Thursday, 29 December 2011

Global economic crisis hits China’s exporters

As orders have tailed off, the cost of raw materials and labour have surged, with workers striking to demand higher pay.

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Guanyu 道 said...

Global economic crisis hits China’s exporters

NewsBy Bill Savadove | AFP News
28 December 2011

Wedding dress maker Wang Lujia earns a living making brides happy, but the global economic crisis is casting a chill over her small business in southern China.

At her workshop in the manufacturing hub of Shenzhen, workers stitch and bead by hand wedding gowns designed for brides in the United States and Europe, which are now reeling from financial turmoil.

“The external crisis had a big impact this year. Business was not so good,” Wang, founder of Divine Bridal Co, told AFP in her showroom filled with 600 wedding and party dresses.

Over the past three decades, Shenzhen has grown from a sleepy fishing village to the heartland of China’s export juggernaut. But as demand from China’s key markets slows, companies here are suffering.

As orders have tailed off, the cost of raw materials and labour have surged, with workers striking to demand higher pay.

Meanwhile, China’s gradually appreciating yuan currency is making products more expensive on overseas markets, trimming profit margins. And the worst might be yet to come for Europe and the United States, key export markets for China.

Chinese officials have warned that the eurozone debt crisis and sluggish recovery in the United States threaten the world’s second-largest economy.

Export growth has fallen from 31 percent in 2010 to an annual rate of 21 percent in the January-November period of 2011, and is predicted to slow further next year.

Struggling exporters are seeking ways to survive the economic crisis by exploring new overseas markets, turning to domestic consumers and finding new products.

One company, Shenzhen Rongen Technology, is moving away from the LED screens it makes to high-end medical devices.

“The number of orders may be less, but the profit margins are higher,” salesman Lu Daqing said.

Dressmaker Wang is finding a new market for her bespoke wedding gowns, which can sell for up to $1,000, by turning to domestic consumers with cash to pay for luxuries like imported fabric and Japanese beads.

“Exports are not as good as the domestic market. The overseas market is weak,” she said.

Wang estimates the price of fabric has risen by as much as 40 percent in the past four years and says the rising cost of material and salaries for workers are pushing up her prices and discouraging overseas customers.

Shenzhen city, her base, has the highest minimum wage in China and the local government plans to hike the level by another 14 percent to 1,500 yuan ($240) per month in 2012.

Wang is already paying her employees far more, up to 4,000 yuan a month, and she plans to raise salaries to retain workers with skills to operate the sewing machines and do the labour-intensive beading for the dresses.

“If my costs are higher, then I have to sell for a higher price,” she said. “China’s inflation is too high. If salaries don’t rise, people will be in difficulty.”

China’s inflation peaked at 6.5 percent in July -- the highest level in more than three years.

It has since eased, but workers are feeling the pinch. In recent months, thousands of workers across China have downed tools in a series of strikes over low payment as persistent inflation raises the cost of living.

The labour strife comes at a bad time for companies already struggling with higher costs and shrinking profits.

Zeng Xiangjin, who manages a textile firm, said a stronger Chinese currency was erasing his narrow profit margins for exports like upholstery fabric.

The yuan has risen steadily against the dollar since mid-2010, when Beijing relaxed a de-facto peg to the US currency imposed in 2008 to protect its exporters. Major trading partners have called for greater appreciation.

“Increasing material prices and labour costs contributed to our difficulties to some extent, but I still think the main cause is the exchange rate,” said Zeng of Shenzhen Welltex Housewares Co.