Chinas Export Pickup Still Slow Due to Cautious Christmas Shopping Season

Headquartered in the Apeldoorn Area of the Netherlands, Mid Ocean Brands is an international company with more than 40 years of experience in the industry, importing and wholesaling gifts and wares, supplying a product range of approximately 4,500 different promotional gift items mainly in Europe. It has purchasing offices in Hong Kong, Shanghai and Guangzhou.

 

Especially for the Christmas season, foreign buyers usually order at least three or four months, or even a year, in advance. Christmas commodities land on store shelves starting in October when Christmas spending starts. Meijer notes that the current situation, greatly affected by the financial crisis, is not much changed from that at the end of last year. Consumption in Europe is still in the doldrums, and businesses are anxiously awaiting a Christmas sales boom.

 

In October and November last year, the European market was in recession and didn't pick up until December. With people waiting until the last minute before making purchasing decisions, many retailers sold off inventory and stopped purchasing. The sales volume of Mid Ocean Brands, with 15,000 distributors, declined 20% and earnings dropped 30%.

 

Now Meijer says he and other buyers have adopted a procurement strategy of "transforming the whole to zero," greatly limiting one-time purchases and inclining towards frequent small-volume orders. At present, inventories are significantly lower than those of a year ago.

 

 "The whole supply chain is changing and export volumes find it difficult to return to original levels," says Wu Zhenchang, chairman of Guangzhou ChuangXin Shoes Industry Co., Ltd. Earlier this year, the company's export orders, annually averaging over $100 million, decreased 30%-40%, and its workforce was reduced by 1/3. With Christmas orders now coming in, the factory is encountering a worker shortage, but unlike in previous years, Mr. Wu is in no hurry to recruit. "The annual shoe export volume of China is eight billion pairs. Five billion pairs are in circulation and the other three billion are in inventory warehousing," he says.

 

At the just-concluded 106th Canton Trade Fair, foreign buyers were very cautious. EU and the US purchasing volume picked up a bit, with export turnover increasing by 16.2% compared with the spring fair, but it was still down 3.4% compared with last autumn's fair.

According to Ministry of Commerce (MoC) research on this Canton Fair, orders under 3 months reached 59%, and 3-6 month orders were 33%. Short and medium-term orders accounted for over 90% of the total, indicating buyers' caution about the market outlook.

 

In this year's second half, China's export decline has narrowed. The MoC says China's current import/export situation is showing positive changes. The foreign trade decline may further slow or even slightly recover later this year. The decline of imports and exports is expected to drop to 20%, year-on-year. Still, compared with the V-shaped rebound of China's GDP, exports are experiencing quick decline and slow rebound.

 

The trade situation for GuangBo Import and Export, a stationery export company, improved at the latest Canton Fair. It received more than 70 orders, for about $20 million, 22% over the take from the last fair. Shu Yueping, the company's general manager, believes that there will be an export rebound in the fourth quarter, but it may be difficult to reverse of negative growth this year.

 

At a recent seminar on textile enterprises conducted by the MoC and China Textile Import and Export Chamber of Commerce it was said that most companies have yet to rise from the bottom and it still needs time.

Mid Ocean's Meijer says a European revival in consumer spending is not expected to come until the middle of next year and it is still a great test for buyers in the fourth quarter this year and in the first quarter next year. The current small-volume model means stricter requirements for Chinese firms and some Chinese suppliers are facing a restructuring of production patterns.

 

 "After the financial crisis, buyers are more sensitive to price factors, but this is not the only factor, and they are also considering factors such as service, quality, safety, environmental protection, and design." Meijer says it is also critically important that suppliers deliver goods punctually.

 

Meijer and his team also began researching Vietnam, Indonesia, Myanmar and other Southeast Asian countries this year. In his view, although goods produced in these areas are cheaper than those in China, supply chains, quality, and delivery speed are not as good.  "Dependency" is the word he uses to describe his company's relationship with China, as 99% of his company's products are purchased from China.

 

If foreign buyers continue the strategy of purchasing small amounts, however, the outlook for export enterprises accustomed to winning large orders is not optimistic. Many firms are trying to transform to deal directly with retailers to improve profitability through their own brands and creative ideas.

 

Dada, an Italian designer for NingBo Four Seasons Import & Export and the husband of the company's general manager, Bao Huihong, is leading a design team to assist the OEM-oriented firm to transform into a company with self design and proprietary brands, and has registered trademarks in Italy. At the Canton Fair, Bao Huihong brought new, own-brand products to sell. "An $18 coat is sold at $100. Although there is no growth in export volumes this year, profits are increasing," she says.

 

The strategy of GuangBo is to increase profit through the introduction of new products and stronger design. Shu Yueping says that Chinese company buyers are choosing Chinese suppliers now also. Although terminal retailers' purchase volumes are not large, profit margins are substantial. Before the crisis, the end customers of this firm accounted for 20% of sales. After the financial crisis, end customers increased to 40%, and profits increased by 15%.

 

Chen Deming, minister of Commerce, noted at the Canton Fair that the growth of trade volume needs to be maintained next year and the quality of exports should be attended to. The construction adjustment of imports and exports should be focused in the future and firms should rely on increasing value-added products to occupy international high-end markets.