China factories hit by soaring costs amid pollution crackdown

GUANGZHOU: Chinese exporters at the country’s biggest trade fair are more optimistic about global demand now than six months ago but Beijing’s crackdown on pollution is ramping up costs and product prices, hurting smaller factories and foreign buyers.

At the Canton Fair where some 25,000 manufacturers are showcasing products from industrial engines to egg-cracking machines, the mood is sanguine. The world’s second-largest economy has defied expectations for a slowdown this year and import and export growth in September suggests factory activity remains in high gear.

In a survey of 102 exporters at the Guangzhou-based trade fair, 77% of the mostly small- to medium-sized Chinese manufacturers expect orders to increase next year, compared with 70% during the previous event in April.

But many manufacturers, especially smaller ones, complained about currency fluctuations and China’s stepped up antipollution drive pushing costs up as firms scramble to invest in new equipment or costly processes to meet more stringent emissions standards.

“The environmental regulations are hitting everyone. I’d say 30% of factories are affected,” said Lynn Chen, a director of Masda, a Pearl River Delta manufacturer of antennas with around 20 million yuan ($3 million) in sales annually.

Larger factories were weathering the anti-pollution blitz better but many small factories were being forced out of business including small aluminium tube makers in eastern Zhejiang province, Chen said, noting that the costs of sourcing such components for antennas had risen 20%.

Of the 102 exporters polled by Reuters, production cost was the biggest concern.

Of the firms surveyed, 44% said the yuan’s 5% rise against the dollar this year had hurt their business “significantly”, while nearly 50% said it was hurting them “slightly”. Forty-three per cent see a further rise of the yuan by 2-5% in the coming 12 months. – Reuters