As demand slows, Chinese exporters feel the pinch

GUANGZHOU, China: From manufacturers of chain saws to producers of stereo headphones, and makers of practically every product in between, exporters in China are running into trouble as demand slows in the United States and Western Europe.

As the world’s largest export fair opened here Wednesday, executives from across China complained of rising costs and falling sales.

“Most of the suppliers are disappointed with this financial crisis – it’s a disaster,” said Kevin Cao, the export manager of the HuangYang Bronze Company, a producer of aluminum wire that has seen its exports drop by nearly half since July and that has had to cut its work force by a quarter.

Worries about export earnings have battered share prices across China, along with worries about weakening real estate prices. The Shanghai A-share market fell 1.12 percent Wednesday and has lost two-thirds of its value in the past year, while the Hang Seng index in Hong Kong tumbled 4.96 percent Wednesday and has dropped by nearly half in the past year.

Difficulties among Chinese exporters may seem incongruous, given that China announced Monday that its exports were 21.5 percent higher in September than they were a year earlier, and given a record monthly trade surplus of $29.3 billion.

But like most countries, China reports its international trade statistics in dollars. Half the increase in the value of exports last month reflected the appreciation of the Chinese currency over the past year against the dollar. The Chinese currency, known as the yuan or renminbi, rose steadily until mid-June, when the Chinese government abruptly halted the appreciation on concerns that the competitiveness of Chinese exports in foreign markets was eroding.

Most or all of the rest of the rise in Chinese exports last month reflected inflation within China. While China has not yet released its producer price index for September, data for August show that when adjusted for both inflation and currency appreciation, Chinese exports actually fell 0.5 percent from a year earlier.

Exports recorded in August and September represent orders placed months ago. The gloom among suppliers at the Canton Fair on Wednesday suggests that shipments will slow further in the months to come.

Many of the workers losing their jobs in export-related industries seem to be finding new employment in factories and other businesses serving the domestic Chinese market, exporters said. The Chinese economy has decelerated from annual growth of more than 12 percent in the summer of last year to what Western economists now predict will be 8 or 9 percent growth this winter, as fairly robust retail sales within China have compensated so far for part of the slowdown in exports.

The slowdown has nonetheless come as a shock to China’s huge export sector, which enjoyed annual growth of 20 percent to 30 percent a year, even with inflation and currency changes, through the summer of last year. For years, Chinese exporters borrowed and invested heavily, confident that every factory expansion would quickly be put to use to meet their ever-growing order books.

Now, those order books are thinning. At the Ningbo Deye Domestic Electrical Appliance Technology Company, which manufactures space heaters and air conditioners, the order book has shrunk to one month from two months, said Allen Dong, the company’s export manager.

Exports to Europe, the company’s main export market, suddenly started slowing in May and June and were down 20 percent last month compared to a year earlier. Ningbo Deye has shrunk its work force to 1,000, from 1,500 last year.

Many Chinese companies initially responded to weakness in sales to the United States last year by stepping up their marketing in Europe. Chinese exports to Europe quickly surpassed those to the United States – only to decelerate sharply this summer as economic and financial troubles jumped the Atlantic to Europe.

Some of the most dramatic drops in exports have occurred in shipments of consumer electronics, garments and toys to the United States. The Yangzhou Sure International Trading Company has seen its sales of television remote controls drop more than 80 percent in the United States over the past year, while sales to Europe have fallen 30 percent, said Allan Peter, the general manager.

Particularly striking are falling exports of toys and low-end apparel, as demand fades in the United States and Europe even as some Chinese producers are also moving to Vietnam in search of lower wages. Foreign governments have also imposed stricter quality and safety standards on toys in particular following scandals last year, like the candy-colored toy beads that, when placed in the mouth, leaked a chemical that turned into GHB, the so-called date rape drug.

Xinhua, the official Chinese news agency, reported Tuesday that the General Administration of Customs in China had found that 52.7 percent of the country’s toy-exporting companies had ceased operations in the first seven months of this year. Most of the 3,631 toy exporters that went out of business were very small, however.

Partly offsetting these export losses have been increases in Chinese exports of industrial materials like steel.

U.S. and European buyers were conspicuous by their scarcity on the opening day of the fair here. Their absence was only partly offset by numerous customers from South America, Russia, Africa, South Asia and the Middle East – regions that the global financial crisis is only beginning to hurt, mainly through lower prices for the commodities and low-end manufactured goods that they export.

A few exporters that sell only to emerging markets insist that they have not yet seen weaknesses in their sales. Li Gang, the sales manager of the Shanghai Pudong Import and Export Company, which specializes in the export of power saws to Eastern Europe and South America, said that the company’s order book was steady at a month and a half of production.

“Even the most recent month of orders from Russia and other emerging markets shows no change,” Li said. He added that the company’s inability to ship to the United States, because of strict American quality control standards, had allowed the company to avoid becoming dependent on a weakening economy.

But other businesses, even including rivals in the power tool business, said that no exporter had escaped the downturn unscathed.

“Big or small, everyone has been affected,” said Dai Chao Yang, the general manager of the Shanghai Kedun Power Tools Company, which has seen a 20 percent drop this year in its exports.