China export slump brings down giants ---Its articles like this that makes me think FXP is a killer investment right now--- Updated Tuesday, December 30, 2008 10:20 am TWN, By Fang Yan, Reuters
SHANGHAI -- Never mind the banks. Eastern China's Shaoxing county has launched a massive polyester bailout. The locality of 710,000 in prosperous Zhejiang province arranged 1.5 billion yuan (US$220 million) in aid to let Zhejiang Hualian Sunshine Petro-Chemical Co, a major producer of purified terephthalic acid (PTA), used to make polyester, restart output after financial difficulties had shut it down.
The virtually unprecedented offer of government money to a non-state firm highlights how far the global economic downturn has spread, from small exporters that bore most of the initial brunt to bigger companies in more basic industries.
“We had to bail out Hualian Sunshine even though it was privately held,” a Shaoxing municipal government official, who declined to be named due to briefing rules, told Reuters.
“Hualian Sunshine is the biggest supplier to our textile industry, which gives us half of our fiscal revenue. The stakes were just too high for us to sit there and let it die.”
Signs of problems with China's export-driven economy started in the coastal south, where hundreds of small-scale toy makers and garment firms were forced out of business as the global financial crisis battered their main markets in Europe and the United States.
Many had initially blamed currency appreciation. But anemic annual growth of 5.4 percent in China's industrial output in November, the worst reading in nearly 10 years, showed the problem has gone far beyond the yuan's rise, which anyway came to a virtual halt in mid-July.
A number of upstream suppliers in eastern China's industrial heartland, such as Sinopec Yizheng Chemical Fiber Co and Nanjing Chemical Fiber Co, slipped into losses in the third quarter as their order books dried up.
One hard-hit industry has been chemicals, including makers of polyester, a synthetic resin widely used in clothing and a variety of plastic goods.
“Due to the severe situation facing the downstream business and slowing demand, the domestic polyester industry is in an extremely difficult operating environment,” Sinopec Yizheng said in its quarterly financial report.
That reflects a severe slowdown in exports of clothing and accessories, which grew just 3.1 percent year-on-year in the first 11 months of this year compared with a 22.2 percent rise in the same period of 2007, official data showed.
Industry analysts expect the situation to get worse next year along with the faltering global economy, forcing some smaller suppliers out of business.
“It's a domino effect. If the garment exporters continue to fall one after another, how can you expect their upstream suppliers to stay in the business?” said Gao Guo, an analyst with Huatai Securities.
“Industry-wide consolidation is inevitable next year as there is no sign of an end to the global financial crisis.”
A China Union spokeswoman said Hualian Sunshine halted production in early October but was able to restart about a month later after the bailout, which included funds from the county and another local company.
In recent months, Beijing has unveiled a series of measures, including export tax rebates for exporters of textiles and other goods, as well as a 4 trillion yuan fiscal stimulus package and repeated interest rate cuts.
The central government is determined to maintain at least 8 percent economic growth in 2009, a level it said it must achieve but which foreign economists have said could prove elusive.
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