'Export decrease, price increase' phenomenon explained

12:59, July 26, 2011      

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In the first half of 2011, a phenomenon has appeared in the Chinese economy in which decreases in export volume have been coupled with increases in prices. Chinese officials from the Ministry of Commerce and other experts say this phenomenon hints at structural shifts underway in the Chinese economy whereby certain high-end manufacturers are increasing prices while those on the bottom are forced to lower prices despite rising raw materials costs.

Enterprises engaged in low-end manufacturing and homogeneous competition receive pressure on both ends and even have to reduce the prices of their products. Experts say internal market mechanisms probably will work, and some enterprises with weak bargaining power will be washed out.

According to data released by China's Ministry of Commerce on July 21, in the first half of 2011, China's total import and export volume of mechanical and electrical products and processing trade products exceeded that of the same period of 2008 and set a new historical record.

The export volume of mechanical and electrical products was a little more than 498 billion U.S. dollars, and it increased by 20 percent, 62 percent and 23 percent compared to that of the same period of 2010, 2009 and 2008, respectively.

The export volume of the processing trade products was a little more than 390 billion U.S. dollars, and it increased by 18 percent, 55 percent and 21 percent compared to that of the same period of 2010, 2009 and 2008, respectively.

Actual foreign demand distorted by export decrease, price increase

"Although the overall exports of China are still growing, the growth rate is slowing down," said Zhang Ji, director of the Department of Industries under the Ministry of Commerce.

The export growth rate of mechanical and electrical products and that of processing trade products decreased to 13.8 percent and 11.9 percent, respectively, in July 2011, and they declined by 21.5 percentage points and 20.8 percentage points compared to the growth rates in January 2011. The export volume of processing trade products in April and May decreased by 3 percent and 0.3 percent compared to that of their previous months. And more than one-third of the top 200 processing trade enterprises of China showed a negative export growth. Some large-scale export enterprises, such as Tech-Front Computer, Compal Electronics and Wistron Group, have seen exports decline for several successive months.

Another thing we should pay special attention to is that some export products have decreased in volume while they have increased in price, which can distort the actual foreign demand reflected by the exports. For example, in the first five months of 2011, the export scales of garments, dry goods, shoes, bags and suitcases decreased by 50 percent, 10 percent, 4 percent and 51 percent, but since their prices increased, the export volumes of the commodities increased by 14 percent, 18 percent, 12 percent and 10 percent, respectively.

According to preliminary statistics, in the first half of 2011, the price factor had increased exports of mechanical and electrical products by between 8 and 10 percentage points, and if the price factor were not calculated, exports increased by only between 10 and 12 percent, lower than the 26 percent of the average level of the past 10 years.

In the context of China's overall exports, a decrease in volume coupled with an increase in prices is quite outstanding.

Wang Shouwen, director of the Department of Foreign Trade under the ministry, said in the first half of 2011, the average price of China's export products increased by 10.2 percent, which is 10.7 percentage points higher than that of the same period of 2010, and the export scale increased by 12.5 percent, which is 23.4 percentage points lower than that of the same period of 2010. For labor-intensive products, this phenomenon is especially obvious.

The increase export product prices is mainly due to rising costs and by the fact that enterprises engaged in low-end manufacturing and homogeneous competition are suffering.

"The rising of export product prices is mainly caused by the rising of costs. However, some enterprises still have not effectively improved their profit abilities. As the business environment becomes tense, the ability of enterprises to endure will differentiate," Zhang said.

According to feedback from some industries and enterprises, the main difficulties are an increase in overhead costs of the materials of production, heavier pressure caused by policy adjustments and some other aspects.

Ge Guorong, vice-general manager of the Hangzhou Zhongce Rubber Co., Ltd., said: "Compared to the end of 2010 or beginning of 2011, the prices of the raw materials of rubber industry have increased by more than 30 percent on average. The financing cost is also increasing. Although getting a loan is still not too difficult, we cannot enjoy the preferential interest rates any more at this time. Therefore, the operation cost will inevitably increase."

Facing the complex external environment, the enterprises that can withstand the pressures will be differentiated from those that cannot. Companies that have their own brands and core technology are least affected and have greatly raised the prices of their export products.

Prime examples of the type of industries that are more likely to endure pressures are the heavy equipment, agricultural machinery, engineering machinery and machine tool industries. These industries focus on general trade and have established overseas marketing and customer service networks. Therefore, they have obtained the basic power to set prices and have increased the prices of their products by 10 percent, 10 percent, 15 percent, and 14 percent, respectively.

Wang said that the business performances of these companies and industries showed that due to structural adjustment policies, China's foreign trade growth is beginning to be driven by the prices and quantity of export products in coordination.

However, companies that are weak in research and lack marketing channels have only raised the prices of their products slightly and have suffered declines in competitiveness. For example, China's motorcycle export prices have just risen 3 percent to 5 percent, but the price difference between Chinese and Indian motorcycles has already dropped to around 10 percent. The raw material costs in China's auto industry have risen 10 percent, but the export prices of entire cars have only risen 5 percent.

Companies that specialize in low-end processing in a homogeneous environment have been under both upstream and downstream pressure, and have been forced to cut prices to ride out the hard times. The domestic notebook computer industry, which specializes in processing trade, has lowered laptop export prices by more than 8 percent.

The domestic color television industry, the upstream market of which is dominated by South Korean companies and the downstream market dominated by foreign brands, has lowered product export prices by 19 percent. The domestic shipbuilding industry, which mainly manufactures bulk carriers, has lowered product export prices by 30 percent due to declining international demand.
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