HONG KONG — The mood in South China is not upbeat, but it isn’t despondent either. It is hunkered down, awaiting further developments. Battered as they’ve been by the drying up of U.S. demand, the region’s ports have given up years of growth. They are still buried in empty containers and, like the container lines they serve, are looking at chronic overcapacity in the years ahead.
My visit there this month found no one willing to point to signs of inventory replenishment by U.S. retailers, so positive signals must be kept in perspective. To the extent there are any, they may be found in recent volume declines that aren’t as ugly as in the depths of the credit crisis earlier this year, although the numbers still are nowhere strong enough to suggest anything approaching a genuine turnaround.
The May numbers tell the story. China’s total international container volume fell 4.3 percent in May from the same month a year ago, a good showing considering they were down 11 percent in April, 8 percent in March, 16 percent in February and 14 percent in January, according to government statistics.
Hong Kong’s May volume declined “only” 12 percent after plunging as much as 24 percent earlier in the year, and in neighboring Shenzhen, the May drop was “only” 16 percent, a 10 percentage point improvement from its nadir in February.
“The negative growth is smaller. It seems at least that there are signs of bottoming out instead of worsening,” said Sunny Ho, executive director of the Hong Kong Shippers’ Council.
But the future seen from China seems just as unclear as it does from the United States. The perception is the U.S. pullback in consumer demand is not temporary and the U.S. no longer can be relied upon to generate the growth seen in the run-up to the recession. Orders from the U.S. today typically are for smaller quantities and require a faster turnaround time, Ho said. One head of a Hong Kong marine terminal said his company has lowered its trans-Pacific forecasts going out at least a decade.
“Bear markets happen for a reason, and that reason is very often to herald a structural shift in the drivers of growth,” Hong Kong-based GavKal Research said in a June 8 report. “No longer can we expect the Western consumers to save the day. Instead, we should look to the East.”
Many indeed are turning their sights to the East, and to China, in particular, in search of the next growth engine. China has taken only initial steps in creating elements of a social safety net, such as health insurance, that will make people feel secure enough to spend, so consumer-driven growth is not a guarantee.
Yet compared to the U.S. and Europe, China is humming economically, forecast to grow by 6.5 percent this year, according to the Economist Intelligence Unit, a number that doesn’t look so bad even in comparison to the 10 percent or higher growth it consistently achieved since 1990.
Marine terminals in Hong Kong and Shenzhen, which traditionally generated nearly all their business from the trans-Pacific, Asia-Europe and intra-Asia trades, are seeing the emergence of a fourth market: intra-China. Cosco and China Shipping are running 5,000- to 6,000-TEU ships along the coast, according to one terminal operator, and although domestic cargo generates lower fees than international cargo, terminals have room for the business.
But as much as China may be growing, a big hole remains where U.S. demand was, and the loss is being felt. Few here appear impressed with recent positive U.S. housing and consumer confidence numbers and want to see a lot more good news in employment before their view of the U.S. as an anemic economy will change.
“Yes, we do have a rebound based on a traditional pattern of building volumes into the peak season,” said Charles DeTrenck, an independent analyst. “But at this point it is all coming from the lower base which gapped down so severely that it is really hard to call this a traditional rebound at this stage.”
The drop-off in U.S. demand has led to changes in China. In the run-up to the recession, China was taking steps to change course, instituting labor laws to improve wages and job security, imposing environmental rules to discourage heavily polluting industries and eliminating export rebates to build its economy.
Now those measures are on hold, and China is not likely to so readily give up its role as the low-cost, most efficient producer for many commodities that a year ago it was poised to voluntarily surrender to other emerging producers. China’s social stability has long rested on its ability to generate jobs, and with unemployment growing, job creation, including in low-technology, low-cost export industries, will figure in China’s economic picture for now, several people said last week.
What this all adds up to is the story of an economy that still is developing, but on a different and smaller scale.
Peter Tirschwell is senior adviser of The Journal of Commerce. He can be contacted at 973-848-7158, or at email@example.com.