Western deals for Chinese goods dry up

The worst fears of Chinese exporters confirmed: demand from Europe and the United States has collapsed and there is no sign of a recovery.

Attendance at the 104th China Import and Export Fair, held in Guangzhou, fell by nine per cent amid slumping demand for Chinese exports.
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GUANGSHOU, CHINA // As the Canton export fair came to a close last week, the worst fears of Chinese exporters were confirmed: demand from Europe and the United States - their biggest clients - has collapsed and there is no sign of a recovery. The fair, held twice a year, brings together more than 8,000 Chinese exporters and about 200,000 foreign buyers in Guangzhou, the capital city of Guangdong province.

This year, in response to surging demand from the US and Europe over the past several years for cheap Chinese products, the fair was extended and split over three sessions, with the last one focusing on China's most popular exports: shoes and textiles. But the aisles normally bustling with buyers and traders were quiet during the last two days of the fair, and the mood in the booths displaying such goods as sandals, boots, jeans, cashmere and silk ties was particularly low.

US and European faces were scarce as recession looms at home. Most buyers were from the Middle East or countries in east or south Asia, where internal demand has so far resisted the financial turmoil. Suresh Mahbugani, who runs Mortis Exports, a trading company based in Hong Kong with clients in the United States, Europe and the Middle East, has taken few orders. "American and European clients are overstocked or assessing the situation. This is just not a good moment to buy. We had to cut down on purchases," he said.

A statement issued by the fair last week said contracts totalling US$31.5 billion (Dh115bn) were signed during the session, down 17.5 per cent compared with the spring session. Attendance by buyers fell by nine per cent. Lucy Zhan, a manager with JOC International, waited all day for potential buyers. Her company sells clothes ranging from T-shirts, trousers and dresses to down jackets. It has already cut production by 20 per cent this year.

"This is the worst fair I have ever been to. I have just received two business cards all day. Demand for our products started falling in August. Some of our biggest clients have more than halved their orders this year," she said. Her company, which employs more than 200 people, had sales last year reaching $2bn. She said no one had been laid off, but her boss was considering options on how to reduce costs if the situation continues.

Chinese exporters have been hit particularly hard by the economic downturn in Europe and the United States. Most of them cater to the overseas markets and have little if no penetration in the domestic market. Many factories making toys, clothes or shoes have already closed their doors, sending thousands of angry workers out on to the streets demanding months of unpaid wages. In most cases the local government has stepped in, promising to guarantee their pay.

About 7,000 exporters have disappeared from Guangdong province alone, the local statistics bureau said. Measures have been introduced to boost exports, such as restoring value-added tax rebates on 3,000 types of exports, and the government is trying to support domestic demand. Ruby Tang is a sales representative for Shanghai Richina Leather Co, owned by Richina Pacific, which is listed in New Zealand. It was her first time at the fair and she had been sent to sell to Chinese clients, not foreigners.

"We rely too much on the overseas market. One solution for us would obviously be to penetrate the domestic market," she said. "At the moment we are studying the market, but research is very expensive. I have to understand local demand. We have no choice but to adapt." Her company makes leather goods ranging from car seats to clothes and shoes. The company sells only 10 per cent of its products to China with the rest geared towards the United States and Europe. Demand in her department - clothes - has fallen from last year.

So far her company has laid off 500 workers out of 2,500. However, she remains optimistic for the future. "Our company is big. We will change our product to lighter leather products more adapted to domestic demand," she said. Not all suppliers are finding changing to domestic demand as easy. Chinese clients are different to their western counterparts. Tastes and sizes have to be taken into consideration and often that means changing the production line.

Li Shan Forrest is the trading manager for Dagenlai, a cashmere trading and production company based in Inner Mongolia. His products - high-end cashmere sweaters and scarves - are targeted at overseas clients. He sells a sweater at a wholesale price of $40 a piece, which remains expensive even for the new Chinese middle class. He has signed 25 per cent fewer orders this year at the fair and default payments from overseas clients are already straining his cash flow. "The only thing we can do is wait and see, and hope domestic demand will make up the difference," he said.

* The National