MARKET REPORT
SHORT READ PART 3
2023 JANUARY ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
Without any doubt that China is vital in the global supply chain. It plays an important role in renewable energy for solar power and wind farm. But we have to know that all the knowhow and IP were coming from the West, and because of China’s abundant resource and the workers, and they have initially their domestic market to serve, make them the most efficient and cost competitive that the others.
We wrote about the advantage of China’s supply chain in one of the articles here to better explain the opportunities there in China for your consideration.
The using of robotic in garment production of which the company as introduced is a start up only. The investment it raised is inadequate for Sewingtech to become a serious player.
When we further researched for this article, we have found a sewing machine known as Highlead HLK-3020 Series. And we were taken away by its price of $17,599 which is the highest price we have ever seen for the sewing machine.
For the purpose of the research, we will look into this and other options for automation in our next issues.
Contents:
China is Using Robot for Apparel Production
Tiny Trading Loopholes Understated Trade Deficit With China
The Jiang Zemin We Know
The Power Struggle in the Arctic Region
More of the Group of 20
Supplying of the Solar Panels Into the U.S.
The Supply Chain Scenario in China
Global Developing Countries Are Defaulting Loan Payments
Solar Power Deployment in the U.S. is Stalled
Another Obstacle in Harnessing Wind Energy
With Oil Cap at $60 per Barrel and Its Effectiveness
This Winter in France
China is Using Robot for Apparel Production
Chinese startup, Sewingtech, which is developing robots to automate garment production. This time it has raised $1.39 million to spend on research and development of products.
The company, Sewingtech, was founded in March 2022 and it focused on the labor shortage in the textile and apparel industry with the aim of improving production efficiency.
Robots have been used to simple operations such as laser cutting machines and electric sewing machines. Sewingtech is developing for finishing the garment in greater details, such as button sewing and positioning of buttonholes.
According to China’s National Bureau of Statistics, retail sales of all textile items reached 1.38 trillion yuan ($190 billion). For 2022, it is expected to reach 1.44 trillion yuan which is $200 billion.
The market for automated production is estimated at about 16.7 billion yuan ($232 million) for T-shirts, and 333.9 billion yuan ($46.4 billion) for all textile products.
China’s textile and apparel industry is in rapid decline as many production orders have been shifted to Southeast Asian countries. China’s sewing factories are still depending on skilled workers, but trying to hire new workers and train them are not easy. The wages in China have been increased steadily over the years. Automation may become important if the country would want to remain competitive in this global garment industry.
As of 2020, some 170,000 apparel companies employed 8.26 million workers in China, and sewing workers made up 60% of the production workers.
Tiny Trading Loopholes Understated Trade Deficit With China – WSJ, June 18, 2022
The official U.S. trade statistics have missed a value of roughly 800 million shipments that arrived in the U.S. under a set of rules known as de minimis. It is a Latin phrase describing items too small to be bothered with. And this applies to individual shipments entering into the U.S. with a value under $800.
Also there is no one actually checking the value and everything is taken as the value declared with the shipment. This is the result of the rising of e-commerce that enable to shipment to arrive directly at the door-step.
“De minimis” was created by the Congress in 1938. The original purpose was to avoid the involvement of expenses and inconvenience created by this type of shipment. In 2010, the U.S. Customs told the researchers that the agency estimated only 720,000 de minimis shipments entered in the U.S. annually. Peterson Institute for International Institute thought that the numbers were too low by then. In 2022, Wall Street Journal obtained data from the Customs database of the de minimis shipments and their declared value. The data showed nearly 800 million such packages enter into the U.S. annually. It is more than 2 million packages per day.
The known value of $40.5 million in 2012 surged to $67 million in 2020, and $46 million came directly from China. But the data has flaws as many packages arrived through postal service.
Other countries have their own rules of de minimus, for example China’s corresponding threshold is only about $7.45 and this made such a big contrast. But the true value for this shipment can be twice as high. From the Security and Exchange Commission filing of the largest U.S. internet retailers, it is showing $112 billions of goods a year that are qualified for de minimis. But this figure doesn’t capture China-based companies whose entire business model relies on duty-free shipments without filing with the SEC for instance.
Officially the U.S.-China goods deficit reached $402 billion in 2018. It was narrowed down to $302 billion in 2020. But during the period when shipments avoided tariffs and online shipment increase during the pandemic, the precise amount came from China would remain unknown.
The Jiang Zemin We Know – FT, December 1, 2022
This was an excerpt of Jiang Zemin who died on November 30, 2022 at the age of 96.
Jiang Zemin was taken as an interim leader for China at the time after June 4 in 1989. He was put there by Deng Xiaoping as a compromising person. He was picked from Shanghai where he was the mayor at the time. His 13-year tenure as the general secretary of the Communist Party of China and was hardly seen as the ruthless autocrat.
He was born in Yangzhou in eastern Jiangsu Province in 1926. In 1943 he became involved in the underground student protests while he was at Jiaotong University in Shanghai. He joined the Communist party in 1946.
After the 1949 revolution he became the apprentice in the Moscow’s Stalin Automobile plant, and returned to head the vehicle production site in the north-east part of China.
It was in the early 1980s, Jiang became part of the new generation of technocrats which was put into position as created by Deng Xiaoping.
In 1982 he became the head of Ministry of Electrical Industry. Three years later, he was made the mayor of Shanghai, and later became party secretary of Shanghai.
During the Tiananmen Square in 1989, Jiang was summoned by Deng from Shanghai just days before the troops fired at the students. He showed his tough approach with the pro-democracy protests in Shanghai and was chosen as a compromise between the hardliners and more liberal party stalwarts. He was formally appointed as the party’s general secretary.
He would be remembered as a pragmatist who allowed capitalists and other former “class enemies” into the party. He was also the first leader to transfer control in an orderly way to become a successor.
He was the only Chinese leader who was able to speak both English and Russian. During a state banquet for the U.S. President George W, Bush he played the ukulele and sang Love Me Tender. He was also the only Chinese leader who gave the press interviews during his time. With his owlish glasses and the high-waisted trousers, he was quite a character.
The Power Struggle in the Arctic Region – WSJ, June 10, 2022
The Arctic Circle starts at roughly 66th parallel. It is the northernmost of the Earth’s five major circles of latitude. In the southernmost of the Earth, we have the Antarctic Circle.
There are roughly four million people live on the Arctic Circle in major cities like Murmansk, Russia and Longyearbyen, Norway.
Recently, the world had entered into a new and dangerous of the polar region after three Russian submarines, each carrying 16 ballistic missiles with multiple nuclear warheads broke through the ice near the North Pole in 2021. The boats were joined by two MiG-31 aircrafts and ground troops and it raised concerns of NATO.
Arctic has been increasingly become a navigable sea route as the ice coverage has hit the lowest level on record. Lately it is only 5.57 million square miles and it has been suggested that by 2035 the Arctic Ocean can be largely free from ice. By then the nations that are sharing the borders of the region, including the U.S. and Russia, will have an enormous stake in the titleship and control of the energy and mineral resources, as well as the new sea routes for global commerce.
Already 43 of the nearly 61 oil and natural-gas fields that have been discovered in the Arctic region are in Russia. There are 11 in Canada, 6 in Alaska and 1 in Norway. With this in mind, the Russians are militarizing the region.
Although China is not an Arctic country, it has shown a keen interest there. It is eyeing the Arctic’s rich energy deposits, and the opening of a new shipping route from East Asia to Europe that is about 8,000 miles and shorten the current one that runs through the Suez Canal from its 13,000 miles long. It can save ten to fifteen days of sailing.
China already started its bidding for an old military base in Greenland but was blocked by Denmark in 2016. In 2018 it tried to bid for building an airport near the U.S. base at Thule in Greenland, but was without success. Then it tried to buy an airbase in Finland and again without success.
The U.S. has been slow in developing their Arctic strategy and it is still without plans for coordination of operations or resources. NATO hasn’t done much either. Things would have changed now as the Russian invasion of Ukraine alerted NATO for the security of Arctic region. And the Nordic nations—Denmark, Finland, Sweden, Iceland and Norway—are now working closer to secure the Arctic through NATO.
Countries like Finland, the leader in icebreaker ship building and Sweden with a highly efficient submarine fleet, would be crucial for polar defense. The eight nations that are permanent members of the Arctic Council—Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the U.S., all but Russia are sooner to become members of the NATO. This alliance can contain Russia and China and can protect the freedom of navigation and its natural resources in the future.
Putin believes that the Arctic is Moscow’s exclusive enclave but Sweden and Finland’s accession to the NATO can provide an opportunity to contain the Kremlin’s strategy for domination of the Arctic North Pole.
More of the Group of 20
It was established in 1999 after a series of major international debt crises. The Group of 20 is used to unite world leaders to share economic, energy environment challenges. The group accounts for 80% of the world’s GDP, three-quarters of the global trade and represent 80% of the world’s population.
The 20 nations including the European Union are Argentina, Australia, Brazil, Britain, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States.
There is no permanent secretariat, but operates with a rotating annual presidency which currently resides with Indonesia.
Today, we introduce International Energy Forum (IEF), an active participant in G20 meetings. Its mission is to strengthen global energy security, market transparency and facilitate energy transitions aligned with the core objectives of the G20. They are for the purpose of promoting global economic stability, inclusive and sustainable growth and set to modernize international governance systems.
Supply of the Solar Panels Into the U.S. – WSJ, December 3, 2022
There is the soaring demand of the solar panels and the U.S. Commerce Department has found the loophole to receive the Chinese made solar panels through four Chinese leading solar-cell manufacturers with facilities from Cambodia, Thailand, Vietnam and Malaysia.
Although there is the suspension plan for implementing the tariffs, Biden administration put a two-year suspension of duties to give importers time to make adjustments. The time that has given to the U.S. solar industry to make the adjustment is inadequate and would strand billions of dollars for American clean energy investments and significant loss of a good American and meaningful industry.
The industry is currently relying on the imports from the four Southeast Asian countries for 80% of the U.S. solar-panel imports. This investigation from the U.S. Commerce Department has slowed down the solar-farm projects which triggered complains. This has delayed its shift to the clean energy and derailed the administration’s climate goals.
This supply chain is under the scrutiny and investigation will evaluate several factors, including whether a majority of investments, manufacturing, and research and development were conducted in China, before final assembly in the four Southeast Asian countries. A tariff-rate would have to be determined before implementation.
Under today’s globalization and the supply chain management, this kind of practice is also inevitable and can make any trade war or punitive tariffs very complicate to apply.
The Supply Chain Scenario in China – FT, November 30, 2022
It is already known to the customers for the new iPhone 14 that the waiting time is 37 days. This also means that their availabilities would be extended beyond Christmas. It may seem to be unimportant, but the delay is showing sign of the problems in the global manufacturing supply chains.
Apple’s main assembly plant in the city of Zhengzhou, which makes nearly three-quarters of the world’s iPhone. It is struggling in the midst of the worker unrest due to the severe Covid-19 lockdowns. Across the country, China is dealing with protests and a record number of new Covid-19 cases. We have beginning to see the government is loosening restrictions to reduce the growing discontent. Hopefully that China will reopen its economy from irrational lockdown restrictions that have affected the everyday life of its people.
What China will have to face immediately is its relatively low vaccination rate. The previous strict isolation has created the result of the low risk of infection. There has not been accumulative cases and the people don’t have the natural immunity. The reopening of the community would have the risk of an infection surge.
We have to know that a third of China’s population is employed in manufacturing. The rise in Covid-19 cases would have a direct impact on its manufacturing supply chain. If the outbreak of the Covid-19 would happen, a fifth of the total output would be affected. It is going to depend the policy of China and the world will be threatened and the impact on global economy would be severe. The lockdown in Shanghai for two months have upended global supply chains for many months to follow.
United Nations said that China tops global output market share for three-quarters of the world’s manufacturing categories—apparel, pharmaceuticals, chemicals, computers, electric and industrial equipment. It controls 80% of refining and mining of raw materials for the batteries of the electric vehicles.
There have been talks about diversifying the supply chains from China, but this has not been easy as there are few options to choose upon. China has earned the title of the “world factory” is without no reasons. Over the years, the ecosystem from components suppliers and engineering solutions, have been set up around the manufacturing hubs in China. This adds the convenience of getting the things done at arm’s length. This also makes the moving away of the manufacturing to other countries much too complicate. Its competitiveness is also hard to take away.
Options from Southeast Asian countries are the lacking of scale and low labor cost structure. For instance, Vietnam is only one-tenth of the labor force of China, Thailand’s labor cost is too high, Indonesia is too widely spread among islands. Coming back to India, it is only one-tenth of China’s manufacturing output.
Because of the competitiveness, manufacturers are operating on razor-thin margins in return for volume business. Any extra costs for labor and logistic would not be able to be absorbed into the costing structure.
Furthermore, China is not only the manufacturing hub but can also look upon as a largest consumer market beside the U.S. We have seen Apple, Samsung and Tesla, who are moving production closer to market with very good reasons.
We can only say that the world is addicted to the manufacturing expertise that they can find in China. To diversify or to resist would be so unwise. There have to be ways to look upon it and businesses should steer away from political risks to avoid being crashed.
Global Developing Countries Are Defaulting Loan Payments – WSJ, November 30, 2022
A recent analysis by the United Nations Development Program found that 54 developing countries it identified with severe debt problems account over 3% of the global GDP. And more than half of the 600 million people living in extreme poverty globally. As the result, World Bank officials said that to end the extreme poverty by the end of the decade is not going to happen. More countries are now spending far more on debt servicing than health, education and other core services.
Already aided by ultralow interest rates in the West and Chinese loans, emerging and developing economies over the past decade reached 64.5% of its GDP at the end of 2022, and in 2018 it was only valued at 33.6% GDP.
That means servicing debt has become more costly due to the local currencies have lost valuation to the dollars and governments have to subsidize higher cost of food and fuel.
Already more than 60% of the lower-income countries have either defaulted or at high risk of defaulting on their debts.
We have heard that Ghana’s total debt service have reached 129% revenue in 2020, this is the result as the country is borrowing and pay interest on its existing loans and bonds. Currently the government has frozen payments to contractors and stalling road construction. El Salvador has to limit hospital services and programs for the elderly. Pakistan has to turn the power off for up to 6 hours a day. All these are hardship on these countries.
Solar Power Deployment in the U.S. is Stalled – WSJ, November 30, 2022
Several thousand shipping containers have been detained by the U.S. Customs at ports like Los Angeles. And even more have been held up in factories and ports from Vietnam to Malaysia. This is the result of the U.S. legislation aimed at cracking down on labor disputes in Xinjiang under the Uyghur Forced Labor Prevention Act which bans the import of products with parts and ingredients from Xinjiang.
The domestic manufacturers for the solar panels in the U.S. are few. They are depending on imports from China and other Asian manufacturers which account for more than 80% of all panels used. This year, so far an estimated 23 gigawatts’ worth of big solar projects have been delayed. This is about one-third of all projects.
This disruption of the solar panels are among the many hurdles the renewable-energy developers are facing in the U.S. The clean energy goals that the Biden administration set, with the Congress passed the legislation that offers tax incentives and funding for everything, from building wind farms to install electric-vehicle chargers, but there are still a lot of obstacles.
To manufacture the solar panels domestically will take years before the domestic factories can be ready for production.
Another Obstacle in Harnessing Wind Energy – New York Times, November 26, 2022
Europe has been promoting wind energy for a long while, and it is the great opportunity to be in this business since Russia started to cut into the shipment of natural gas at its war with Ukraine.
But the European wind turbine manufacturers are reporting losses and laying off workers. The problems are from the supply chain to the competition from China although the clean energy is really needed.
Take for instance, Siemens Gamesa Renewable Energy, a Madrid-based company who is also a premier maker of offshore wind turbines has reported a loss of $965 million. A cost-cutting program which is likely to layoff 2,900 workers.
Vestas Wind Systems, the world’s largest maker of turbines reported a loss of $151 million for its third quarter.
General Electric, a large maker of wind turbines, both in the U.S. and Europe, reported its renewable energy unit is likely to record the losses of $2 billion this year.
The reasons are many, material costs, shipping cost, and inflated operating cost when offshore wind farms are ready to deliver. This poor financial performance raised questions about the future of the wind industry in the Western world. Between the U.S. and Europe, there is the lack of coordination and the Biden administration’s Inflation Reduction Act created an international competition between the two camps.
There is the growing competition from China where manufacturing machines from the West are sold for that market. This is like the repeat of what happened with the solar panels, a technology first started in the West which is now dominated by China and other Asian manufacturers.
China can produce 70% of the components that are used in the turbines and with their huge home market, they have improved their manufacturing skills and have the group of the well-trained workers that can deliver turbines at prices that are lower than the West.
Europe has an ambitious target for wind generation by the end of the decade, but because of the profitability for developing the wind farms as an operable business, this is unlikely to happen. On the other hand, it is one of the alternatives for energy aside to the Russian gas. To get the turbines off the ground would perhaps require to rely on China’s supply as an easier solution.
With Oil Cap at $60 per Barrel and Its Effectiveness – New York Times, December 3, 2022
European Union and the Group of 7 industrialized nations have agreed on a $60 per-barrel limit on the oil for Russia to trade outside the bloc. We are looking at its effectiveness.
First of all, Russia’s oil production costs at around $20 per barrel. The benchmark for the price of the Russian oil have been in the range of $60 to $100 per barrel for the past three years. Now this agreed-upon price is going to allow Russia to reap a very substantial profit. This can provide revenue to finance Russia’s war in Ukraine.
Secondly, the Western allies don’t want Russia to stop selling oil, which is one of its few remaining export commodities. If Russia is cut off from its supply, it will drive up the oil prices and add the burden on the soaring global inflation. And besides, Turkey is heavily depending on Russian oil and both India and China have relied from the supply as well, although the prices might have been discounted.
Russia is on track to earn more revenues from oil sales than 2021, and the West sanctions have failed to weaken Moscow’s energy exports.
In order to put Russia at bay, European Union is going to rely heavily on its dominance of the maritime insurance industry, whereby a web of companies that provide coverage for ships and their cargoes for the liabilities for potential oil spills. And also the reinsurance, which is a second form of insurance use to compensate the risk of losses, this is used for the reassurance of any catastrophic situation.
Most of the major shipping companies and insurers are based in the countries who are members of the G7. This plan can prohibit the price of the oil sell below the $60 barrel. This has formed as part of the sanctions.
We have already seen that Russia is trying to buy 1,000 older oil tankers and decided to get themselves around the sanction.
The European Union also looked at the whole thing with skepticism as it is difficult to implement and the revenue Russians are receiving are not significantly low, instead it is becoming an assurance for their income during this wartime with Ukraine.
The U.S.’s argument is to better set for a higher price for Russia to comply and to continue to ship much of its exports using European and U.S. infrastructure like their ships and insurance.
To me, the whole arrangement is a bit ironic, and the real purpose is for the U.S. to curb its inflation.
This Winter in France – New York Times, November 16, 2022
This winter, the Europeans are getting ready to deal with a winter without Russian gas. In recent months, the French started the maintenance with engineers throughout their nuclear power plants to inspect the wear and tear. Problems found in the cooling circuits are being repaired to assure safety measures. A record of 26 of its 56 reactors are off-line for maintenance or repairs after worrisome cracks and corrosion were found. The repair will take longer time to complete and those reactors will not start until January and February.
France has been known for Europe’s biggest producer of nuclear energy and the state-backed nuclear power operator, Èlectricitè de France, runs the country’s nuclear power industry.
At this time, the tactic of Russian President Vladimir Putin is to squeeze the gas supply to Europe and to bring the Europeans at bay for not supporting Ukraine. All of the sudden, the security of Europe’s energy is at jeopardy. The French passed a measure by its President Emmanuel Macron to build six mammoth nuclear reactors starting in 2028 and named it as a French “nuclear renaissance.”
France has been known as the nuclear power in the 1980s and boasted the world biggest atomic fleet after the U.S. It generated 70% of its electricity and export power to other European countries.
At this moment, the Macron government is preparing to take over the remaining 16% of Èlectricitè de France at the cost of $10.3 billion as the company is in debt for nearly $45 billion. Its 2022 profit will drop due to the problems of its reactors as well as the government’s order to provide artificially cheap electricity for households and businesses.
The findings of the corrosion and the cracks of the pipes have caused a crisis and its nuclear generation is less than the half of the 61 gigawatts the reactors can produce. Even when more generators can restart in the coming months, its output will be around 45 gigawatts which is lower than usual. This energy shortfall has turned France into a net importer of energy this year instead of Europe’s biggest exporter of energy. It has to depend on import of coal-fired power generation from Germany and rely on its natural gas reserves.
The country has already called upon its people and the businesses to conserve energy by lowering thermostats, using car-pooling and cutting lighting.
The power cutting has already affected production in steel, chemical and glass-making.