Factory closures, layoffs happening in China electronics industry

Annie Huang, Taipei; Jessie Shen, DIGITIMES Asia 0

Credit: AFP

Many small- and medium-size businesses involved in the local supply chain for electronics parts and other devices have seen factory closures and layoffs in southern and eastern China, according to industry sources.

Due to a poor outlook on China's consumer electronics market, numerous small and medium-size businesses in southern China that are part of the local supply chain for electronics accessories, parts, and other products have relocated or closed. The factories that remain open have also implemented layoffs, wage reductions, and unpaid leave to respond to dwindling orders, the sources indicated.

Despite the progressive relaxation of COVID lockdowns and restrictions in China, the country's southern area, where manufacturing is the mainstay, faces a dire economic situation, the sources said. China's domestic demand is cautious, and market competition is severe, with raw material prices rising. More electronics manufacturing companies in Southern China will close, according to the sources.

The industry supply chain in Shenzhen, for example, is mostly involved in the fields of electronics and toys. The global economic downturn and diminishing market demand have had an immediate impact on local factory operations in Shenzhen, the sources noted.

A wave of industry closures has accelerated in southern China since 2022, with large electronics factories that have been in operation for more than 30 years declaring their closure one after the other, the sources said. Several factories in Shenzhen were closed during the city's lockdown. There were production issues, orders were received, and delivery could not be fulfilled, resulting in the inability to begin work.

While the epidemic has subsided, consumption has yet to recover. Despite the fact that the present surviving factories have avoided bankruptcy, orders in the electronics supply chain remain disappointing. To save costs, factory hiring is still strictly regulated, resulting in an oversupply of labor in both southern and eastern China, the sources indicated.

The layoff phenomenon may persist in part because most businesses are pursuing industrial transformation, upgrading technology and equipment, and eventually replacing labor with artificial intelligence (AI) and automation equipment, according to the sources.

Furthermore, rising geopolitical tensions push businesses to diversify their manufacturing bases. The strategy for using China as a manufacturing base has evolved, affecting the electronics industries of southern and eastern China, the sources said.