Export Fair in China Loses Steam

 

By KEITH BRADSHER

Cleaning equipment on display at the Canton Fair. The fall session of the China Import and Export Fair, also known as the Canton Fair, attracted fewer exhibitors than the spring session, which also showed a decline from a year earlier.
GUANGZHOU, China — With nearly as much floor space as five McCormick Places in Chicago, the sprawling Canton Fair, which opened in Guangzhou Tuesday morning, is a monument to China’s industrial versatility and export prowess.
But although the 12 million square feet of exhibits still offer products as varied as wheelbarrows and Segway knockoffs, the autumn session of the fair hints at the broader malaise now afflicting exporters across China and other East Asian nations.
For the first time in recent record-keeping, the number of companies with exhibits has declined in both the spring and autumn sessions of the 56-year-old Canton Fair compared with a year earlier.
Even during the global financial crisis in 2009, the number of exhibitors dropped in the spring but rebounded in the autumn.
Buyers from all over the world still milled through the cavernous exhibition halls on Tuesday, but they appeared less numerous than during previous fairs.
“It’s slower than this time last year — today is opening day, and there are not many people here,” said Ding Jiajun, the general manager of the Laizhou Toptool and Machinery Company, a 50-employee manufacturer of wrenches and vises in Yantian, in the eastern province of Shandong.
China announced on Saturday that its exports dropped 0.25 percent in September in dollar terms compared with a year ago, below economists’ expectations of 6 percent growth and far below the double-digit growth that China enjoyed for most of the last decade.
In terms of the Chinese renminbi, which is what counts for Chinese exporters and overall Chinese economic output, exports fell a startling 3.6 percent last month.
Nor is China alone in its difficulties.
South Korea and Taiwan have already announced their export figures for September and fared even worse.
South Korea fell 1.5 percent and Taiwan 7 percent in dollar terms from a year ago; Japan has not yet released its figures but has also been struggling, although recent weakness in the yen may have helped its exports.
“Exports are what powered Asia to prosperity,” Frederic Neumann, the co-head of Asian economic research at HSBC, wrote in a research note on Tuesday.
“But the engine is showing signs of serious defects.”
The export environment for Asian exporters may grow worse before it gets better.
A growing concern for Asian exporters lies in what effect the fiscal crisis in Washington might have on the American economy, and therefore on demand for Asian goods.
“I am worried about what is going on in the United States right now with the looming debt crisis,” said Li Shenggao, the sales manager at the Cangnan Keegao Arts and Crafts Factory, a manufacturer of gift bags and labels based in Wenzhou, China.
“If no solution is found, sooner or later the U.S. economy will slow down, which will weaken the U.S. dollar and in turn reduce the competitiveness of our products.”
The American difficulties occur just as a combination of strengthening currencies and spiraling costs is eroding the competitiveness of Asian manufacturers, particularly in China, the world’s largest exporter.
The slow but steady rise of China’s renminbi against the dollar, at about 3 percent a year, is another concern among Chinese exporters.
Mr. Li said his costs for plastic and other raw materials were also rising 5 to 10 percent a year, while a shortage of blue-collar labor was driving up workers’ wages 15 percent a year.
“Skilled workers with some technological know-how are still hard to come by,” Mr. Li said.
Mr. Ding at Laizhou Toptool, who sat in a booth with walls covered with tools in a rainbow of hues, said the cost of steel for his products had finally dipped this year.
But wages in his area are climbing more than 20 percent a year as more young people go to college instead of factories, and prefer white-collar jobs when they graduate.
Nicholas Kwan, the research director at the Hong Kong Trade Development Council, an advisory group created by the Hong Kong government that works closely with local chambers of commerce, said the Pearl River Delta region around Hong Kong and Guangzhou would continue to lose low-end manufacturers like garment producers to even lower-wage places like Bangladesh.
But he predicted they would retain higher value-added manufacturers, like those in the electronics sector.
“Those who are constantly focused on the low end of the market will keep on moving,” he said, noting that garment factories moved to China in the last three decades as wages in Hong Kong, South Korea and Taiwan rose, and were now moving again.
Louis Kuijs, an economist at the Royal Bank of Scotland, said Chinese exports in September had been slightly suppressed by a statistical quirk.
China has cracked down in recent months on the practice among exporters of overstating invoices so as to bypass currency controls and bring additional money into China, speculating on further appreciation of the renminbi.
If the effects of excessive invoices are excluded, Chinese exports may have grown 1.7 percent in September from a year earlier, when measured in dollars, instead of shrinking 0.25 percent.
But it still means exports shrank in renminbi terms.
The renminbi has climbed 2.4 percent against the dollar so far this year and 3.3 percent since the end of September last year.
China is trying to foster increased consumer spending to offset slower exports; it has had some success, but not enough to keep overall growth from slowing.
A bigger export problem for China and its neighbors these days is that demand is now drying up in emerging markets.
Economic growth in these markets, increasingly important for China in particular as the United States and European economies have slowed, has weakened in recent months as investors shifted money to industrialized countries in anticipation of higher interest rates.
China’s exports to the member countries of the Association of Southeast Asian Nations rose 9.8 percent last month compared with a year earlier, an anemic pace versus the 30-plus percent growth rates in previous months.
The result has been even more ferocious competition among Chinese exporters.
“The profits of the factory are very, very thin,” said Mr. Ding of Laizhou Toptool, holding his left thumb and forefinger a hair’s breadth apart.