the growth was a phenomenal 14 percent!
It’s no wonder, then, that the government wanted to temper this a bit, and it was in mid-2007 that some of these initiatives started.
CHINA: EXPECTING GDP DROP
For 2009, the Chinese government anticipates a reduction in GDP growth, down to nine percent –– if we’re lucky. But who really knows? The numbers are as reported by the business media, the World Bank, and other sources. But they’re all derived from Chinese government statistics –– a source with its own agenda. These are only best guesses.
Actually, many economists are hoping for growth of seven to eight percent, because it’s widely believed China needs
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