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Gloomy outlook – or overdue clean-ups?

Well, things are certainly happening here in China. The price race to the bottom seems to never end, and if things keep going at the current pace, the factories will start paying us for producing our tyres within a year or so. While that is probably not alarmingly realistic, the situation for the factories is indeed very real, and very bad. Less than a handful of Chinese tyre factories can claim to be doing well, and even they have seen reductions in both turnover and output since last year._DSC0150

The rest are struggling. As earlier predicted, more keys have been turned, and the tally is now 4 confirmed bankruptcies this year. Almost 10 new factory projects are also currently stopped or stalled due to financial issues or tightened environmental requirements from the Government. Especially the so-called Dongying area, where the major tyre production hub is located, is in danger of imploding. Many factories there have obtained massive bank loans based on securities and bonds offered by neighbouring factories, and they have offered similar services in return, which means the entire network of factories will fall like dominos if one of them is allowed to go bankrupt. Allowed, I say, because that is the key word; while several of the factories can no longer be saved and have without a doubt already filed for bankruptcy, the local government cannot risk the consequences for the local society if they accept it, and other factories are dragged down as the result. It would mean tens of thousands of unemployed labourers, technicians, and white-collar staff, as well as thousands of jobs lost in the related business areas, especially logistics and transportation. However, on the other hand, they cannot afford to subsidize ill-managed and unprofitable operations for an extended amount of time, either.

 

By Gregers Lindvig

 

(Full text in PTA Dec-Jan issue)

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