You will be pleased to learn that it is as cold in Ningbo today as I understand it is in the UK. The big difference is that we have been working in a factory that does not have any heating at all!!! – after eight hours in this temperature you really appreciate a hot bath back at the hotel.

On Tuesday we started carrying out inspections at the factories following on from the end of the Chinese Lunar New Year holidays. It is important to be present at the factories at this point in time to see on a first hand basis the progress that is being made with production. We can report from our visits over the past three days a very mixed picture.  A number of the larger factories have taken the view that they would not re-commence production until the 6thFebruary giving the workers a full two weeks holiday but ensuring that they should all return at the same time. The smaller factories asked the workers to return on the 31st January and offered incentives to ensure that this happened. In the majority of the cases this has proved to be successful. Unfortunately, some of the raw material suppliers have not returned yet and there are cases where production is being held up due to missing components. Overall, the situation is better than it has been in past years. We will be visiting Vietnam over the weekend but we understand that the workers have come back without any problems following the Tet New Year.

As production has not yet gone back into full swing, the factory owners have taken the time to talk with us about the overall economic climate. More and more of them are looking to produce for the local market. They have been following very closely the economic situation in the Eurozone and have reached the conclusion that they can no longer rely on exports for future prosperity. Many of them have suffered badly from a fall in demand from European companies. Bankruptcies in Europe have left them either holding goods or suffering financial losses having not been paid for goods that were shipped on open credit. A number of factory owners have just disappeared. Rather than face their creditors which is quite an unpleasant business in Asia, they have decided it would be far more sensible for their personal health to leave the area.

The trade with the USA has also become very difficult as a trade war is breaking out between China and the USA. In the last few days alone both countries have introduced tariffs on imports from each other. There is a very strong lobby in the USA to prevent any further losses in manufacturing output to China and this is resulting in many areas of trade being closely examined to ensure that subsidies are not being used to artificially assist in the sale of goods.

Whilst these developments are taking place, there are sweeping and significant changes about to take place within China. In the autumn of this year the 18th National Congress of the Communist Party of China will take place in Beijing. Due to term restrictions, current Paramount Leader Hu Jintao must step down as the party's General Secretary. The turnover of key positions will be higher than it has been for decades and it is expected that the new leaders will have to embrace change.  In recent months there have been unprecedented events occurring in many areas of the country.  It has been  common practice in China for the government to suppress the use of the Internet. They are finding if this harder and harder to do and also there are so many people now who are ‘blogging’, the government is finding it impossible to stop news of civil unrest in certain areas reaching all parts of the country. In the past that the government has been able to restrict the amount of news coming out of China but now this is impossible. In recent months there have been at right things in Wuhan, when the local government tried to seize land from the local people and sell it on. This form of activity has been going on for many many years without any restrictions but on this occasion the protests by the local people couple. The ability of local governments to act without recourse to any Within the   The political leaders Adopting the American position, all is not gloom and despondency.  The media presented a very black picture prior to the holidays and this has not come to fruition.  The panic over the reductions in counties credit ratings have subsided and now it is possible to look at the economy with a cool head. It is unlikely that the Euro will fail although it is expected that Greece will default.  For once we agree with the position being taken by Ms Merkel. In the UK it would appear that the political parties have finally got the message – the Conservative/ Liberal alliance are looking to curb excessive salaries taken in large corporate entities where corporate governance has totally failed, whilst the Labour party have finally accepted that cuts in public spending are necessary to work our way out of the deficit.  Life will be tough and challenging but we all knew it would be.

Whilst we were in the USA, we took the time to visit a number of malls, outlet centres and retailers, wearing our Innovators hat (not the family shopping hat) and actually managed to get some new leads, which have the potential to turn into orders. Whatever the quality of the goods sold over here – the packaging always looks great.  In the past the USA has always appeared to us to be ahead of the UK and Europe in product development and design. However, on this occasion it was noticeable how the recession has led to a fall in investment in new products lines. In addition to the dearth of new lines, there has clearly been a severe cut in merchandising budgets and in-store product presentation which had previously been a key strength of the US retailers.  There was much more of a pile it high approach.

Whilst it was a great time to get away from the UK, as so many organisations are now closed for the entire holiday period, the emails kept coming in from Asia. December is the busiest month for production and shipment of the Spring/ Summer goods. The emails from the factories were once again very negative.  In addition to the overall fall in demand levels, the mild winter to date has left many factories with large inventories of uncalled winter items putting pressure on their cashflow.  This has ramifications on the Spring/ Summer production.  Firstly, the factories are nearly all running late with production as they lack the finance to employ sufficient workers during the busy season and secondly they are not planning to produce any additional items for stock.  If customers have taken a cautious approach to their ordering and are planning to place orders in January/February for the late Spring / early Summer these will need to be placed in the next few weeks as capacity will be very limited.

China has just reported the largest fall in the level of growth in the past 24 months and this downturn is being replicated in the other BRIC countries. The reduction in consumption has resulted in weakening demand for raw materials from Australia and Brazil.  Other Asian economies are also reporting similar trends.  In Vietnam the government originally reported growth in year on year retail sales of 24.7%. This is amazing until price inflation is taken into account which reduces the level of growth to just 3%, which is far lower than in previous years. The government need to take tough action with is it currently unwilling to do.

In terms of prices the general fall in demand levels has to be good news.  Whilst you cannot expect to receive any price reductions on products, the level of increase is finally slowing.  You have to take into account that whilst raw material prices are falling, labour rates are rising at approximately 20% per annum in order to satisfy the demands of the workforce.  It should be noted that there are now more strikes in China than in the UK.  The labour force has become very organized and effective in negotiating wages. Organised crime is behind a number of these strikes, as the criminal fraternity take a nice percentage for protection and negotiation at the factories.  One of the factories nearby to the hotel we stay in Yiwu, has burnt down on three separate occasions following a breakdown in wage negotiations – no comment.

Whilst it has been a quieter period for us, we have had a number of sourcing projects underway which have been progressing extremely well. One of these has taken us to Eastern Europe and we have formed a partnership with a timber company and can now offer timber garden products at great prices. Some of these such as log roll we are planning to offer in multiple pallet quantities. Clearly the advantage in purchasing from Eastern Europe is that the delivery times are shortened from months to weeks.

In shipping for the first time for many years there are no major problems to report.  The largest vessel ever to carry iron ore from Brazil to China has just made its maiden voyage – its size is unbelievable - Vale's 388,000-tonne vessel, Berge Everest, (six times larger than the Titanic) began delivering its iron ore cargo at China's Dalian port last week.  Unloading will take nearly 3 days.  In one Chinese paper is was reported that the timing of the launch of this vessel is about 3 years too late - as the local government official stated ‘they now have the raw material, the method to ship it but all they need is the customers to buy it.  The downturn is resulting in stockpiles forming.’ All the iron ore from this shipment is now sitting unsold in bonded warehouses in Dalian, as if this quantity of product was offered in the open market it would seriously damage the price for iron ore.

The shipping companies are losing money everyday as the current freight rates do not cover their costs.  This situation cannot continue and a surcharge has just been imposed by all the major lines.  Although this is referred to as a ‘peak season’ surcharge, nothing could be further from the truth as there is no ‘peak’.  The lines are only running at 90% capacity, even after withdrawing vessels from service.  This situation is only going to get worse for the line as new larger container ships come in to service over the coming year. Unfortunately, even taking into account these factors, rates are forecast to rise, as it is expected that there will be some large casualties in the marketplace in the near future.

We have introduced a number of new products over the past few weeks and it is worth bringing just a few of them to your attention:

• Promotional Bedroom furniture – value wardrobes, chests and side tables
• Massage, Reclining and Swivel chairs -
• Kitchen Utility Carts
• Mini Kitchens – these were sourced for a large company who supply to the beach hut industry
• Modern Cast Iron Stoves
• Adjustable height Blow Mould Tables for the Catering Industry – in Red, White and Blue – being ordered for the Diamond Jubilee and Olympics
• Natural Rattan baskets