Plants in China keep producing as growth falls, fueling deflationary pressure world-wide
A worker loads a truck with tires from Del-Nat Tire, a distributor in Memphis, Tenn., that found itself stuck with high-priced inventory after tire prices declined because of overproduction in China.
DONGYING, China – Liu Zijun built a thriving tire-manufacturing business when China’s economy was roaring ahead. But when China’s growth weakened, he had to cut prices to keep his business afloat.
Now the pain felt by industrialists such as Mr. Liu is reverberating across the globe, showing how China, once the world’s most reliable source of growth, is adding to deflationary pressures world-wide.
In the rubber-tree fields of Southeast Asia, planters are scrambling to cut prices for their latex fast enough to keep customers in China happy. In the U. S., tire distributors are marking down prices and some are cutting staff as China floods the U. S. with discounted goods from unneeded factories.
‘The growing production capacity in China changed the U. S. industry,’ said Brian Grant, chief executive of Del-Nat Tire Corp., a Tennessee tire distributor that exited the business early this year after chalking up losses on overpriced inventory it had bought before prices fell.
This post was published at David Stockmans Contra Corner on June 2, 2015.
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