Dongguan city in Guangdong province, once hailed as China’s industrial powerhouse, is now presenting a bleak picture, with the closure of Dongguan Gogo Garment – the city’s largest lingerie manufacturer – on January 10. This is a clear indication of China’s dwindling economic state. Despite being a trusted partner for renowned global high-end lingerie brands and weathering tough market competition for 43 years, Gogo Garment’s downfall was inevitable due to dwindling customer orders and failed attempts to break into the domestic market. This, however, is not an isolated case in Dongguan, as Koppo Electronics, a Fortune 500 company employing over 6,000 workers, also had to shut down in July 2022 due to unpaid cross-border e-commerce payments, backlog of finished goods, and a sharp decline in domestic and international orders. It’s high time that China reconsiders its economic policies and rectifies the underlying issues that are causing such catastrophic outcomes.
Despite the easing of COVID-19 measures earlier this year, the situation in Dongguan has not improved significantly, and many factories are on the verge of collapse with the risk of imminent closure. The harsh reality is that the situation has not improved in 2023, despite hopes that surviving 2022 would bring relief. The global supply chain has shifted significantly, and many manufacturing companies in the region have not received any orders this year, leading to an increasing number of factory closure notices.
However, the dire situation is not limited to Dongguan alone but extends to the entire Pearl River Delta region, including the Greater Bay Area. Even the quintessential “Made in China” manufacturers, some with decades of business history, are not spared from the unfolding crisis. Both private and state-owned manufacturing industries in the southeastern coastal regions of China face unprecedented challenges.
It is high time that the Chinese government takes urgent action to address the underlying issues causing the collapse of these businesses. The fact that established enterprises are now struggling highlights the shortcomings of China’s economic policies, and urgent measures need to be implemented to save the struggling manufacturing industry in the region.
The ability of the real estate sector to weather the current manufacturing crisis is questionable. Any assumption that it will do so is unreliable and wishful thinking. The housing market is facing significant challenges, with a large number of properties struggling to sell. As of February this year, around 3.5 billion square feet of completed residential buildings in China remained unsold, equivalent to roughly 4 million residential units. Real estate consulting agencies
estimate that approximately one-third of all newly constructed homes in China in 2022 remain unsold, marking the highest proportion since 2015.
The simplistic approach to wealth accumulation through land and real estate development is not a reliable economic development perspective. This approach relies on assumptions that houses will always be sellable, people will always have stable employment with consistent wage and income growth, investments will perpetually yield positive returns, and real estate prices will continue to rise while social inflation remains unaffected. However, this facade has been sustained for an extended period of time. When the deep-rooted issues of the manufacturing industry eventually detonate, they will lead to the collapse of all these assumptions about China’s economy. The lack of employment opportunities leaves people unable to purchase houses, and those who have already purchased houses will struggle to repay their mortgages.
In light of the immense challenges confronting China’s manufacturing and real estate sectors, there is a growing need to reconsider the country’s economic focus and turn towards the agricultural industry. The potential decline in the industrial sector is likely to be more rapid and severe than previously anticipated, with only military-industrial enterprises appearing to be willing to invest, despite the exorbitant costs involved. Nevertheless, even these enterprises are likely to face significant hurdles in securing funding. Therefore, as China grapples with these economic uncertainties, a strategic realignment of the economy towards agricultural development may represent a viable pathway to economic stability and growth. While the idea of shifting focus towards agriculture may seem like a good solution to China’s economic woes, it is important to note that there are significant challenges in this sector as well. Agriculture is a highly competitive industry, and China will need to invest heavily in research and development, technology, and infrastructure to keep up with other global players. Moreover, there is a growing concern about China’s aging population and its impact on the agricultural sector, as there are fewer young people willing to take up farming as a career. Additionally, China will need to address the issue of food security, which has become increasingly important in recent years due to the pandemic and geopolitical tensions. The country has historically relied on food imports to meet its needs, but rising trade tensions and supply chain disruptions have made this approach risky. As a result, China has been investing heavily in its domestic agriculture sector, with a particular focus on grain production, but it remains to be seen whether these efforts will be sufficient to ensure food security in the long term.