China's Exports: Pformation Is Imminent

On the afternoon of June 22nd,

"The volume of container exports that is so hot is not what we thought at the beginning."

At the pier site, Zhang Wei, deputy general manager of Qingdao port logistics company, told the financial weekly.

The company has already overfulfilled its export mission in the first half of the year.

This is a microcosm of China's port foreign trade.

In the port survey, many people in the industry expect that this trend will continue in the second half of the year.

Zhao Jinping, Vice Minister of the Ministry of Foreign Economic Research of the State Council Development Research Center, believes that although China will face many difficulties such as rising labor costs and the impact of the European debt crisis, China's exports should still grow by 15% in the second half of this year.

Some analysts believe that it is for the current and future period.

In June 22nd, the Ministry of Finance announced that since July 15th, the export tax rebates of some commodities such as steel, pharmaceuticals, chemical products and non-ferrous metal processing materials have been abolished, amounting to 406 kinds.

This is the first time the Chinese government has cut export rebates since July 2008.

In June 19th, the central bank announced further RMB promotion.

A series of policy factors and realistic factors have caused concern for the future of China's exports. Perhaps the time for upgrading and pformation of export products is ripe.

Li Xiaogong, assistant general manager of Qingdao Wanda International freight forwarding company, said that the company was founded for ten years, and 2010 was the busiest year. Even before the Spring Festival, there was no reduction in the volume of business in the traditional off-season industries.

"The company has been increasing manpower since March, and its business volume and growth rate has exceeded 10% of the growth rate in the past year."

"All flights are full, and the freight rate is two per week."

Li Aijun, assistant general manager of Ningbo Mingyang Logistics Co., Ltd., specialized in import and export container pportation.

China Shipping Container Lines Co (601886.SH/2866.HK, hereinafter referred to as CSCL), a staff member of the Ministry of trade, said that the current situation of foreign trade routes was very good. The US routes were especially strong, almost full of cabin, Southeast Asia route, and European routes grew rapidly.

China's container export index, known as the barometer of exports, closed at 1171.54 on 25 June, up 1.4% from last week, and has risen for ten weeks in a row.

Enterprises specializing in the production of export products can also feel the warmth coming from the surface directly.

"At present, the production line is running, with many orders."

The staff of Zhejiang English printing and dyeing Co., Ltd., told the financial weekly.

Qingdao Yao Jie Fashion Co., Ltd. mainly engaged in export of OEM garments. Its chief financial officer, Li Wenjie, said that in 2009, the company completed the export amount of US $24 million, and the order from January 2010 to date has reached US $about 40000000. In January ~4, the order has been completed by US $15 million.

"It is obvious that growth is very fast."

Zhang Zhenjie, chairman of the company, said that 80% of its orders were from Europe. In 2010, the company's order was 20%~30% higher than last year, and this increase was achieved every month.

It was not only the business that surprised the export boom.

"I was surprised that Qingdao's exports increased by 44% in May compared with the same period last year, and basically maintained this growth in June."

Cong Yan, deputy inspector of Qingdao Business Bureau, told the "financial and Economic Weekly" that at present, there should be no problem in external demand, and labor-intensive enterprises account for 70% in Qingdao.

In June 21st, Zhang Wei, deputy general manager of Qingdao port logistics company, received a new task at the group meeting. The performance in the second half of the year will be 22% higher than the previous year, 10 percentage points higher than the plan at the beginning of the year.

"Looking at the current situation, I have great confidence in completing the task."

Zhang Wei said.

Li Xiaogong said that the world's major shipping companies contacted by their companies are confident about the volume of business in the next three quarters, so that at least 7, 8, 9 or three months in the second half of the year, they will still maintain high growth in the first half of the year.

Tao Dong, chief economic analyst at Credit Suisse Group Asia Pacific, believes that orders are flooding into China around the world due to demand recovery and inventory recovery, including the United States, emerging markets and Europe's leading powers, such as France and Germany.

He believes that in the second half of 2010, Germany and other European countries will adopt fiscal contraction measures and cancel some orders, but "we believe that China's exports will maintain a double-digit growth of 10% or even higher than last year".

The optimistic export expectations obviously strengthened the decision making decision to push ahead with reform.

In June 19th, the central bank announced further reform of the RMB exchange rate.

The central bank spokesman pointed out that the current favorable opportunity for reform is based on the fact that "the foundation for China's economic recovery has been further consolidated and its economic operation has stabilized". At the same time, this reform will "help promote economic restructuring and improve the quality and efficiency of development".

In June 22nd, the export tax rebate policy for the 406 commodities was adjusted.

From the product point of view, the export tax rebate products are mainly concentrated in primary steel, non-ferrous metals, agricultural chemicals and rubber glass products, all of which belong to two high and one capital industries, namely, high energy consumption, high pollution and resource products export.

In this regard, the director of the Finance Department of the Ministry of Commerce said that this adjustment will not affect the growth momentum of foreign trade recovery.

"The abolition of tax rebate policy may have an impact on the market in the short term, but it should not cause a sharp decline in exports and will not change the overall situation of foreign trade development."

The person in charge said.

On the day of the policy announcement, CITIC Securities issued a research report that the policy reflected the government's determination to reduce and adjust backward steel production capacity.

In addition, China's exports now exceed 10% of global exports. This proportion has reached the bottleneck value, and the continued increase of export share will face greater trade pressure. At this time, the active structural adjustment of export tax rebates will help to ease trade disputes and achieve the upgrading and pformation of export products.

CITIC Securities also said that although the adjustment of export tax rebate in the future may continue, it will still focus on products of two high and one capital industries, and CITIC will still maintain the 22% growth of export growth in 2010.

Zhao Jinping also believes that exports are mainly determined by demand. If demand is still there, then a single export tax rebate policy will probably not block the export trend.

He said that the government should guide exports through long-term and stable foreign trade policies, namely, long-term stable export tax rebate policy and floating exchange rate leverage. In recent two years, the situation has been reversed. The exchange rate has not moved since November 2008, and the export tax rebate rate has been constantly adjusted.

"Now that the exchange rate is back to the floating mechanism, the export tax rebate policy should be stabilized. If the two factors swing back and forth, the enterprises will not be able to have stable expectations, and the operation will be affected."

Zhao Jinping said.

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The change of international situation and the rising cost of labor and raw materials also constitute the most important basis for export enterprises to observe the situation in the second half of the year.

"This is the most important factor for us."

Zhang Wei said.

The export destination of Tianjin garments import and export Limited by Share Ltd is mainly European and American.

The deputy director of the office, Dylan, recently felt that some companies were in trouble or even went bankrupt. Some European countries' customers "deliberately found trouble" and demanded a "discount".

From the actual paction, generally will reduce 5%, 10% turnover, the return of the situation has also been more recently.

Di Lanlan believes that this should have a lot to do with the debt crisis in Europe.

Wang Xiaohua, manager of the European market of Qingdao Fulin Tyre Co., Ltd., said that orders from Europe began to decrease in June, down 30% from May.

As the euro exchange rate continues to decline, customers are mainly short term orders, requiring immediate delivery of orders.

"They are asking what goods we have, and if necessary, we need some.

Customers are especially concerned about delivery time, and fear that time will lead to variables and increase costs.

But Wang Xiaohua also said that this does not mean that the market demand in Europe has been reduced. They still have great demand, but now they are in a wait-and-see situation. When the euro is stable in a certain range, this demand will appear immediately.

Compared with the 2009, the order volume of export enterprises is no longer worrying.

However, having orders does not mean profit.

"Trade profit is relatively limited, sales increase, but margins are relatively limited, gross margin at 3%~4%."

Li Chuanlong, director of International Business Department of Qingdao Fulin Tyre Co., Ltd.

Labor costs and rising raw material costs are squeezing the profit margins of export enterprises.

"Our orders have been increasing, but profits are decreasing."

Zhang Zhenjie, chairman of Qingdao Yao Jie Fashion Co., Ltd., said that raw materials had gone up very badly. So far, the price of raw cotton has increased by 40% before the Spring Festival. After the Spring Festival, workers' piecework wage has increased by 20%, and the cost has gone up very fiercely.

Net profit is down, down 10% compared with the same period last year.

In addition, trade friction, various tariff barriers and technical barriers bring pressure to the cost of enterprises, especially for export enterprises of processing trade, the profit space is narrowing as a whole.

On the one hand, the continuous recovery of external demand shows that the export trend is good. On the other hand, the profit margins of enterprises are declining.

At this time, powerful export enterprises are starting to expand their factories, hoping to expand the capacity to share the rising cost pressures to gain more profits.

Zhang Zhenjie, chairman of Qingdao Yao Jie Fashion Co. Ltd., said that there are 3 factories in the area, and 3 more will be built in the future.

"If we do not expand our production now, we will wait for death."

Zhang Zhenjie told reporters that he hopes to reduce the cost pressure brought by workers' wages, raw material prices and possible appreciation of the renminbi through expansion.

Zhang Zhenjie's company mainly exports OEM exports to some well-known European brands.

He said that at least 5 years ago, OEM exports can still make money.

It is based on the fact that China's textile and garment industry now accounts for nearly 50% of the international market share. China's processing export has considerable advantages in terms of industrial division and industrial chain matching, and no other country can replace it.

But for the longer term future, Zhang Zhenjie expressed concern.

For example, Bangladesh's wages are much lower than that of China. At the same time, the production of raw cotton from Bangladesh is not only good in quality but also large in output, and their production cost is much lower than that in China.

"In the future, we will compete with Bangladesh at low prices."

The problem of recruitment difficulties has been widespread in Qingdao since the beginning of the year. Cong Yan, deputy inspector of Qingdao Business Bureau, told the financial weekly magazine that even though all enterprises increased wages to varying degrees, workers still complained about it.

Labor shortage has become an irreversible phenomenon, and has become a deadlock. It will be a forced mechanism to force enterprises to pform.

Zhang Yansheng, director of the Foreign Economic Research Institute of the national development and Reform Commission, said in June 27th at the analysis conference of China's foreign trade and economic situation in 2010, that China, as a world factory, has participated in the international division of labor at low cost for 30 years, mainly engaged in the manufacturing industry.

At present, this mode is under great pressure, and China's pformation as a world factory will be faster.

This pformation does not mean leaving the manufacturing industry or even leaving the labor-intensive industry. Zhang Yansheng stressed that the key is how to make its own brand and marketing channels.

Zhang Yansheng warned that it is very difficult to pform from low price competition to differential competition and brand competition, especially for the current large processing trade enterprises, which rely entirely on OEM and foreign trade and marketing channels.

"If China is facing obstacles to the great pformation of the world's factories, China may be faced with a long period of economic slow down or even stagnation like Japan."

Zhang Zhenjie is not unprepared for the future. He disclosed that two years ago, his company had begun to try to make its own brand. Although it is now very small, it already has its own design, sales, production and stores.

This business aims at the future domestic market.