China's economy is in decline, industries are sluggish, and small business owners in various regions are experiencing a drop in business volume, struggling to make ends meet. (Video screenshot)
November 7, 2024 — China's economy continues to stagnate, with insufficient domestic demand and obstacles to exports. Many small enterprises face razor-thin profit margins and are struggling for survival.
In August and September, the in-depth reporting team of the mainland new media outlet "Direct Connection" visited dozens of original factories in Zhuji, Zhejiang, and Yishui, Shandong. They found that many small factories in these regions are on the brink of survival, earning only a few cents per pair of socks, and facing insufficient orders that put them in a dilemma of losing money whether they operate or not.
The representative industries of these two areas are traditional textiles and food processing. Notably, Zhuji, ranked 12th among China’s top 100 counties, is one of the best economic regions in the country. If Zhuji is struggling, the situation in other parts of China can be easily imagined.
The report noted that while these small businesses are still hanging on, their lifelines are extremely fragile.
Few Orders, Hard to Sustain Business
Huang Xiong, the owner of a local sock factory in Zhuji, told the investigation team that orders have been scarce in the past two years.
He said that after August 15, the demand for autumn socks typically rises, but not this year. The factory has been in a semi-shutdown state for nearly a month and a half.
In previous years, they could sell 1,000-2,000 orders per day. In the past two years, even the best days have seen less than 1,000 orders. New designs are becoming harder to sell: "Before, 10 new styles would yield 5 or 6 successful ones; now, only 1 or 2 sell well, and the rest don’t move at all."
Nearly every business is clearing inventory this year, and no owner dares to stock up. In previous years, it was common for factories to have stockpiles of hundreds of thousands to millions of pairs of socks.
Zhuji produces 25 billion pairs of socks annually, accounting for 70% of the national sales and one-third of global sales.
The report noted that Huang Xiong’s situation is not unique.
During the visits to Yishui, Shandong, and Zhuji, Zhejiang, many similar stories were heard. "This year has been a sheer cliff dive," said the owner of a food factory in Yishui. In the past, their factory could run 27-28 days a month, occasionally including night shifts. Now, it sometimes operates only 7-8 days.
Severe Competition, Thin Profits
The investigation also revealed severe competition in the sock industry and thin profit margins.
Huang Xiong said, "Making 5 cents is already considered high profit." As for high-end socks, where margins were previously around 10%, now "some make 10%, some 2-3%, and some less than 1%."
According to The Sock War: The Growth History of Datang Sock Industry published in 2008, the gross profit per pair of socks was about 1.2 yuan back then.
Wang Kai, the owner of a typical "low-end volume factory," said, "Each step earns a penny," with another penny for flipping socks and one more for sewing the toes, earning a total of 5 cents per pair. If the volume is high enough—selling 30 million pairs in a year—that would mean an annual income of 1.5 million yuan.
Zhou Xin, a neighbor of Huang Xiong who runs another children’s sock factory, said, "Competition in the sock industry is endless."
"You’re never the lowest, cheapest one. There’s always someone cheaper than you." Besides raw materials, factors like sock weight, ply count, stitch density, and labor costs can all be reduced. "If there are 20-gram socks, someone will make 15-gram ones. If there are 15-gram socks, someone will make 14-gram ones."
"Lose 2,000 by working, lose 4,000 by not working—what would you choose?"
The report highlighted a common understanding among factory owners: if the machines are silent, you know you’re losing money; if the machines are running, you still know you’re losing money.
This concept can be explained as follows: if production lines are inactive, fixed costs like factory rent, machines, and labor will steadily drain funds. "With each sunrise, it’s another day’s loss."
If a factory stops and starts intermittently, dismisses workers, then rehires them, the costs of temporary workers, who are more expensive than permanent employees, drive up production expenses.
Only when machines are running at full capacity and production lines are saturated can the combined fixed and variable costs be averaged down. "It keeps you in a state where you can’t die, but you can’t live either," one factory owner described.
When equilibrium falls, factories may have to sell products below cost, which leads to losses. "Lose 2,000 by working, lose 4,000 by not working—what would you choose?"
In such dire straits, the only solution seems to be cutting costs.
Factories Can't Afford Air Conditioning
One factory owner said, "You can only save on costs from every possible aspect," including labor, utilities, raw materials, and operating expenses.
In Zhuji in August, where outdoor temperatures reached 40 degrees Celsius (104°F), the sock production workshop did not turn on air conditioning. Owner Huang Xiong explained that it was unaffordable and impractical.
"It can’t be turned on because low temperatures affect the shaping of the socks," he said. "As for affordability, I’ve done the math: running one machine earns at most 30 yuan a day, at least 15 yuan. Running 30 machines earns less than 500 yuan. If the air conditioning is turned on, the electricity cost for a few hundred square meters a day is over 300 yuan, so I can’t afford it."
E-commerce Platforms as a Trap for Small Businesses
The report mentioned that these small businesses are very dissatisfied with the unfair practices of e-commerce platforms.
Upon joining an e-commerce platform, factories may receive a document containing numerous fines but without any interpretation provided. In practice, the platform has the right to interpret these rules, so businesses only discover the pitfalls and potential fines after encountering them.
One example given was a merchant who transported goods to the platform's door, incurring transport costs, only for the goods to be rejected for quality issues, resulting in fines. On-the-spot corrections required payment to labor companies demanding inflated fees. If corrections were delayed, warehouse entry was late, resulting in penalties. Not being able to move goods into logistics on time led to fines for inventory shortages.
A rice seller in Shandong decided to clear inventory on a platform, starting with 200 orders to clear. The price dropped from 15 yuan per bag to 11 yuan, and finally to 5 yuan. The next day, he found that at 5 yuan, 2,000 orders had been placed, but his stock was only 200. Unable to fulfill the orders, he faced fines of 8 yuan per order, totaling 1,800 orders and incurring nearly 15,000 yuan in fines.
Editor: Sun Yun
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