October 30, 2011 4:22 pm

Canton trade fair defies economic gloom

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China trade

The mood at the Canton trade fair, where Chinese suppliers of everything from Christmas decorations to homewares and automobile parts gather, was surprisingly sanguine, even as vendors complained about the uncertainty of how the economic drama in Europe would play out.

The massive trade gathering – which is so large it is held twice a year in three phases – is at the front line of leading indicators on China’s export prospects.

At this year’s October fair, the third phase of which begins Monday, Raymond Kam, head of an $8m-in-revenues Christmas decorations company, reported that he had had 30 per cent more customer enquiries for Christmas next year than he did at the Canton fair’s April event. “Christmas is still Christmas. People want to enjoy it,” says Mr Kam.

The fair itself is like chancing upon Santa’s army of helpers and discovering they are nearly all Chinese. This October it has about 58,000 booths set up by Chinese exporters with 280,000 visitors expected from more than 200 countries. Liu Jianjun, deputy director of the China Foreign Trade Centre, which oversees the event, reported more demand for booths from Chinese suppliers than could be accommodated and a dramatic increase in interest from foreign buyers.

But, in its 55th year, the fair is also facing some existential questions. Ten years after China joined the World Trade Organisation in 2001, it is easier for many large buyers to do business in China and establish relationships with suppliers without speed-dating at the fair. While China still retains a towering share of garment and shoe exports, countries such as Vietnam and Bangladesh, with lower labour costs, have been luring away factories this year.

Zhang Guoqiang, the chief executive of Landmega Furniture, discounted south-east Asia’s chances of drawing customers away from China. “In terms of (workers’) productivity and logistics, Vietnam and Indonesia cannot compete with China at this moment,” he said.

At his company’s booth, wholesale prices painted on Ikea-style placards were drawing in more prospective customers from Europe and the Middle East than the half-a-dozen sales assistants could keep up with. Elegant sofa-beds that looked like they might retail for $600 in the west were being sold for $44.99 to $59.99 while computer tables were on offer for as little as $6.99.

When the conversation turned to the global economy, however, Mr Zhang’s sunny outlook disappeared. Twenty years after opening his factory in nearby Foshan, Mr Zhang, like many Chinese manufacturers, faced shrinking orders from the West, a more than 20 per cent jump in labour costs and a strengthening renminbi. Throw in rising raw materials costs worldwide and his profits have declined 45 per cent this year, he says, before rushing away to attend to a European buyer.

Nicholas Tiffin, chief executive of Sifcon International, which supplies large UK and European retailers with hardware, gifts, and home design products, said he was buying a larger range of products from the fair, but his company’s orders from retailers were smaller.

“Nowadays, you can’t look out more than six months,” says Mr Tiffin, who said he had sourced products worth more than US$15m from suppliers he met at the spring and autumn Canton fair this year. He was delighted with his latest find – a supplier selling, of all things oil paintings. Mr Tiffin said he did most of his sourcing at the fair. An American buyer for toys and houseware goods nearby said he planned to continue sourcing exclusively from the fair.

Indications are that China is not about to relinquish its position as factory for the world any time soon. In September, China’s export growth slowed, but was still an impressive 17 per cent. Growth of clothing exports slowed to 13.9 per cent year over year while growth of shoe exports was marginally higher at 20.9 per cent.

China is losing share to south-east Asia only at the margins, says Donna Kwok, an economist at HSBC: “China’s share is so much larger that any migration of production will hit a limit.” Indeed, China’s manufactured exports at US$1,400bn still dwarf those of Indonesia (US$58bn) and Vietnam (US$50bn).

A Nigerian businessman at the Canton fair looking to buy furniture for his real estate development business said he was worried about the implication of double-digit annual increases in China’s labour costs. While he intended to return as he has for five years, he was also looking to get a visa for Vietnam.

“A while back, America was making wonderful cars and wonderful products. Then labour costs got higher and higher,” Murtalha Ibrahim says. “Trade is about (finding) value. People will want to go where [workers] are hungrier.”

Additional reporting by Zhou Ping

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