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Chinese New Year poses unique supply and demand challenges

China has become a country with sizable global economic influence and changes to their production outputs cause a worldwide ripple effect. As the Chinese New Year approaches, U.S. retailers are closely monitoring their supply chains.

 

Holiday spending spree

The Chinese New year, also known as the Lunar New year, starts on Friday February 16 this year and with it comes increased spending. The holiday is a weeklong festivity, often with additional days taken for travel.

Last year Chinese consumers spent nearly $140 billion in tourism, retail and food purchases over the holiday week. The increased spending on gifts could be a potential boost for U.S. retailers that do business online in China since the U.S. is a preferred online shopping destination for Chinese consumers. Chinese communities around the world also see an uptick in business during the Lunar New Year holiday week, and Los Angeles and San Francisco are no exception.

Production and trading slow to a halt

Chinese factories and offices close for two to three weeks around the holiday period. Factories run at a flat out pace leading up to the New Year to prepare for the shut down and inevitable worker shortage that occurs afterwards. Many factory workers switch jobs after the holiday season and it can take the factory several weeks to recover as they train new line workers and office staff.

U.S. businesses should expect a delay in products during this time. The shutdown impacts other areas of the supply chain as well and shipping companies often have higher freight costs and longer transit times during this period. Stock market trading slows down considerably as the market in China shuts down for a weeklong break. Traders familiar with the yearly event know to sell in Hong Kong before the shutdown.

One of the major challenges of planning for the Chinese New Year is that it never falls on the same date, so businesses that work in China need to plan for the drop in production well in advance. For those experiencing the New Year supply and demand slowdown for the first time, it is a good learning opportunity for what to do differently next time. As with other aspects of doing business globally, cultural sensitivity is a must and U.S. businesses should respect the importance of holiday season.

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