Lambert here: “The East Is Red Ink” is a song so familiar it’s almost impossible to hear, but if China’s industrial sector is deteriorating…
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
“What we witnessed in November and December was just extraordinary.”
“I’ve been a manager for almost half a century, but this is the first time I’ve seen such a large single-month drop in orders for us,” said Nidec CEO Shigenobu Nagamori. “What we witnessed in November and December was just extraordinary.”
“We saw big slumps in November and December,” he told reporters. “We have faced extraordinary changes.”
Nidec reversed its previous forecast of record revenues and profits, lowering its revenue forecast by 10% for its fiscal year that is almost over (ending March 31). The revenue forecast leads to the first year-over-year revenue decline in nine years.
And not just in China: “Orders, sales and shipments in all business segments around the world saw major shifts,” he said.
But one of the sectors that is still strong in China is demand from EV makers, Nidec said. EV production is surging, propped up by heavy government incentives. Nidec has been building a factory in China for its newly developed EV traction-motor systems. Last month, it announced that it would also build factories for these systems in Poland and Mexico, and not just China as previously planned, hoping that this strategy will get it around the US-China trade dispute.
Nidec’s debacle in November and December isn’t based on smartphones, where there had been a slew of warnings from Apple and Samsung on down, with Apple warning two weeks ago that it “did not foresee the magnitude of the economic deceleration.”
Components for smartphones aren’t a large part of Nidec’s revenues. Instead, the company is getting rattled by manufacturers in the automotive sector, the home-appliance sector, and other sectors. So this is far broader than just smartphones.
And Other Companies Have Chimed In.
Yaskawa Electric Corp., one of the world’s major manufacturers of industrial robots, including for the auto industry, cut its earnings forecast a week ago for the second time in three months, this time by 10%, blaming weak demand from China and the semiconductor industry.
Kuka Group, the biggest German industrial robots manufacturer — 95% of which was acquired by a Chinese company in a hostile takeover — issued a second profit warning on January 10, after having already warned at the end of October. It blamed “primarily” the “stronger slowdown in the automotive and electronic industry in the fourth quarter 2018, ongoing uncertainties in the Chinese automation market and negative impacts from the project business.”
On Thursday, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, warned that revenues would fall over 9% in the quarter compared to a year ago, the largest year-over-year decline since 2009.
The company blamed an “overall weakening of the macroeconomic outlook, including seasonally weaker demand for mobile products and high inventory levels.”
CEO C.C. Wei cited a “sudden drop in demand” for high-end smartphones, according to the Nikkei, and lamented the plunge in demand for chips used in cryptocurrency mining.
Among its customers are Apple, Huawei’s semiconductor arm HiSilicon Technologies, Nvidia, Qualcomm, Broadcom, AMD, MediaTek, NXP Semiconductors, and Xilinx.
CFO Lora Ho told reporters after the conference that TSMC had imposed a “hiring freeze” and is implementing strict cost controls in response to this situation.
The situation with the suddenly weakening demand in China has now transcended company-specific issues, such as Apple’s new generation of iPhones being too expensive or a sudden reluctance by Chinese consumers to buy American brands.
It has spread to the industrial sector that is supplying Chinese consumers with all kinds of Chinese-branded products, including electronics, cars, and appliances. This situation has deteriorated over the past few months at whirlwind speed, taking these companies by surprise, and creating deeply worrisome signals for the Chinese economy going forward.
In December, light new-vehicle sales in China plunged 13%, the fourth months in a row of double-digit year-over-year declines. Despite a stronger first half, auto sales for the whole year fell 4.1%, the first annual decline going back to 1990. Welcome to the big club of saturation and decline. Read... China’s Consumers Rattle Global Automakers as Sales Plunge.
It looks like this rapid slowdown will soon head to a company near you.
I’m really not smart enough or informed enough about economics in other than a cursory way, but it seems to me that capitalism is a foolish way to organize the world. When I say the world, I mean more than just the economy. It has infected all aspects of humans activities in ways that just cheapen and degrade human interactions. Just the other day as I was pumping gas while ignoring whatever commercial was being blasted on the screen on the pump, the ubiquity of this cheapness kind overwhelmed me. You just cannot get away from it. Surfing the net, driving your car, pumping gas, it seems inescapable, Everything is a transaction and you cannot escape that a dollars sign is place on everything.
I helped a friend the other day gather some tree stumps so he could have wood to heat his house. We spent (notice the verb) about 6 hours doing so. He was very concerned about “paying me back” even though I insisted that I was glad to help out a friend. It just seems so stupid, so missing all the possibilities of what our world could be if we didn’t see it all in terms of the profit motive. Although I have lived for a few years in a country where you had to go to well to get water, had no electricity, had to bath out of a bucket, and cook on a coal pot, I do understand the advantage we have with running water and electricity. But in some ways, I was maybe happier and learned to adjust more easily than I though I would. In the culture, the community was organized around relationships, Greetings were very important, even to strangers. You often had stop and talk otherwise would be seen as rude . And one was not always direct when attempting to correct another’s bad behavior. It was done indirectly. Being an outside, I was very aware that I did not know what was going on, while everyone else easily got it.
I am not naïve though, and did not miss the exploitive behavior, such as an orphan being taken in by a family and having to do much more work than the other children, at least the orphan was taken care of and fed. There was a hierarchy that was honored, even if it is seemed unjust. That may be my democratic, egalitarian Western ideas not finding it to my liking.
I use to joke that even though nothing seemed to work there, in the end everything worked out. And not being assaulted minute by minute by advertising there, I came to enjoy the respite from capitalism’s creep into every aspect of daily life. Maybe I am waxing nostalgic or idealizing what I experienced, but if we have relegated our daily lives and interactions to a system that’s concern with short-term profit overrides our ability to create a long-term sustainable world, a system where we have become inured to the world-ending destruction due to over-population, climate change, or nuclear winter, a world where all revolves around the complete financializaton of literally everything, the whole she-bang, our material and mental worlds, then I think the extinction of humanity might not be such a tragic loss after all. We just may not be biologically equipped with the tools necessary to create institutions whose primary functions are not captured by something as useless as the profit motive. It’d be great if I am wrong, but I fear our blind hubris just won’t allow it, our sense that we are the crown of creation and pride, to paraphrase Milton, goeth before our fall.
Thank you for sharing this meditation.
Well put, Devamitta.
Thank you Diva. It does seem, has always felt like, we live by hallucination. It’s the thing I worry about too. One of them. “… the extinction of humanity might not be such a tragic loss after all. We just may not be biologically equipped with the necessary tools to create institutions whose primary functions are not captured by something as useless as the profit motive.”
capitalism (or economics), is becoming a spiritual disease.
when i help someone, and they express thanks or try to help back, i usually tell them to go and help someone else as a way of paying back.
I find the complexity of “modern life” in developed nations to be exhausting. When we lived in Thailand for several months we had a small, single room apartment with very few possessions. No car, we relied totally on public transport, which worked out fine. Having lived in an area with some of the worst traffic in the USA, it was a real luxury not to have to drive for most of that year. The only thing I missed was my home stereo system, but mostly I felt much freer than I do here in the US. Unrestrained capitalism has destroyed our environment, tainted our food supply and degraded our culture… what makes me crazy is that so many of our “leaders” are in denial of this.
Money is measurable; goodwill and happiness are not. Therein lies the problem.
… a system where we have become inured to…
I believe that captures exactly what is chillingly wrong with our plight today. Having traveled over a rather large chunk of this planet, seeing what I have seen of how others live elsewhere, and then coming back here, there is an awful lot wrong happening here in the US that completely escapes our attention unless that attention is forcefully brought to the fore. And that’s before doing the same on a minute to minute basis around the rest of humanity.
I’m an engineer, I build and fix things; been one since I was a toddler according to Mom (also an engineer amongst many things). This is way too large to fix by myself. I’ve not a clue on how to select others that would be as crazy as I am to even try.
Great comment. Thank you.
Tomasello has pointed out, scientifically to my satisfaction, that empathic, prosocial behaviors (up to and including altruism) have evolutionary utility (see “A natural history of human morality”). The rapacious Dominionists now running things are cemented in morally “bankrupt” (“spent?” lol) willful denial of the very idea.
An accelerating cataclysm likely draws nigh, Frase’s Quadrant IV.
I’m going to question your interpretation of the firewood story, but I’m not quite sure how that applies to your larger point.
“He was very concerned about “paying me back” even though I insisted that I was glad to help out a friend. It just seems so stupid, so missing all the possibilities of what our world could be if we didn’t see it all in terms of the profit motive.” That is neither capitalism nor the “profit motive;” it’s really basic human. Anthropologists consider reciprocity one of the foundations of social life. Family life is a partial exception; and, at least in our culture, friends are normally pretty casual about it – as in saying “I owe you one,” rather than dwelling on the “debt.” But friendships are generally a web of reciprocity; if we don’t feel it balances out, at least in spirit, we become dissatisfied with the relationship.
In fact, looked at closely, the more primal society you lived in (Peace Corps?) is a web of reciprocity.
OTOH, none of that contradicts ” we have relegated our daily lives and interactions to a system that’s concern with short-term profit overrides our ability to create a long-term sustainable world,” Yes, and one reason is precisely that social reciprocity has broken down so badly. That’s the danger of severe wealth inequality.
Boy you really nailed that one. That web of relationships or lack thereof is so ubiquitous as to explain or at least contribute to most of the ills we experience in daily life.
With this in mind I can recognize how I can repair and improve my life and the lives of those around me. Though I must note that living in a rather rural setting, and seeing the same people repeatedly, gives me some advantage over those who see an overwhelming predominance of strangers who they will never see again, just because of sheer population density.
You and Diva have just made my day.
Capitalism in the west is a way to accomodate large, dense populations. I read stories like this about living in rural areas with low population densities and I interpret this as people living with incredible wealth. We have this strange concept of lands called waste land or land that is left fallow. Yet this land is providing us with stored water, storing carbon, providing oxygen. You can’t eat these things but we can’t live without them.
“Greetings were very important, even to strangers. You often had stop and talk otherwise would be seen as rude”
I grew up in an area somewhat like this, where you would meet just a few people a day. But I’ll give you a counter example. I lived in Japan for several years. In Tokyo I could encounter more people in ten minutes than I used to see in a month. It made me physically ill. I wasn’t accustomed to high density living. Each time I saw a new face I wanted to react and I would get a tiny jolt of adrenalin. After six months I was exhausted.
It was really interesting to observe young people in this environment. I would see a young girl standing on a busy street corner. Hundreds of people were streaming past her but she was quiet, with her head bowed. She somehow shut out the crowd. Then, when her friend showed up it was like flipping a switch and both girls would become very animated and emotional and they would disappear into the river of pedestrians. Really amazing.
I don’t rate either experience higher, just pointing out the varieties of human experience.
Is it possible that US has actually insulated itself from economic slow down in manufacturing by way of service economy?
It has been since the late 70s since people started talking about a service economy. It has been since the late 50s that we have been sure of climate change. We did ruthlessly dismantle our manufacturing and our unions in the 80s. But staying above rising waters has not been possible. Maybe in an effort not to panic we managed to neglect some important things? Like the world’s coastlines. No amount of profit in this world can pay for mitigating that one. Capitalism has already become absurd. Just ask Ray Dalio. Even this morning on NPR (yes NPR) they quoted a very trusted expert who believes oceans will rise not 3 feet but 150 feet. Just in China alone that will be multiple tens of millions of city dwellers living on the coast or at sea level, around river deltas, etc. And then there’s India…
Holland and North Europe will get it in the neck. Half of England goes under the waves, which they claimed to rule once. (Ask that old English king about that one.)
Florida and the Gulf Coast become new “Sportsman’s Paradises.” (Just imagine the fishing around the ‘Drowned Towers!’)
And all the toxic sites that will have to be cleaned up as the seas rise…..
> And all the toxic sites that will have to be cleaned up as the seas rise…..
I bet they won’t be. So prepare to be startled by odd looking fish near “Drowned Towers”.
“And all the toxic sites that will have to be cleaned up as seas rise…..”
I doubt that any appreciable “cleaning up” will happen, ambrit … indeed, many such sites will be abandoned to the ‘elements’ .. especially if sea levels rather quickly, which will coincide with the ‘punditry’*… as their hair begins to smolder … yelling “Somebody Do SOMETHING !!!” Governments, world-wide, will other, even more immediate concerns .. e.i. unsanctioned migrations, other types of infrastructure becoming un-functional or otherwise going to hell, food shortages, toxic food courtesy of even BiggerCorpes, probable nascent war-banding by ever more disaffected former citizens pissed-off at the remaining neolibracon royalty continue to sit in their unfortable French Provincial chairs, STILL hunched over their gilt tables, searching for ways to rob the plebes .. or kill the ones still alive, with MicInCongPlex slaughter bots … or some such !
So, toxic site remediation … ?? Uh, no .. notgonnahappen. We can’t reliably clean up most of what we’ve already spoilt as it is !
This subthread is off topic but … oh well …
I quit listening to NPR years ago, so thanks for the heads up. I didn’t hear the report so I’m curious when the 150 ft of sea level rise is supposed to occur. The estimates of 3 ft. rise were low-ball estimates for the sea level rise by 2100. The 150 ft. rise in sea level showing up at NPR has me worried … but for reasons different than you might first think.
[p. 20 Hansen et al. 2016]
“Eemian sea level is of special interest because Eemian climate was little warmer than today. Masson Delmotte et al. (2013) conclude, based on multiple data and model sources, that peak Eemian temperature probably was only a few tenths of a degree warmer than today. Yet Eemian sea level reached heights several meters above today’s level” … “an Eemian sea level curve that had sea level rising in the early Eemian to +2–3 m [3 ft. – 9.8 ft.] (“+” indicates above today’s sea level), possibly falling in the mid-Eemian to near today’s sea level, rapidly rising in the late Eemian to +6–9 m”
There was a recent link to a paper suggesting that the climate change in business as usual CO2 additions to the atmosphere would shift the earth’s climate to something closer to the Pliocene. The maximum sea level estimates for the Pliocene are 25 m. to 30 m. [82 ft. – 98.4 ft.].
I don’t believe anyone knows how high or how fast our sea levels will rise nor have they taken into account other factors which might worsen even the low ball estimates of 1 m. — little things like the much stronger storms and storm surges Climate Chaos promises. We live in more and more interesting times. But where did NPR come up with the 150 ft. [~46 m.] and in what time frame? Who is the expert who suddenly has their attention? I’ve many times pointed to Jim White’s presentation “ABRUPT CLIMATE CHANGE: THE VIEW FROM THE PAST, THE PRESENT AND THE FUTURE” https://www.youtube.com/watch?v=FRs4kIthJ9k . This presentation was made as the Fall AGU (American Geophysical Union) 2014 Nye Lecture. You shouldn’t need ~46 m. sea level rise to be very worried about Climate Chaos. The last 10 minutes or so of that lecture discuss sea level rise and show maps of the US at different levels of sea level rise. Dr. White also points out how quickly climate has changed in the past and probably will change in our near future.
I am worried about the NPR report because the MSM seems to be transitioning a little too quickly from denial to hair-on-fire about the coming Climate Chaos. I’ve been extremely concerned about Climate Chaos for the last two decades — plenty worried enough about a near term 1m. – 2 m. increase in sea level — with much more in the future. But this sudden shift from denial to concern, and claims of 46 m. sea level rise are a little too coincident with efforts to get geoengineering going.
I think it is abrupt too, just bec. NPR was dragging their heels almost yesterday. The conversation was early morning this morning – could have been coming from London but they were talking specifically at that point about Florida and what a hopeless cause it is. The 150 feet was acknowledged as vastly more than 3 feet, they didn’t agree or disagree but introduced the estimate as coming from a very respected climate scientist. They gave his name as well. (Sorry I don’t remember it.) I think he’s an American. And the fact that it was on NPR was very surprising. Maybe they are looking at geoengineering but the flavor of the conversation was that it was time to pack up and leave Florida.
Oceanographer John Englander (High Tide on Main Street) looked at the last time there were no ice sheets at all, something like 55 million years ago, and the sea was ~70m higher than today. It has also been much lower than today, during ice ages when ice sheets were a mile deep over North America and Europe. This information is from ice bores.
The notion of roughly a meter of sea level rise by 2100 is based on extrapolations from our current situation. If the oceans warm up they expand causing some sea level rise. As more of the ice in Greenland and Antartica melts the sea level rises a bit. If a huge amount of ice slides off of Greenland or Antartica then the sea level could suddenly rise by a huge amount.
I’ve had concerns about accuracy of concern here also. A few years ago I began to wonder about what I would call “weaponization of consensus”. They almost got us this way with GMOs…..
Take nature documentaries, for instance. OMG what a density of bullshit, the way they talk about animal consciousness in terms of instinct and genetically driven impulse. HTF do they know that? They don’t. But these are the terms of scientific consensus with which the public has been trained to think.
My guess is no. Service is/was a growth industry while real customer service waned, seeming to indicate that it wasn’t the customer being serviced (“your call is valuable to us”).
We can’t build an economy around stealing each other’s wash, to bend an idiom.
Until the ‘meds and eds’ job bubble bursts. US healthcare has already reached a breaking point for loads of patients including those with good insurance coverage due to out-of-pocket costs.
A lot of institutions in higher ed have become heavily reliant upon foreign students paying full asking price to subsidize the various aid packages they offer to US students.
My alma meter, Boston University, has done this in a big way with the number of international students more than doubling the past decade.
https://www.bu.edu/isso/about/statistics/
I asked a friend there would work in a senior finance what would happen if BU suffered a huge drop off in international students especially Chinese students.
He had run this analysis in Excel and he said ‘big and immediate problems’ including an almost shrinkage of up to 20% in aid packages they give out and a likely subsequent enrollment drop.
Aesop warned us about being the means of our own destruction. Credentialism may be on the way out by mere dint of credential-givers pricing higher ed as a luxury.
Any aisle of most every big box store will net you around 90% of it being made in China, and if they go tilt, it brings up an interesting spectacle of shortages of damn near everything, that we depended upon them making for us.
It’d be similar to the UK being dependent on Swiss high technology, post Dunkirk.
https://www.jstor.org/stable/4091649?seq=1#page_scan_tab_contents
That’s an odd thing about these (trade) wars. There’s no way to win.
“Would you like to play a game, Professor?”
It’d take a world of Sundays for us to become shelf-sufficient.
That worries me far more than a slowdown in Chinese Industry and its possible impacts on world markets — and I don’t think we are alone in our exposure due to a lack of self-sufficiency thanks to ‘free-trade’. At least we are better off than many other countries at being able to feed ourselves … as long as we have supplies of fossil fuels.
Why yes, Joshua, I would. What could possibly go wrong? :)
I assume the trade wars are not for winning any more than Iraq,Afghan,Libya,Syria are for winning. Could be that someone sat down with the president and explained that the best option is to throw a monkey wrench in the whole machine. Blame a chronic systemic problem on an inept president and hope for some capitalist feedback loops to throw the PRC off balance. I think more QE, buybacks, and bonuses would have been a better solution
Stock up now then. Thrift stores have more good clothing than you can use for the rest of your life.
Harbor Freight still has cheap low use machine tools and used building material yards are in many urban areas.
White rice and beans in five gallon buckets are cheap insurance.
Water? How much do you have stored in the Southwest and West?
Get busy before the need arises.
Make friends with your Mormon neighbors. Those people are prepared. BTW, there are often free canning classes, use of equipment and other prep benefits at your local Mormon church.
“Fake it and then make it.”
Ford was right. You need to pay employees enough to be able to afford the car. In today’s world of starving labor and seeking out the cheapest workers in the world, corporations have destroyed their customer base. Too bad, so sad. You reap what you sow.
Henry Ford also knew that if your workers/ex-workers don’t like things, you shoot them,
Ford Hunger March
Yet the idea of the benevolent Oligarch lives on…
He really reminds me of Steve Jobs
A Minsky Moment?… Will be interesting to see how much of the sharp decline in orders described here was attributable to the earlier front-loading of exports ahead of expected U.S. tariffs, which were subsequently postponed, or if it has longer legs and unforeseen global contagion. Diminished cash flows against a backdrop of growing US dollar debt, high debt leverage, investment in nonproductive assets, and the magnitude of capital flight suggest a possibility of future yuan devaluation. Recent massive liquidity infusions and reductions in bank reserve requirements by China’s central bank recall actions by the Fed and ECB et al beginning in late 2008 and for years thereafter up to the present.
Neoclassical economics is the gold standard for globalisation and is being used everywhere.
Neoclassical economics was never very good.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression.
No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
No one fixed its old problems and they just pretended it was a new scientific economics for globalisation.
China is the latest nation to learn the hard away about its inherent flaws with Hong Kong, Australia and Canada very close behind.
Neoclassical economics makes you think you are creating real wealth by inflating asset prices and bank credit pours into inflating asset prices until you reach a Minsky Moment.
The UK brought this stuff and nonsense to the West.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png
Before 1980 – banks lending into the right places that result in GDP growth
After 1980 – banks lending into the wrong places that don’t result in GDP growth
The sequence of events:
1) Debt fuelled boom (1980 – 2008)
2) Minsky moment (2008)
3) Balance sheet recession (stagnation / new normal / secular stagnation)
The inherent flaws in neoclassical economics are gradually killing all growth in the global economy.
The only thing we did learn after neoclassical economics last outing in the 1920s was how to turn a Great Depression into a balance sheet recession by propping up the banks and keeping asset prices inflated.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png
The trouble is that this solution doesn’t get rid of the debt and it is the repayments on that debt that cause the balance sheet recession as Japan has been experiencing since the early 1990s.
They have had decades to study the balance sheet recession in Japan.
Richard Koo explains:
https://www.youtube.com/watch?v=8YTyJzmiHGk