China’s export boom fades as buying shifts, cheap rivals gain

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(Bloomberg) – After two years of record exports, Chinese manufacturers are idling as consumers in their biggest markets rein in spending and Covid lockdowns push customers to competitors in the region.

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As most of the world now lives with the coronavirus and travel and other leisure activities resume, consumers are cutting back on spending on Chinese-made laptops, phones and other work-from-home products that have propelled the country’s exports and fueled the economy’s recovery from its pandemic crisis in 2020.

In addition, soaring inflation in the United States and Europe is forcing households to tighten their belts, while raw material and logistics costs remain excessive, eating away at exporters’ profits.

These are just some of the challenges companies like Shenzhen Teanabuds Electronics Co. have faced. An exporter of wireless earphones, headphones and speakers to the United States, Europe and the Middle East, the company has seen its orders drop around 50% from a year ago.

“They will only continue to decline in the rest of this year because we are losing our edge,” said Zhang Wanli, the company’s global marketing director.

Some of Teanabuds’ customers have shifted their orders to Southeast Asian countries recently, with suppliers there offering lower prices as their supply chains are less stretched, Zhang said. High raw material and shipping costs squeezed the company’s profit margin to 15% from 30% in 2019, he said.

The slump in demand for Chinese goods is a blow to the economy, which is already expected to grow at the slowest pace in decades this year due to a slump in the property market and aggressive government restrictions related to Covid.

After jumping 30% in 2021, exports are expected to grow only 1.6% this year, according to Nomura Holdings Inc. Exports accounted for more than a third of China’s growth last year and 20% in 2020, the bank estimates.

Trade will likely get a temporary boost as Shanghai reopens after its two-month Covid lockdown – economists expect data on Thursday to show exports rose 8% year on year in May , compared to 3.9% in April. Yet the trend for the rest of the year is down.

“The export boom caused by Covid is behind us,” said Larry Hu, head of China economy at Macquarie Group Ltd.

Exports could contract this year in volume terms even though nominal growth could be positive due to higher prices, said Thomas Gatley, principal analyst at Gavekal Research Ltd. A drastic slowdown would put Beijing’s economic growth target of around 5.5% out of reach.

“It’s really not a good time for exports to weaken as well,” Gatley said. “That’s why policymakers are panicking more and more.”

Even though global consumers are holding on to cash, declining government fiscal support and rising interest rates are impacting their disposable income. And with shoppers shifting their spending to services rather than goods, demand is shrinking.

Vice Commerce Minister Wang Shouwen also acknowledged the pressures facing China’s trade, saying Wednesday that “we should be soberly aware that there are still a series of uncertainties in foreign trade.” A fragile global economic recovery, high inflation internationally and logistical bottlenecks in China are all driving uncertainty about the trade outlook for the rest of the year, he told a conference. press in Beijing.

Major US retailers like Walmart Inc. and Target Corp. are also sitting on $45 billion in inventory, up 26% from a year ago, which they swelled during the pandemic to overcome shipping delays. This means that they are under no pressure to place new orders.

Guangzhou GL Supply Chain Co., which makes everything from gardening products like watering cans and tablecloths to Christmas-themed storage bags, says orders from US and European customers have halved from the same period last year.

Even products for the Christmas season are selling poorly compared to 2021, “maybe because people have to spend more money on daily necessities” due to higher inflation, Chen Zijian said. , the sales manager.

“Last year the pandemic was more severe,” he said. “But we sold garden products, and the business wasn’t impacted much, maybe because people stayed home and gardened.” Compared to last year, “our orders are down a lot,” he said.

To lose

More broadly, analysts say a shift in supply chains to cheaper manufacturing in Southeast Asia is accelerating after a brief pause over the past two years. About 7% of Chinese furniture orders were lost to countries like Vietnam between September 2021 and March 2022, along with 5% for textile products and 2% for electronics, according to an estimate by Everbright Securities Co.

This challenge is compounded by high commodity prices and freight rates. The commodity sub-index of China’s producer price index jumped 17.4% in April, keeping costs high. Shanghai’s container freight index is still more than four times above pre-pandemic levels despite falling 17% so far this year.

Even exporters who are doing well worry about what awaits them as the Federal Reserve and other central banks raise interest rates.

Hermann Zhai, general manager of Shandong-based Kinghike Vehicle Co., which exports electric golf carts to the United States, is seeing a surge in orders thanks to more customers switching to electric carts rather than gasoline in the face of to soaring energy prices.

“I hope that the measures taken by the Fed will be effective in containing inflation,” Zhai said. “If it gets worse and becomes hyperinflation, it could hurt our sales significantly.”

(Updates with comment from Vice Minister of Commerce Wang Shouwen in 14th paragraph.)

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