I am just recently back from 10 days on the ground throughout Hong Kong and Mainland China, and it was great to be visiting our factory partners after the years-long Covid travel shutdown. The border into China is wide open, albeit with a few new procedures to follow. A negative test result, a health questionnaire to complete on an app, and in you go. Not as complex as I would have thought.
Aside from a higher level of retail store vacancies on the street, Hong Kong appears to have returned to normal. Mask-wearing is around 30%, but that’s not far off from what typically mask-wearing was well before the pandemic struck. Wearing masks in Hong Kong and China in times of heightened air pollution levels or during the slightest sickness a person may be feeling has always been quite common.
China has every appearance of having returned to normal as well. I didn’t see any quarantined buildings or neighborhoods, no lines for testing, or any health workers in biohazard gear.
Regarding the business climate in China, of the factories I visited, the impact of slowing economies around the world is certainly being felt on the factory floors. Factory owners are telling me that they have excess manufacturing capacity. They did not bring back their full complement of workers after the Chinese New Year holiday, as the backlog of orders wasn’t there to justify it. That was back in late February, and the excess capacity continues now in mid-May.
While one would think that this excess factory capacity may translate to faster production lead times, the fact that factories are employing fewer workers overall causes those lead times to be as they typically are. That said, some of the newer factory partners that we’re working with are reporting standard lead times of 25-30 days for products that are heavy on printed materials. It’s the high level of automation in printing factories that is contributing to this, machinery such as high-speed 6 and 7-color offset presses, automated die-cutting and collating machinery use fewer workers. This allows more workers to be dedicated to the assembly of finished products.
Another benefit to the current manufacturing environment in China is concerning raw material supply and costs. Currently, I’m not hearing anything at all regarding challenges with raw material availability. And as far as costs are concerned, there currently is a downward trend on some materials costs due to lower demand.
Of course, downward pricing trends only last as long as slower demand for materials and excess factory capacity exists. As soon as a return to a more typical manufacturing environment is achieved, pricing will return to more normal levels as well. But for those who need finished goods inventory now, it’s more of a buyer’s market. Pricing is very competitive and we now have multiple factories to turn to for great pricing.