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No Fun at the Fair

By Liu Xinlian (Beijing Review)

13:32, May 28, 2012

TRADE BAROMETER: A foreign buyer talks with an exhibitor at the 111th Canton Fair (CHEN YEHUA)

For Li Qi, an international trade veteran, this spring's Canton Fair was a flop. "The high-quality clients I met were far fewer than last year. The clients also drove hard bargains," said the salesman with Hangzhou Rongson Leather Products.

Official data of the spring session of the biannual Canton Fair, or the 111th China Import and Export Fair, verified Li's feeling.

Export contracts signed at the fair, which concluded on May 5 in Guangzhou, capital of south China's Guangdong Province, totaled about $36 billion, down 4.8 percent compared with the 110th session. This is the first decrease in export transactions since 2009.

The lingering European debt crisis and tough job market in the United States were among the factors that caused the decrease, said Liu Jianjun, the fair's spokesperson.

Liu urged Chinese companies, especially those in low-end manufacturing and processing, to focus on developing their own brands and invest more in self-innovation.

Sluggish demand

The fair registered more than 210,000 overseas buyers from 213 countries and regions, a slight increase of 0.23 percent over the previous session.

The number of buyers and transactions from the European Union decreased by 15.5 percent and 5.6 percent, respectively, Liu said. The value of transactions with U.S. buyers also decreased by 8.1 percent compared with the last session.

Meanwhile, buyers are still cautious in signing long-term orders with Chinese exporters, said Liu, who noted that 86.3 percent of orders signed at the fair are medium- and short-term deals.

The figures at the Canton Fair, a barometer of China's foreign trade, sent gloomy signals throughout the export sector.

Based on the current global economic outlook, China's foreign trade is expected to continue its downward trajectory throughout 2012.

China's foreign trade in 2012 faces situations "far from optimistic" due to thwarted global demand, rising costs and a harsh trading environment, said the Ministry of Commerce (MOFCOM) in a statement.

At home, surging labor costs and higher raw material prices are squeezing the competitiveness of Chinese exporters as well.

"Rising cost is the biggest worry for us," said Zeng Hongwu, Vice General Manager of Guangdong Apples Industrial Co. Ltd., a bag producer.

According to Zeng, workers' salary has been rising at around 20 percent annually in recent years. At the end of 2009, the average salary was 2,000 yuan ($317) per month. This year it has climbed to more than 3,000 ($476) yuan, Zeng said.

A survey released by the National Bureau of Statistics showed the 159-million migrant workers saw an average salary increase of 21.2 percent in 2011 from a year earlier.

Inflation in raw materials also squeezed the profit margin of Chinese exporters.

"Since last year, prices of raw materials, including leather, zippers and magnetic buttons, have increased. The price of magnetic buttons almost doubled in one year," said Zeng.

The rising cost has cut Zeng's profit margin to 3-5 percent from 8-10 percent several years ago.

"Unfortunately, we cannot transfer the rising costs to buyers. Our major buyers from Europe seem more vulnerable to price increases and have cut their orders dramatically," said Zeng.

The yuan's appreciation also added woes to shrinking trade volume at the Canton Fair.

On April 16, the People's Bank of China, the central bank, widened the trading band for the yuan against the U.S. dollar to 1 percent from 0.5 percent. The move will surely make Chinese currency yuan more flexible.

"The yuan will witness more fluctuations in the future. Small and micro-exporters will be more vulnerable, especially those who are not good at cost management," said Xu Changsheng, Vice General Manager of Quanzhou Jinxin Toy Co. Ltd.

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