INdustrycTceh INsight Logo

Pressure on China’s factories development as U.S. demand decreases

February 14, 2023: -For some factories in China, it’s not full steam ahead after the end of zero-Covid.

CEO Jay Foreman said that of all the factories where U.S. toy maker Basic Fun works in China, about 20 told workers to wait to return immediately after the Lunar New Year holiday.

That’s due to a flood of inventory in the previous year’s first half, which didn’t get sold as consumer costs in the U.S. increase over the summer and into the decrease, he stated. Basic Fun’s products include things like Care Bears and Trucks.

The Lunar New Year holiday in China ended on January 27, but the travel period runs until February 15. The festival is the only time each year that migrant workers, over 170 million people in China, can visit their hometowns.

“Every factory I spoke to stated that they’re going to have fewer people employed than the previous year,” Foreman said. He anticipates U.S. consumer demand to pick up this year.

China’s to the U.S. in the toys, games and sports category account for regarding 6% of all exports, according to China customs data accessed via Wind Information. That category of toy exporting to the U.S. saw a slight decrease in 2022, the data showed.

“Retail, anything consumer discretionary, they were reached quite hard. It was a mixture of high inventory and demand decreasing quite a lot for the export markets,” stated Johan Annell, partner at Asia Perspective. This consulting firm works primarily with Northern European firms operating in East and Southeast Asia.

He stated that consumer electronics was seeing a similar situation.

“For different industries, the picture is better. A few who are struggling to keep up with trailing orders and catch up with the rest of the things they had to deliver the previous year,” he said.

China is completing its zero-Covid policy. But restrictions on firms’ activity were tight for 2022, which included a lockdown of Shanghai for about two months in the spring.

Pressure on China’s factories development as U.S. demand decreases