China’s fastener firms, ‘the rice of industry’, grapple with the nuts and bolts of a slowing economy

Date: Tuesday, December 24, 2019
Source: South China Morning Post

  • Handan city produces more than half of the nuts, bolts and screws used in China’s construction and manufacturing industry
  • Fastener manufacturers are seeking to expand foreign sales to make up for weaker domestic demand as China’s economic growth has hit record lows

Finding similarities between sunglasses and military fighter jets would seem to be an impossible task, but the two products have at least one thing in common – neither of them can be made without nuts, bolts and screws.

Classified broadly as fasteners, these basic components are easy to overlook but ubiquitous in industrial activity, from assembling a table or chair to building a skyscraper or a cross-sea bridge.

In China, they are known colloquially as “the rice of industry”, an analogy with the grain that is indispensable to the nation’s diet.

And if that is the case, the Yongnian district of Handan city, in central Hebei province, is the most important industrial granary of China. The town, some 450km south of Beijing, produces and sells more than half of the fasteners used in Chinese industry and construction each year.

Demand for the pieces of hardware in Yongnian mirrors the appetite of downstream industries, echoing changes to economic sentiment in China and many other countries around the world.

“Overall, our order volume has shrunk to some extent this year compared with 2018,” said Zhao Yubo, chairman of the Hebei Fastener Industry Association and the general manager of Feida Standard Factory in Yongnian.

While demand for fasteners from construction firms has been stable, machinery makers have placed fewer orders, Zhao said.

Chinese manufacturing activity has been depressed for most of this year, with industrial production growth falling in October to its second lowest level in more than 17 years. Although manufacturing sentiment rebounded in November for the first time in six months, it is too early to say if the sector has bottomed out, given profits at Chinese manufacturers dropped by 4.9 per cent between January and October from a year earlier, according to data from the National Bureau of Statistics.

Companies in Yongnian have reported mixed fortunes against a backdrop of slowing domestic growth and international headwinds.

“In November alone we trucked more than 200 tonnes to Nantong [in eastern China],” Li Bo, owner of Jinfan Fastener Manufacturing, said. “Orders are increasing year after year. Recently there have been many orders for bridge [studs].

“Now the country is vigorously developing infrastructure and [highway] overpasses to solve urban traffic problems.”

At Li’s factory in southwestern Yongnian, dozens of workers were busy on a recent afternoon producing a batch of welding studs that will be used in bridge construction.

Some workers walked back and forth to monitor machines that pressed steel rods into the studs, while others made adjustments to newly-bought automated processing machines. Elsewhere, a group of women sat hunched over small benches manually tapping metal beads into the tail end of each stud for a custom order.

The unrelenting clanging of metal and whirr of machinery is in part a result of the government’s push to fund more infrastructure projects to support growth amid a trade war with the United States.

China’s 18-month long tariff battle with the US has dragged on manufacturing and exports. While the government has held off implementing strong stimulus measures to boost record-low growth, it has encouraged infrastructure investment by relaxing financing rules for local government bonds and easing capital requirements for projects.

Beijing and Washington agreed to the text of a phase one trade deal earlier this month, halting further tariff increases and lowering some that were already in place.

But both Li and Zhao said the trade war has had only limited direct impact on their businesses, suggesting the pressures that Yongnian’s 1,600 fastener companies are facing are largely domestic in origin.

On their journey to becoming leaders in China’s fastener industry, firms in Yongnian carved out market share from competitors in southern China at the expense of profits over the past three decades, with the proximity to several large steel plants, their primary source of raw material, giving them the ability to do so.

Some 340,000 people work in the fastener industry in Yongnian district, accounting for over a third of the local population. Of the 1,600 fastener firms, some 200 companies have annual output valued above 100 million yuan (US$14 million).

But the concentration of so many companies has led to increasingly brutal competition that has left some businesses hesitant to invest in developing new products.

“Yongnian is the home of very clever people, once one product is profitable, everyone will want to make it. If we were to invest in a new product that was profitable, in less than two months, other companies would also step in,” said Zhao Heng, general manager of Hengcheng Fastener, one of the largest local enterprises.

Another large firm, Yanzhao Fastener Manufacturing, said prices were close to rock bottom because of intense competition.

“The domestic market is basically saturated,” said Chen Yongke, the company’s general manager. “There hasn’t been a large increase in domestic orders, the industry [outlook] still doesn't look very good.”

Making matters worse, exports are in decline. Business with South Korean firms, traditionally one of the largest buyers of Yongnian fasteners, has stagnated, according to Li and Zhao of Feida.

That has forced companies to double their efforts to find new overseas markets, with the local industry now focusing on Southeast Asia.

“We should be bolder and take bigger steps to establish our own sales outlets there, just as we have done at home,” Zhao said.

More than 100,000 Yongnian natives – nicknamed “the hundred-thousand-man force” – have settled in cities across China to sell the fasteners made in their hometown.

Although Hengcheng Fastener has been impacted by the downturn in exports, it doubled the size of its sales team to nearly 20 people this year in search of new markets, and plans to send representatives to Brazil and Mexico in 2020.

But another more formidable obstacle to growth is stricter environmental regulations, which have started to limit the production capacity of many firms, putting them at risk of losing clients.

“Previously, all of our 100 machines were able to run 24 hours a day, but now we can only switch on 50 of the machines and let them operate for 12 hours,” said Zhao from Hencheng, complaining about new air quality warnings.

Stricter environmental regulation is a “Sword of Damocles” hanging over the heads of fastener firms in Yongnian. The industrial hub is part of Hebei province, which consistently tops China’s air pollution rankings.

“This industry now lives at the mercy of the weather,” Li from Jinfan quipped.

In front of a commercial area filled with 7,624 stores in northern Yongnian, trucks can be seen continuously watering the road to hold down dust under air monitors.

Environmental laws have also impeded Yongnian's dream of creating a manufacturing hub that covers all parts of the fastener industrial chain, according to Wang Hugang, director of Yongnian Fastener Industrial Development Committee, a government-backed institution.

A Shanghai-based engine fastener manufacturer, which supplies US carmakers like Ford Motor Company and General Motors, scrapped plans to build a factory in the area due to concern over local environmental and land policies, he said.

“We only lack a high-end enterprise like this,” Wang said, adding the district had invested in building a transport logistics centre, an industrial estate for processing companies and an exhibition hall.

“Such a special place and such a special industry, why don’t we deserve some preferential policies?”


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