GUANGZHOU, China – After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.
The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.
The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government – all part of an effort to prop up confidence in the economy among business managers and investors.
But the main nongovernment survey of manufacturers in China showed Thursday that inventories of finished goods rose faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.
“Across the manufacturing industries we look at, people were expecting more sales over the summer and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, “Things are kind of crawling to a halt.”
China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad at a time when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.
Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.
Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering, while unsold goods have accumulated.
“Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.
Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales had dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures.
“My supplier’s inventory is huge because he cannot cut production - he doesn’t want to miss out on sales when the demand comes back,” he said.
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