Wednesday, January 21, 2009

Manufacturing slump sends fear across Asia

By Keith Bradsher
Source: IHT, Published: January 22, 2009

KARAWANG, Indonesia: At a three-story factory here that used to make remote controls for televisions around the world, most of the fluorescent lights have been turned off. The hallways are nearly silent and three-quarters of the workers have been laid off.

A pencil factory down the road closed last September, laying off 100 workers. Another nearby factory that used to carve and paint wooden window frames shut down and laid off 800 workers. And two Toyota factories, one here in Karawang and another in a nearby city, have declined to renew the contracts of 277 temporary workers.

"In our 11 years here, this is the worst situation with so many layoffs - not even in 1998 was it this bad," said Abraham Sauate, the manager of the television remote factory, comparing today with the Asian financial crisis in 1997 and 1998. "The problem now is, we don't know where to go, and we don't know how long it will last."

Though China and Japan draw the most attention, the global slump in manufacturing, caused by weak exports to the West, is spreading across Asia.

Industrial production is dropping in South Korea at the fastest pace since record keeping began in 1975. Taiwan's exports nose-dived 40 percent in December compared with a year earlier as overseas demand collapsed for electronics. Singapore announced Wednesday that its economic output had been down 3.7 percent in the fourth quarter from the same period a year earlier, mainly because of an export-related plunge of 10.7 percent in manufacturing. And ports from Indonesia to Thailand are handling ever fewer shipping containers, according to Datamyne, a Miami-based company specializing in international cargo data.

"There's not a country in the region that is not slowing sharply or in outright recession," said Stephen Roach, the chairman of Morgan Stanley Asia.

During the last crisis, investors pulled their money out of country after country. Asian leaders thought they had found a long-term solution - further increases in exports to the West, particularly of electronics. But that dependence on exports has fed this crisis.

Now American and European buyers are pulling their import orders from country after country, causing layoffs and factory closings. And while governments are beginning to implement short-term economic stimulus plans, long-term answers seem much more elusive.

Hard times in factory towns are especially troubling in Asia, where countries depend on manufacturing for a far greater share of economic output than Western countries do - as much as 40 percent in the case of China and other big exporters.

That is triple the current 13 percent in the United States, and much higher even than the American peak of 28 percent in 1953.

While all of Asia is suffering, some economies are feeling the effects of the global downturn less than others.

Many of these countries are latecomers to the world market. They have even lower wages than China and were just starting to benefit from the arrival of businesses seeking to avoid rapid increase in pay and other costs in China from 2003 through last summer.

For example, Bangladesh's exports are dominated by the sale of low-cost garments to mass-market retailers like Wal-Mart, which have fared well as consumers have shifted toward thriftier purchases. Garment workers in Bangladesh still earn $40 to $50 a month, barely half the minimum wage in export-oriented coastal cities in China.

Economic difficulties in the West "will have an impact on Bangladesh in terms of our growth rate, but I'm not concerned it will eat into our share" of the global garment market, said Mustafizur Rahman, the executive director of the Center for Policy Dialogue, a nonpartisan research group in Dhaka that specializes in trade and other economic issues.

The numbers bear that out. While overall American imports dropped 12 percent in November from a year earlier, imports rose from Bangladesh and from Vietnam. Each country shipped more knit apparel to the United States, and Vietnam also shipped more furniture.

Few countries were hit harder in the Asian financial crisis than Indonesia. Much of the banking system collapsed, economic output plunged, riots ensued and the government fell.

But Indonesia is often described as one of the less vulnerable countries in Asia, because its insular economy relies less on trade than those of most countries in the region. With the world's fourth-largest population - after China, India and the United States - Indonesia has long had a domestic market large enough to sustain fairly large industries without the need for foreign markets.

Yet the difficulties here in Karawang show how far the global economic downturn now reaches. The factories here have attracted workers from all over Indonesia. A growing number of them are now losing their jobs, just as tens of thousands of migrant Indonesian workers are coming home after being laid off in neighboring countries like Malaysia and Singapore.

President Susilo Bambang Yudhoyono, who is expected to seek a second term in elections in July, has already been forced to announce plans for $6.8 billion in extra government spending this year to stimulate the economy.

The stimulus program will help pay for road construction and neighborhood projects. (Indonesia's constitution is unusual in requiring that a fifth of government spending be dedicated to education, so the program may have long-term benefits as well.)

President Barack Obama lived in Jakarta as a boy, and many here hope that he will be able to pull the United States and the rest of the world, including Indonesia, out of its economic slump.

"When Obama is president, everything will be better - we hope so because there are so many promises from him," said Sauate, the manager of the television remote factory.

Other Indonesians are more cautious.

"It's an illusion that Obama can solve all the problems," said Khamid Istakhoria, the secretary general of the Indonesian Trade Union Alliance Congress, "because no matter who is president, they will face real economic troubles."


Intel to shut facilities in Malaysia, Philippines, US

WASHINGTON (AFP) — Intel Corp., the world's biggest computer chip maker, announced plans on Wednesday to close facilities in Malaysia, the Philippines and the United States.

The Santa Clara, California-based company said the moves were expected to affect between 5,000 and 6,000 employees worldwide.

"However, not all employees will leave Intel," the company said in a statement. "Some may be offered positions at other facilities."

Intel said it will close two assembly test facilities in Penang, Malaysia, and one in Cavite, Philippines, in addition to wafer production facilities in Santa Clara and Hillsboro, Oregon.

The closures, Intel said, will take place between now and the end of 2009.

The moves were designed to "align its manufacturing capacity to current market conditions," the company added.

Intel reported last week that the economic slowdown and slumping demand for personal computers sent net profit sharply lower in the fourth quarter of the year.

It said net profit in the last three months of the year plunged to 234 million dollars, down 90 percent from a year ago.

Intel has also warned that it expects even worse results this quarter than the previous three months, with an expected revenue of seven billion dollars.


Asian economic data worse than expected
By Bettina Wassener
Published: January 22, 2009

HONG KONG: Weak economic data from some of the leading Asian economies on Thursday highlighted the speed at which economic growth in the region is screeching to a halt, thanks mainly to sagging demand in the recession-struck United States and Europe.

Japanese exports, key to corporate giants like Sony and Toyota, plummeted in December, down 35 percent from a year earlier, the Japanese Finance Ministry said.

In China, economic growth slowed sharply during the last quarter of 2008, to 6.8 percent, and to 9 percent for all of 2008, down from 13 percent growth in 2007, the Chinese National Bureau of Statistics reported.

And the South Korean economy shrank 3.4 percent during October to December compared with a year earlier.

The figures — particularly those from Japan and South Korea - were much worse than economists had projected, showing how hard it has become to assess the effect of the slowdown that engulfed the world last year in the wake of the financial crisis that began as U.S. mortgage-related problems in 2007.

Asia, once thought relatively well insulated thanks to its limited exposure to U.S. subprime mortgages, is now caught up in the worsening economic slowdown. Economies in the region have seen a major pillar of their economic growth — exports to the United States and Europe — collapse as consumers and companies there have slowed spending to a trickle.

Richard Jerram, an economist at Macquarie in Tokyo, said that the Japan export figures were "predictably terrible."

"It's obvious that the availability of trade finance has shrunk dramatically, leading to a catastrophic decline in exports," he said.

The relative economic slowdown in China also has cooled hopes that demand from that giant economy might cushion the downturn in neighboring countries.

The flurry of data Thursday heralds more pain to come as companies around Asia race to lower output and costs in response to sagging sales.

Numerous Japanese companies, which are suffering the added burden of a strong yen, which hit a 13-year high against the dollar on Wednesday, have been forced to revise their earnings expectations and cut costs.

On Thursday, Sony Corporation warned it would likely post a net loss of ¥150 billion, or $1.7 billion, for the year ending March. This is the first such loss for Sony in 14 years and represents a stunning reversal from the ¥370 billion profit it made during the previous 12 months.

The company has already laid off thousands of workers, and is expected to announce details of wider restructuring measures later on Thursday.

Such developments raise pressure on regional policy makers to step up their already considerable efforts to bolster their economies.

A massive stimulus package, focused on infrastructure projects, was announced in November, and economists say that further measures, like tax cuts, may come around the Chinese New Year holidays that begin in mainland China on Sunday.

China has more firepower left than many others, both in terms of the ability to cut interest rates and spending, to cushion the slowdown.

But with exports plummeting and limited domestic spending, a marked turnaround is not expected to come any time soon.

In Japan, the central bank has already lowered interest rates to near zero. At the end of its policy meeting Thursday, it said it would consider buying corporate bonds to prevent a shortage of credit from the recession, which it predicted would deepen next year.

In South Korea, the central bank is seen cutting rates again at its next meeting on February 12. It has already lowered the cost of borrowing by 2.75 percentage points.

Source: IHT

Chinese retail sector faces consolidation
By Kirby Chien Reuters
Published: January 21, 2009

BEIJING: The shock waves from the global downturn are pushing a fragmented and once fast-growing Chinese retail sector to consolidate as sales slow and profit margins shrink.

Global giants like Wal-Mart Stores and Carrefour will benefit from the consolidation, along with China's growing consumer class, but rapid expansion has caught some retailers overextended as their home markets collapse.

The $824 billion Chinese retail sector is still one of the world's fastest growing. Smaller than Germany's in 2003, the Chinese market could be almost twice as big by 2013, according to Euromonitor.

"As the large get larger, major domestic and foreign players with strong parents should survive as the market consolidates," said Mavis Hui, retail analyst with DBS Vickers in Hong Kong.

Department stores like Parkson Retail, which is based in Hong Kong, are pushing discounts to regain sales, and Kingfisher, the largest home-improvement retailer in Europe, is closing stores before the weeklong Lunar New Year shopping period.

As the Chinese economy slows sharply, some retailers may be forced to rethink their strategies.

"We're aware of some foreign retailers in China trying to sell their operations, which could be picked up by someone else at bargain prices," said Graham Matthews, partner with PricewaterhouseCoopers in Shanghai.

He noted, with others, that home improvement chains were being hit hard by the global collapse in real estate markets.

Standard & Poor's downgraded its outlook for Parkson, one of the largest department store chains in China, to stable from positive earlier this month, after an estimate of weak growth in same-store sales, 7 to 8 percent. "We expect the weak sales trend to persist in 2009," S&P said.

Retailers globally are struggling as consumers cut back on spending unemployment rises and fears of a deep recession or depression increases.

The U.S. department store chain Gottschalks filed for bankruptcy last week, the latest in a list of battered retailers. U-Right International, a Hong Kong-based garment retailer that rapidly expanded to more than 600 stores throughout China, filed for bankruptcy in October after running out of cash.

Buoyed by its recession-resistant grocery business, the French company Carrefour, the leading hypermarket retailer in China, expects to open 28 new stores this year, up from 22 in 2008, though it has said it would compete aggressively on price.

"Total retail sales could still rise by the mid-teens this year," Hui at DBS Vickers said. "But the steep discounts we're seeing could pressure margins for selective players."

Deals may slow in the near term, as the appetite for risk is low and those with cash may want to hold it, PWC said. But it sees opportunities.

Kingfisher, owner of the B&Q franchise, is considered a prime target. It posted a surprise third-quarter loss in its China operations late last year as sales slumped by one-third.

A Kingfisher competitor, Home Depot, has also expanded aggressively in China.

Kingfisher expects more store closures in China, a sharp turnaround from mid-2007, when B&Q China sales growth was humming along at more than 40 percent and it had plans to open 8 to 12 stores annually, hoping to reach more than 130 locations.

Still, even during the best of times, China accounted for only a small fraction of total sales for the big global retailers.

Wal-Mart, the world's largest retailer, is shifting its focus to emerging markets like Mexico, China and Brazil. But China accounts for little more than 100 stores in a global stable of about 7,200 Wal-Mart outlets.

Other niche players like the coffee-shop chain Starbucks, which is closing stores in the United States, its home market, will continue to expand because their penetration in China and other emerging markets is still at a relatively early stage.

Three-fifths of consumers in major Chinese cities expect to spend less this year on luxury goods, branded apparel and entertainment, according to Data Driven Marketing Asia, a consulting firm.

And the outlook is not likely to improve anytime soon. U.S. retail sales fell a steep 2.7 percent in December, signaling a sharper economic contraction than had been thought.

That is bad news for China, as the United States is its single largest export market. Analysts forecast that the Chinese economy could grow 8 percent this year, a level widely regarded as a minimum to absorb millions of new job seekers.

High-flying Chinese consumers had once snapped up luxury cars at a record pace, but the global downturn has exposed a fragile spending class that must increasingly plan and pay for its own health care, education and retirement.

Stephen Roach, Asia chairman for Morgan Stanley, said at a conference in Beijing last month that China needed to shift its growth dynamic away from investment and exports and to increase consumption.

Chinese household consumption in 2007 made up just 35.3 percent of economic output, a record low for a major country in peacetime. In the 1980s, it was over 50 percent, versus 72 percent in the United States.

The reluctance to buy is evident at Solana, one of Beijing's newest mega-malls, which has more than 200 stores and vendors but where spending customers are sparse on weekdays and many stalls are still waiting for tenants.


Global conditions force Singapore to revise economic forecast
By Bettina Wassener
Source: Published: January 21, 2009

HONG KONG: Singapore lowered its 2009 growth forecast for the second time in only three weeks Wednesday, illustrating how steeply the global economic downturn is pushing down export-dependent Asian economies.

One of the most important financial hubs in the region, Singapore slid into recession earlier than most of its neighbors as the financial crisis developed into a full-fledged global economic crisis last year.

Conditions around the region have since deteriorated far more rapidly than expected, with virtually every new data release from China, Japan and elsewhere painting a much worse picture than economists had forecast.

Singapore underscored that point Wednesday when it announced that its economy had contracted 16.9 percent during the last quarter of 2008, rather than the 12.5 percent it announced as recently as Jan. 2.

Singapore's trade ministry now expects its economy to shrink between 2 percent and 5 percent, another downward revision from the last estimate Jan. 2, when the authorities forecast the economy would contract as much as 2 percent this year.

"Data releases in the past two weeks for retail sales and unemployment in the U.S., industrial production in Europe, and exports by Asian economies suggest that external demand conditions have weakened to a greater extent than earlier estimated," the ministry said in a statement Wednesday.

Sharmila Whelan, an economist with CLSA in Hong Kong, said, "The first estimates were bad enough. This revision is really something, and it has left the government scrambling to put in place new stimulus measures."

As the global downturn drags on, depressing the export business that most Asian economies rely on even more heavily than after the Asian financial crisis a decade ago, many economists have become increasingly bearish about the prospects of a gradual recovery by the second half of this year.

Exports to Europe, in particular, have sagged - worryingly for Asia, given that data from the euro zone are continuing to deteriorate.

CLSA, for one, does not expect the flurry of global stimulus measures announced since October to start to lift growth as soon as this year, and projects further contraction in the United States and Europe this year and next.

And the recovery, when it comes, is likely to be investment-led, rather than based on renewed consumption by U.S. and European shoppers - meaning struggling Asian car and consumer goods giants will not be among the early beneficiaries.

"Going forward, the outlook for European growth becomes crucially important for the outlook for Asian exports," Whelan said. "It is not a pretty picture."

Growth figures from China and South Korea and trade data from Japan, all to be released Thursday morning, are likely to underscore the picture of rapidly decelerating growth.

Economists polled by Reuters believe the South Korean fourth-quarter gross domestic product fell 0.7 percent from the same period a year earlier. And Japanese exports slumped a record 30 percent in December from a year earlier, also according to a Reuters poll.

The data from China are expected to show that the once sizzling pace of growth slowed to about 7 percent in October through December, economists estimate. Many believe the economy will grow by only 5 or 6 percent this year.

"There's good news, and there's bad news in China, which at least is better than in many other regions of the world," said Stephen Green, head of China research at Standard Chartered in Shanghai.

Consumer spending remains robust, bank loans have shown strong growth, and the big stimulus package announced by Beijing in November should begin to see some projects getting under way after the Chinese New Year holiday next week. On the other hand, exports have "fallen off a cliff," he said.

Green expects the Chinese economy to grow by 6.8 percent this year, after an estimated 9 percent in 2008. A real test of whether the positives or the negatives will be stronger will come around March. "If indicators don't pick up by then, that would be worrying," he said.

Meanwhile, earnings reports from companies around the region in the next few weeks will only contribute to the gloom. Toyota, Honda and Nissan all may report quarterly losses, as a stronger yen has compounded already weak demand in the U.S. and European markets. Samsung Electronics may post its first quarterly loss ever Friday. And Sony, which is due to report on its third quarter next week, may well be on track for a loss in the quarter ending March, analysts say.

BHP Billiton became the latest company in the Asia-Pacific region Wednesday to announce large-scale layoffs, cutting about 6,000 jobs, or 6 percent of its work force.

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