China's exporters feel the pain of shoppers in Europe, U.S.
Source: Reuters Date: 2011-08-19
Overseas demand for Chinese goods remains shaky - official
* Orders likely to slow, and some Christmas orders may be cut -execs
* Rising yuan will hit exporters
* But heavy machinery makers still optimistic
* Expected fall in exports will not be as bad as 2008 -economists
By Sui-Lee Wee
BEIJING, Aug 18 (Reuters) - Chinese exporters are bracing for bad news as shoppers in their two biggest markets -- Europe and the U.S. -- increasingly stay at home.
A week after surprisingly strong export data for July, interviews with 16 Chinese manufacturers showed that most expect a slump in exports in the coming months, particularly for textiles and electronics.
"Right now with Europe's debt crisis, people are making less, and they will have to buy less too. That will have a big impact on our business," said Roger Wen, manager of the Shenzhen Design Center Co, which exports small home appliances such as microwaves and coffee makers.
"Christmas orders have already come in and they aren't bad, about the same as last year. But I'm not sure all the orders will go through in the end," he said. "When we get to September and October, who knows if they'll still want the shipments. They might cancel."
Li Rongcan, assistant minister of commerce, warned that overseas demand for Chinese goods remains shaky in the face of debt problems in the United States and the European Union, the China Daily newspaper quoted him as saying.
Many Chinese managers agree.
"New orders will probably contract in coming months," said Kevin Hou, president of Beijing Pumson International Co., a home radiator exporting business that ships around 50 percent of its products to Europe.
"I'm expecting about a 10 percent contraction across the industry," he said. The company's orders are already down about 5 percent compared to the same period a year ago.
RISING YUAN
Any slowdown in orders would come at a bad time for China's exporters, who are already grappling with rising labour and raw material costs and a gradually appreciating yuan.
Speculation is growing that Beijing may be engineering a "mini-revaluation" of the currency, which would make Chinese shipments of electronics and apparel more expensive, but help boost domestic consumer spending by making imports cheaper.
With revaluation a strong possibility, economists warned that many exporters could go bust.
"A stronger currency will ultimately force producers of low-value added export goods to either move up the value chain or go out of business, a structural adjustment that is unavoidable in the medium term in light of rising costs for labour and other input factors," said Thilo Hanemann, research director at New York-based Rhodium Group, an economic research firm.
China's leaders have always stressed that a sharp yuan appreciation would hurt the country's exporters. During the 2008 global financial crisis, it re-pegged the yuan to the dollar to support manufacturers and preserve jobs in a sector that employs at least 130 million or so migrant workers.
However, Beijing, which has said it will promote high-value sectors like technology, has recently said little about shoring up low-cost factories in the face of a rising yuan, suggesting that the government's priorities have shifted toward battling inflation and correcting macroeconomic imbalances.
Under pressure from its trading partners, China has allowed a more sustained strengthening of its currency -- it has appreciated 6.3 percent against the dollar in the last year and 3.1 percent since the start of this year -- and now China's exporters are complaining.
Su Xiaofan, who owns the Guangzhou Kadier Handbag Co. factory in southern Guangdong province, said he is closely watching the depreciation of the dollar against the yuan, adding that passing extra costs to consumers will be difficult.
He said the company has laid off workers and moved its factories to rural areas with lower rents.
"We haven't come up with any real solution but the profit is so little that we have to do something," he said. "We have to figure out ways to increase productivity and change from simply taking orders and producing for foreign companies."
"The room for profit is so thin for us that getting orders doesn't mean we can make good profits," he said. "Some customers have turned to suppliers that can offer lower prices, like those in Africa."
Victor Fung, chairman of consumer goods exporter Li & Fung , told a forum in Hong Kong on Wednesday that overseas buyers are increasingly seeking supplies from outside China, in low-cost centres such as Vietnam, Bangladesh and Indonesia.
A bleak outlook in the United States and Europe and a potential yuan revaluation is likely to be less of a problem for higher value-added companies such as the heavy machinery makers that have higher margins than the textile makers.
"The entire heavy industry is doing very well in exports," said a man, who only gave his surname Ma, from the export and import department of XCMG Construction Machinery Co .
China's vast manufacturing sector shrank slightly in July in response to tight monetary policy and weak global demand, according to a purchasing manufacturers survey. .
However, Ben Simpfendorfer, an economist and managing director at Silk Road Associates in Beijing, said the expected fall in exports would not be devastating.
"I think they will struggle to hold up, but I don't think they'll collapse like what we saw back in 2008" at the start of the financial crisis, he said. "We need to see something nastier in the global economy for exports to start to contract."
China is also helped by strong domestic consumption, which will help shield growth in the world's second-largest economy, Arthur Kroeber of GaveCal Dragonomics told Reuters Insider.
"If you had a substantial weakening of export demand both in the United States and Europe," said Kroeber, "it's conceivable that could knock a point or so off GDP growth -- maybe a bit more but not that much more."
