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March 16, 2015

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Exporters confront lukewarm global prospects

Exporters around the world may be roiled by two things in particular this year: sluggish global demand and volatile exchange rates.

For Chinese exporters, a weakening yuan against the US dollar should be a shot in the arm, but demand in traditional markets lingers and the situation in emerging markets remains murky.

Those clouds hung heavy over this year’s East China Fair, which concluded in Shanghai earlier this month. The fair is traditionally viewed as a harbinger for China’s trade prospects. According to organizers, deals clinched during this year’s exhibition dropped 7 percent from a year earlier, and the number of visitors deceased 1.1 percent.

Participants at the event seemed anything but optimistic.

“It won’t be an easy year,” said Wang Xiyan, export manager at the Seduno Group.

Seduno, established in 1994, is a clothing manufacturer based in the coastal city of Ningbo, Zhejiang Province. It has partnered with international brands including H&M, Mango, C&A, Adidas and Gap for years.

The company reported sales of US$450 million last year, up from US$380 million in 2013. But the revenue increase came as small comfort to Wang and her colleagues.

“The European market remained weak, while signs of recovery have just emerged in the United States,” Wang said, with a worried frown. “Clients pay more attention to price, while production costs continue to increase.”

Europe, a major market focus for Seduno, buys about 60 percent of the company’s products, while the US accounts for around 20 percent.

Sun Qian, research and development director at Shartex International Trading Co Ltd, another clothing maker, was equally gloomy about the sales outlook this year.

“Global consumption power is at issue,” Sun said. “We target higher-end clients, but even they are starting to bargain for lower prices.”

The weakening yuan against the US dollar, which makes Chinese exports less expensive, is helpful but no panacea, traders said. In 2014, the yuan lost 2.5 percent against the US dollar, dropping another 1 percent in the first two months of this year as the greenback surges amid expectations of a rate rise in the US.

“We usually provide a better price for our clients if we derive benefits derived from exchange rates,” Seduno’s Wang said.

Shartex’s Sun said that’s a common practice in her business, too.

So why are Chinese exporters feeling so insecure?

According to the International Monetary Fund, the global economy may see growth exceeding 3 percent this year, compared with 2.6 percent in 2014.

Still, the collapse of the Russian market is one big worry.

Last year, sharply lower oil prices and increased geopolitical tensions led to Russia’s dramatic economic slowdown and the ruble’s depreciation. Chinese exporters, including Seduno, were collateral damage.

“We made a foray into Russia a few years ago as part of market diversification,” Wang said. “Luckily for us, it’s only a minor market.”

Some Chinese exporters, she said, were wiped out by the Russian crisis. It’s part of the unpredictable risks of world trade that exporters have to face, she added.

The surging US dollar is a concern. Besides the yuan, it’s been appreciating against other currencies like the euro and the yen.

At the same time, the US may be the only major economy delivering better-than-expected growth this year, according to the IMF.

Along with currencies and sluggish global growth, exporters have to face the usual array of trade disputes and barriers, according to fair participants.

China’s exports are continuing their volatile performance. After a contraction of 3.2 percent in January, China’s exports in February jumped a whopping 48.9 percent. Part of that is due to the moving Chinese New Year holiday that often skews year-on-year comparisons.

Against all the difficulties, the Chinese government has set a growth target of 6 percent this year for trade. Last year, that sector edged up only 3.4 percent.

“Responding to these challenges, we have to reduce operational costs by any means,” Wang said.

Although headquartered in Ningbo, Seduno set up factories in inland Anhui Province and in Cambodia in 2012 — places where salaries are lower than in Chinese cities along the East Coast. This year, Seduno plans to open a factory in Myanmar, followed by another in Vietnam next year.

For its part, Shartex said it plans to tackle tough trading times by increasing the value of its products. The company has partnered with Japanese technology firm Toray to produce absorbent-dry and ultraviolet-cut clothes. The company also teamed up with Austria-based glass and luxury goods maker Swarovski to produce clothing accessories.

Meanwhile, the company has adopted digital printing in its production in a bid to offer faster response to market demand and to transform itself into a more custom-made producer.




 

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