Published January 22, 2009

Chinese manufacturers brace for difficult time

Half of those polled by ACCCIM will cut staff

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIAN Chinese manufacturers are bracing for two to three difficult years ahead in the face of slumping demand, with nearly half of respondents in a recent poll planning to trim their workforce.

There was a continued deterioration in the local economy in the second half of 2008, according to a survey of the period by the Associated Chinese Chambers of Commerce and Industry Malaysia (ACCCIM).

One of the few bright spots then was sales which were boosted by the wholesale and retail trade, but shrinking new orders received in the last quarter by the manufacturing sector point to consumers already tightening their belts as fears of a recession and unemployment grow.

'Year-end is usually the peak for retail and wholesale. But after February, you will see a rise in inventories,' said ACCCIM deputy chairman of socio-economic research committee, Peck Boon Soon.

Investment in new resources or plants also shrank in the second half and although employment was generally stable, wages were on a downward trend.

The main concern for businesses now is the sharp plunge in demand, with nearly a third of respondents - compared to 19 per cent in the first half of 2008 - citing it as a major factor affecting their performance.

Nearly three-quarters opined that the recession in the US, Europe and Japan had affected their businesses, and nearly half stated that the steep depreciation of the ringgit against the US dollar had a negative business impact.

Worryingly, nearly half of those polled intended to reduce their workforce in view of the current economic scenario. Considering that three-quarters of the respondents are domestic-market oriented - only a quarter focused on export or both export and domestic markets - the underlying problems could be deeper.

Mr Peck expected retrenchments to increase, adding to the 40,000 jobs in the manufacturing sector axed since May last year.

There are fears that the 45,000 workers temporarily laid off for two to three weeks as factories cease operations for the Chinese New Year festivities could be made permanent if the crisis persists.

Small to medium-sized enterprises are the mainstay of the local economy and because they are overwhelmingly Chinese-owned, ACCCIM's survey feedback gives some indication of the mounting challenges.

In spite of a growing number of private economists who think that Malaysia would sink into a recession this year, the government has maintained its growth projection of 3.5 per cent.

Even so, there are signs that it could be rethinking its numbers. Finance Minister Najib Razak has conceded that a second stimulus package is required to stave off recession - incidentally, 84 per cent of ACCCIM's respondents thought so too - but has not revealed the size or focus.

Of greater concern to ACCCIM is the disbursement of the first RM7 billion (S$2.9 billion) stimulus package announced in November since its effects have yet to be felt on the ground. 'It tells you that the delivery system is perhaps not up to the mark,' observed Mr Peck of the survey findings where half the respondents cited government policies as a major factor affecting their business performance.

While the affirmative action New Economic Policy continues to be a thorn in the flesh, ACCCIM observed that the drastic increase in fuel prices in June had pushed prices significantly higher. Despite lower commodity prices now, the price of goods had generally not budged by much.