Will China’s loss be the UK’s gain?

Aspen Electronics' Howard Venning, asks purchasers to question the stability of their suppliers

Will 2012 be the year manufacturing comes back to the UK? Hopefully – yes, probably – yes, particularly if we look at what is happening at the heart of the largest manufacturing nation on the planet, China.

While discussing economics recently I trotted out my theory that 2012 would be the beginning of the end for China. In short, I said that it had risen too high, too quickly. Comparing it with other countries and regions around the world it has tried to achieve in a couple of decades what other countries have only achieved after centuries. The only exception being Japan, but even then it took Japan close to 50 years to reach the peak of its economic activity in the early 1990s.

Then I received my copy of China Daily and saw that the front page was reporting that the economic situation in Wenzhou, the birthplace of China’s capitalist revolution, was close to financial meltdown. This was partly due to the Chinese tradition of settling all debts before the start of the Chinese New Year and partly due to the economic realities facing many Chinese SMEs. That is, they can no longer keep going in the face of increasing wages, raw material costs, reducing profit margins and most importantly, diminishing worldwide demand.

The forecast is that one in 20 small businesses could face closure. To quote from the front page of the China Daily, head of the Wenzhou small and medium sized business development and promotion association, Zhou Dewen, says: “I believe it will be the worst Spring Festival since the reform and opening–up more than 30 years ago because small business entrepreneurs are facing greater pressure than ever to pay back their loans and the profits from manufacturing industry has been much reduced.”

So what effect will this have on the UK electronics industry? Well it will be a mixture of good and bad. Bad, where UK companies have relied upon Chinese manufactured products and/or Chinese based low cost manufacturing. Good, for those UK manufacturers who still have products and services to offer, backed by a stable management that has been in business for many years and has seen enough economic ups and downs to know how to deal with them.

The problems in China are many and complex, but only too real in a country where the rich have got rich so quickly that they just don’t know what to do with their money. It was recently reported that China had close to one million millionaires, with many having made their money in property speculation. It was also reported however, that 50 per cent of these millionaires want to leave China, with the most popular ‘escape’ destination being the USA. With the property sector set for a major collapse, they might be booking their tickets as you read this.

But back to the world of electronics. We all know the saying, a chain is only as strong as its weakest link and right now that weak link is China. Whether you are sourcing a low cost component or two, or using a Chinese sub-contractor for your production, you should be asking yourself how stable is the source of supply?

What is needed right now is stability and there is no better place to look then the UK. Our strategy for 2102 is to continue to use our technical expertise, product knowledge and familiarity, combined with understanding of the worldwide supplier base, to offer our customers as stable a supply chain as possible.