Tuesday 14 October 2008

Chinese Exporters Feel Pinch, Despite Figures

The latest statistics suggest the gathering global economic slump and credit crisis have not thrown wrenches into China’s export machine yet, but try telling that to Xu Xupeng.
PDF

1 comment:

Guanyu said...

Chinese Exporters Feel Pinch, Despite Figures

By John Ruwitch – Reuters
14 October 2008

The latest statistics suggest the gathering global economic slump and credit crisis have not thrown wrenches into China’s export machine yet, but try telling that to Xu Xupeng.

China this week posted a record trade surplus for September as exports leaped 21.5 percent from a year earlier, while Xu sat in a timber warehouse in the south of the country surrounded by planks imported from Thailand waiting for customers who were not coming.

“This road used to be jammed with trucks. You couldn’t get in and out as they queued up to load and unload wood,” he said, waving his arm along an empty driveway at the labrynthine Jilong wholesale wood market.

For five years, Xu sold his timber to furniture makers who, in turn, sold their products abroad. Then the U.S. housing market slumped, dragging Chinese furniture exporters down with it.

To be sure, the problems Xu and others across China’s manufacturing heartland are facing are far from entirely the product of subprime-induced malaise.

The cost of labour and raw materials has risen sharply in China in the past two years, while the currency has strengthened against the dollar and the government has lowered or eliminated many export tax rebates – all rendering exports more expensive.

But one thing is certain: the outlook for exporters is worsening because of the global economic crisis, and many are now pinning their hopes on China’s burgeoning domestic markets.

China’s biggest trade meet, the Canton Fair, starts in Guangzhou on Wednesday and is widely expected to be anaemic.

Alarming signals can be seen everywhere in Dalingshan, China’s self-styled No.1 furniture export town, located about an hour-and-a-half north of Hong Kong in the heart of one of the country’s biggest manufacturing centres.

Signs over a large, grey factory complex still said King Wood Furniture, but that company trimmed its 2,000-strong workforce and moved to a smaller plant months ago.

The San Tai Xiang frame factory, which cut its workforce in half when export orders fell this year, moved into a corner of the old plant. Other buildings are rented out for wood storage.

Even the town’s biggest furniture maker, Lacquer Craft, which is a subsidiary of the Hong Kong-listed Taiwanese company Samson Holding Ltd. <0531.HK>, has not been impervious.

The U.S. market used to account for 90 percent of business, said the general manager, Anderson Lin. Now it is about 50 percent. To compensate, Lacquer Craft is selling two product lines in China, a departure for the firm.

GOING LOCAL

Lacquer Craft is not alone. San Tai Xiang’s chairman, Yang Xiuge, said the company would make 30 percent of its sales abroad this year and 70 percent at home, reversing the mix of recent years. Xu the wood seller was also seeing his customers flip to a domestic focus.

A U.S. China Business Council survey this year showed that 92 percent of American companies that invest in China are in the country principally to serve the domestic market, not to export. Last year, 16 percent said China was primarily an export base.

Harley Seyedin, chairman of the American Chamber of Commerce in south China, said China could help many companies make it through a U.S.-led global economic downturn.

“Basically, what we see is the Chinese market as a saviour to us for a world slowdown,” he said.

Hong Kong manufacturers, which helped make the Pearl River Delta into a low-cost export stronghold, were turning away from developed markets, forced to try other ideas, said Daniel Poon of the Hong Kong Trade Development Council.

“In the early part of the year the situation was quite accommodating because although production costs were rising in the Chinese mainland, at that time Hong Kong manufacturers could still pass on the increases in production costs to the buyers, especially in the case of the EU,” he said.

“Right now ... we are starting to see dwindling orders.”

The Chinese government knows the pressure has intensified on manufacturers and in some cases is easing the pressure.

Beijing is also aware of the broader economic stakes, pledging to “forcefully boost domestic demand, especially consumer spending, to sustain sound and fast economic growth and to make contributions to the stable development of the world economy”.

But it is debatable whether or not home-grown consumption and investment will take up the slack when exports and other key sectors, including property and car sales, are slowing.

“I’m unconvinced that domestic demand will provide relief to troubled exporters. Maybe in five years’ time, but not next year. Consumption is already slowing,” said Ben Simpfendorfer, China economist at Royal Bank of Scotland in Hong Kong.