The Canton Fair, China's largest trade exhibition, is paying attention to the domestic market for the first time in its half-century existence, as external demand shrinks and the country's exports fall.

Representatives of 200 domestic retailers including Wal-Mart China and Brilliance Group attended the second phase of the 105th fair to buy from exhibitors, who normally only do business with foreigners.

"The fair targeted domestic companies, hoping they would make some big purchases here, which helps Chinese exporters stabilize production and employment," said Jiang Zengwei, vice commerce minister. He said the move also opens a new purchase channel for domestic retailers.

The Canton Fair was established in 1952 in the capital of South China's Guangdong province, mainly to showcase Chinese products to overseas buyers. The fair serves as an informal barometer of the country's foreign trade, which has dropped recently.

Export deals were down by almost 21 percent year on year at the first phase of the fair (April 15-19), which featured electronics, tools, machinery, vehicles, building materials and chemical products.

China's exports have declined five months in a row, sliding 17.1 percent in March, and 25.7 percent in February.

But Men Xiaowei, an official from the commerce ministry in charge of the domestic market, said there is domestic demand for many of the products at the fair.

Many made-to-export products must meet strict quality requirement if they are heading to the US or Europe.

"But domestic consumers also want high quality products," said Men.

She said the initiative not only deals with the current economic downturn but is also part of the government's plan to open up the domestic retail market.

Some businesses have already shifted their focus from overseas markets to the domestic market. Dong Jianqiang, the marketing supervisor of Zhejiang Cuori Electrical Appliances, said his company is doing research in the domestic market as its exports continue to fall.

Other businesses are doing the same, said Dong.

"There's no reason to skip the vast domestic market, especially when so many foreign companies are trying to tap it," said Dong.

Shang Jinsong, chairman of a glassware company from Shandong province said developing his company's potential in the domestic market has become a major part of his business strategy

"The slowing global economy has shown that if businesses do not have good foundations in the domestic market it will be hard for them," said Wen Zhongliang, an official with the foreign trade department of the Ministry of Commerce.

But many firms may struggle to shift from overseas markets to the domestic market, said Wen.

"Many of these businesses do not have any experience at all in selling to the domestic market," Wen said.

Many are also hesitant to even try shifting their business focus. A pottery exporter from Guangdong, For instance, said his company never considered doing business in the domestic market.

"Our products are not suitable for the domestic market. We design and make our products based on the demands of European clients," Wen said.

Selling in the domestic market also means businesses long dependent on foreign markets will have to spend a lot building retail and distribution channels throughout China, said Wen.

Shang from Shandong said, as a supplier, he has to pay various fees to a retailer to sell in China.

"There are all kinds of costs, such as fees for air conditioning and lighting," said Shang.

Shang said the costs of selling through supermarkets or shopping malls could be too high for exporters with a narrow profit margin.

Companies also need their own reputable brands (which can take time and money to build) if they enter the domestic market. Most Chinese exporters simply make stuff under foreign brands, said Wen.

(China Daily 05/04/2009 page5)