China's trade with europe feels the chill as christmas-product firms face cold demand

Christmas is still two months away and although all the decorations and festive paraphernalia are well on their way from Chinese factories to European wholesalers, there is really nothing to be jolly about.

Businesses usually place their Christmas orders in late summer or early autumn, but by September this year, Chinese companies were already feeling the winter chill with as demand from Europe falls.

The traditional export powerhouses in eastern China say many European companies are not buying Christmas products, and those that do put in an order are buying less, or asking for much lower prices - sometimes even lower than the production cost.

Growth in exports and imports picked up in September, as China's latest efforts to stabilize foreign trade took effect, but the nation's target of 10 percent for this year's foreign trade is unlikely to be met, said an informed source.

China's exports in September were up 10 percent from a year earlier, compared with only 2.7 percent in August, and the nation's inbound shipments gained by more than 2 percent year-on-year while they had dropped by 2.6 percent in August, said the source on condition of anonymity.

China is scheduled to officially release its trade data for September on Oct 13.

Experts said the momentum for foreign trade still remains weak in the short term due to spreading European debt woes. This has cast a shadow over China's economic expansion, prompting the nation to take more steps to boost domestic consumption to sustain economic growth.

It also marks a turning point in trade between China and the EU, which had been growing steadily until last year. Bilateral trade reached $100 billion (78 billion euros) in 2003. Since then, it has increased at an annual rate of 20.8 percent, reaching $567.2 billion in 2011. The EU has been China's largest trading partner for eight consecutive years, and China has been the EU's second-biggest trading partner.

With the euro crisis continuing, bilateral trade faces a new scenario.

Data from the Ministry of Commerce show that for the first half of this year, China's exports to the EU dropped by 0.8 percent.

There is little sign that things will get better. Most forecasts say it will only get worse. In the latest issue of Global Outlook, a quarterly economic forecast published by Barclays, the bank estimates that the eurozone will barely grow in 2013.

The World Bank said recently that acute risk in the eurozone has been reduced thanks to the launch of the European Central Bank's bond-buying program and the German Constitutional Court's favorable ruling on the European Stability Mechanism.

However, the bank warns that uncertainties remain and developing countries are subject to risk from a poor performance in Europe.

"Should conditions in Europe deteriorate sharply, no developing region would be spared," the World Bank said in the East Asia and Pacific Data Monitor, released on Oct 8.

Trade has, for a long time, been the engine of economic growth for China as well as other countries in the east Asia and Pacific region, the report said, but it will "no longer contribute to the growth of the area at all" due to weak demand in the advanced economies.

A crisis in the eurozone will affect the economies in this region mainly through trade, according to the report.

"Exports growth for East Asia as a whole slowed to 4.5 percent year-on-year in the second quarter of 2012," it says, "and trade as a whole now no longer contributed to the region's growth."

The report estimates that growth in China will slow to 7.7 percent this year from 9.3 percent in 2011, driven by weak exports and lower investment growth.

In Yiwu, Zhejiang province, where half of the world's Christmas products are made, business is worse than ever this year.

He Huaming, owner of Yiwu Sheng Hua Handicraft Products Co, expects orders to drop by 30 percent. Europe, his main export market, accounts for 90 percent of his business.

"A buyer from the United Kingdom used to buy about 300,000 yuan ($47,000, 38,000 euros) of products, but this year he came with orders of about 200,000 yuan," he says.

Many other businesses in Yiwu faced a similar situation. Chen Jinlin, secretary-general of the Yiwu Christmas Products Industry Association, says total sales in the city this year are likely to fall by 15 to 20 percent compared with 2011.

In fact, things were bad then too. Many factories in Yiwu still have unsold inventories from then.

Yiwu also accounts for 40 percent of Christmas products sold in the European market. He Huaming says the sovereign debt crisis in Europe has forced customers to rein in spending.

Christmas products from Yiwu are regarded as a barometer of the trade situation between China and Europe. The uncertainty in the global economy, and the euro crisis in Europe in particular, have weakened China's exports significantly.

The country's overall export growth was around 10 percent in the first half of this year, but it has hardly seen any growth since July.

Along with the weak demand in Europe, manufacturers in China also have difficulties at home. They are faced with a dilemma even when customers do place orders, as European clients keen to reduce costs keep asking for low prices, while the cost of labor and raw materials are going up in China.

Yu Qi, sales manager of Shaoxing Qingwu Textile Co, says that exports are extremely difficult this year. Yu's company mainly sells clothes to Italy, which has been suffering from the debt crisis.

"It is not that we do not have orders," she says. "In the first half of this year, the number of orders increased by 15 percent year-on-year. However, our profits hardly reach half of last year's."

Yu says many of the export-oriented textile companies in Shaoxing are turning down long-term orders to reduce losses.

"The more orders we take, the more loss we will have to take, because the prices the clients offered are too low," she says. Unstable cotton prices and the rising exchange rate of the yuan made the situation even worse.

"To cut costs, our workers are taking three or even four days off a week, but we are not considering closing the factory. It might get better next year," she says.

Li Yan, a sales assistant with Jing Ying Handicraft Product Limited Company in Yiwu, says that due to higher labor costs, the company plans to increase product prices by about 5 percent this year. But many European clients want them to lower the price, and it is hard for them to argue with longstanding clients, otherwise they may lose orders.

To make matters worse, the danger of trade protectionism is on the rise as trade shrinks.

In September, the European Commission announced it will start investigating imports of solar panels and key components from China, suspecting Chinese companies are dumping products on the European market at an artificially low price. The investigation may result in duties levied on these manufacturers.

This has lead to a high-level delegation from the Chinese government to Brussels.

Chong Quan, deputy representative for China's international trade talks, met with top EU trade officials and called for the parties to deal with problems through dialogue, instead of creating friction when things are difficult for companies on both sides.

In a recent visit to Europe, China's Premier Wen Jiabao said that China and the EU should expand the scale of bilateral trade so that each became the other's biggest trading partner by 2015. To reach that goal, the two sides should insist on liberalizing trade and act against protectionism, he said.

Contact the writers through diaoying@chinadaily.com.cn.