As U.S. companies cut spending, factories in China go bankrupt

As effects of the U.S. housing crisis rippled out across the Pacific this fall, they landed hard in a southern Chinese district called Shunde, a center for furniture making.

"So many businesses have closed, it's like a ghost town," said Linette Zhang, chief executive of Bellevue-based trading company Guang Feng International, who works with Chinese suppliers in the region.

Furniture is one of the largest categories of imports coming through local ports, and the market thrived during the housing boom.

But now, as U.S. consumers cut their spending, Chinese factories are going bankrupt. At the end of September, imports from China had fallen 27 percent from the same time last year, notes Tong Zhu, director of commercial strategy at the Port of Tacoma.

"Imports from China are slowing down and, of course, that is tied closely to consumer demand in the U.S.," she said. "U.S. consumers are really scaling back and concentrating on basic goods."

Although China still managed to set a record for its global trade surplus in October, "in all probability that was the last record trade surplus China will ever experience," said Joe Borich, executive director of the Washington State China Relations Council.

This year more than 100,000 Chinese companies are shutting down, raising unemployment by several million, Borich said.

Economic troubles are hurting trade on both sides.

With more than a billion consumers, China has been touted as a lucrative market for Washington state products, from wine and coffee to airplanes and alternative energy technology.

Trade with China through Seattle's seaport accounted for $18 billion last year, more than double the amount of its second-largest trading partner, Japan.

But China, the world's engine of economic growth, is in the throes of its sharpest slowdown in 30 years, according to Nicholas Lardy, an expert on the Chinese economy and senior fellow at the Peterson International Institute for Economics. China is still growing, but at a dramatically reduced rate.

While some analysts might have thought the country could shield itself, "China is just too heavily exposed to the global economy," Lardy said.

China's appetite for foreign goods has fallen, too, Zhu said. "While we're continuing to see U.S. exports going to China, it will not be at a pace we have seen in the past."

Those effects, combined with sharp swings in currency values and commodity prices, mean 2009 could be a wild ride for local importers, exporters and ports.

Dan Flickinger, who has owned and operated Kasala furnishings in the Seattle area for 22 years, is already feeling the impact.

He sells modern European-style furniture, much of it imported from China, where producers began to rival their European competitors in quality but offered him a lower price.

Flickinger said his young suppliers in southern China have been eager to receive any news from the U.S., which is now closely tied to their economic futures.

"They are concerned, like everybody here," he said.

Costs of doing business in China have risen as new labor laws come into effect requiring Chinese manufacturers to pay overtime.

"A lot of things are in place that we want to see occur, but there's a price for it," he said.

Decreased traffic through the ports of Seattle and Tacoma reflect the tough economic reality throughout the U.S., since most cargo passes through bound for destinations in the Midwest and East.

In Seattle, cargo volume for November was down 22 percent from last year and down 12.5 percent for the year so far. In Tacoma, November cargo volume fell 2.6 percent and 2.4 percent for the year to date.

Flickinger said he's fortunate that most of Kasala's customers live in the Puget Sound area, where the economy is still stronger than many other parts of the country.

Zhang, of Guang Feng International, operates a trading firm that had focused mainly on importing.

Now, she's putting more emphasis on exporting U.S. products like paint and industrial coatings, as U.S. suppliers seek markets abroad to help offset waning sales here.

"China's purchasing ability is still stronger than the U.S.," Zhang said.

Dan Harris, an attorney with Harris & Moure in Seattle who works with companies doing business around the world, echoed that sentiment.

"Despite the fact that China is not exactly booming now, there's sort of a view among businesses that we're getting zero growth in the U.S., so if we're going to grow anywhere we might as well go to China," Harris said.

Airplanes, the backbone of U.S. and state exports, face a challenging market. China is encouraging carriers to cancel or postpone plane deliveries due next year as its cooling economy damps travel demand.

"One thing very telling right now is that airlines are canceling flights like crazy," Lardy said. "Domestic air travel is down in China. The major airlines are losing money."

The World Bank slashed its forecast for China's economic expansion next year to 7.5 percent, citing reduced demand from overseas. China has averaged nearly 10 percent annual growth for the past 30 years.

This year, a bursting housing bubble, a falling stock market, inflation and natural disasters have taken a toll on the country.

China's nearly $600 billion bailout package is aimed at stimulating consumer spending. Keen savers, Chinese consumers have been even more reluctant to spend money after the latest downturn.

One bright spot may be clean energy. The U.S. and China are both making energy part of their economic stimulus packages, and opportunities for cooperation are increasing.

The U.S. China Clean Energy Forum is holding its next summit meeting in Seattle in February.

And the Pacific Northwest National Laboratory received a $510,000 grant this month to help China create more energy efficient buildings.

While promising for the future, "those things take a long time," Zhang said. "It's a big project ... It can't be done in a year or two."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com