Export Survey: Behind the Port Warming

A series of policy factors and practical factors have made China's exports go to the spotlight. Perhaps the time has come to upgrade and transform export products.

In the afternoon of June 22, the container terminal of Xingang Port, Qingdao Qianwan was busy. A container truck full of goods is constantly transporting goods to the terminal to wait for shipment. A red light accidentally on the road can make the truck queue long and it can't be seen at a glance.

"The growth in the export volume of such a container by fire has not occurred to us at the beginning of the year." Zhang Wei, deputy general manager of Qingdao Port Logistics Co., Ltd. told the reporter of the "Financial National Weekly" reporter. The company has now exceeded its export task set for the first half of the year.

This is a microcosm of the current foreign trade in China's ports. In this port survey, many industry insiders expect this trend to continue in the second half of the year. Zhao Jinping, deputy director of the Department of Foreign Economic Research of the Development Research Center of the State Council, believes that in spite of the difficulties faced by rising labor costs and the impact of the European debt crisis, China’s exports should maintain an overall 15% growth in the second half of the year.

Some analysts believe that it is precisely the optimistic estimate of the current and future period of foreign trade situation that makes the decision-making policy adjustment and strengthening of structural reform strategy to be firmly promoted.

On June 22, the Ministry of Finance announced that, starting from July 15, the export tax rebates for some steel products, medicines, chemical products, non-ferrous metal processing materials, etc. will have been cancelled, totaling 406 kinds. This is the first time the Chinese government has reduced export tax rebates since July 2008. On June 19, the Central Bank announced the further advancement of the RMB exchange rate reform.

A series of policy factors and practical factors have caused China's exports to pay close attention. Perhaps the time is ripe for the upgrading and transformation of export products.

Warm current strikes

Assistant Li Xiaohong, general manager of Qingdao Wanda Express International Freight Forwarding Co., Ltd., said that the company was established 10 years ago and 2010 was the busiest year. Even during the traditional off-season around the Spring Festival, the business volume did not decrease. "The company has been increasing its manpower since March. Its business volume and growth rate have exceeded 10% of the growth rate in previous years."

“All routes are full of cabins and the freight rates are up two times a week,” said Li Aijun, general manager assistant of Ningbo Mingyang Logistics Co., Ltd., which specializes in import and export container transportation.

A staff member of the Trade Department of China Shipping Container Lines Co., Ltd. (601886.SH/2866.HK, hereinafter referred to as China Shipping Container Lines) said that the current situation of foreign trade routes is very good. The US routes are particularly strong, almost all full-fledged, Southeast Asian routes. Second, European routes also grew rapidly.

The China Container Export Index, known as an export barometer, closed at 117.54 points on June 25, up 1.4% from the previous week and has risen for more than ten consecutive weeks.

Enterprises that specialize in the production of export products can also directly feel this warmth.

"The current production lines are all in operation and there are many orders." The staff of Zhejiang Anjili Printing and Dyeing Co., Ltd. told the reporter of the "Financial National Weekly".

Qingdao Yaojie Fashion Co., Ltd. mainly makes OEM clothing exports. Its financial director Li Wenjie introduced that in 2009, the company completed export value of 24 million US dollars, and orders from January 2010 to now have reached more than 40 million US dollars, from January to April $15 million to complete the order. "It feels very clear. It grows very fast."

Zhang Zhenjie, chairman of the company, said that 80% of its orders are from Europe. In 2010, the company's orders were increased by 20% to 30% over the previous year, and this increase was observed every month.

It is not only businesses that are surprised by the explosion of exports. “I was also surprised that Qingdao's exports in May increased by 44% year-on-year. In June, this will basically be able to maintain this growth.” Jun Cong, deputy inspector of the Qingdao Municipal Bureau of Commerce, told the “Financial National Weekly” reporter that at present, foreign demand should No problem, labor-intensive companies accounted for 70% in Qingdao, corporate orders can not do it.

On June 21, Zhang Wei, deputy general manager of Qingdao Port Logistics Co., Ltd. received a new mission at the group work meeting. In the second half of the year, the company's performance was to complete a 22% year-on-year increase, which was 10 percentage points higher than the plan at the beginning of the year. "Looking at the current situation, I have confidence in completing the task." Zhang Wei said.

Li Xiaohong said that the company's contacts with the world's major shipping companies have full confidence in the business volume in the next three quarters. Therefore, at least in the second half of the year, at least in the seventh, eighth and ninth months, they will maintain high growth in the first half of the year.

In response, Tao Dong, the chief economist of Credit Suisse Asia-Pacific, believes that due to demand recovery and inventory replenishment, orders from around the world are now pouring into China, including the United States, emerging markets, and major European countries such as France and Germany.

He believes that by the second half of 2010, Germany and other European countries will take fiscal tightening measures and cancel some of their orders, but “we believe that China’s exports will maintain a double-digit growth of 10% or even higher”.

Policy implications

The optimism of export expectations clearly confirms the determination of the decision-makers to advance the reform.

On June 19, the Central Bank announced the further advancement of the RMB exchange rate reform. The central bank’s spokesperson pointed out that the current favorable timing for reform is based on the fact that “at present, China’s economic recovery has become a better foundation and its economic operations have stabilized”, and at the same time, this reform will “help promote the economic structure”. Adjustments to improve the quality and effectiveness of development."

On June 22, 406 kinds of export tax rebate policies were adjusted. From the product point of view, the products for canceling export tax rebates are mainly concentrated on primary steel products, non-ferrous metals, agricultural chemical products, and rubber glass products. They all belong to the two high-skilled industries, namely, high energy consumption, high pollution, and export of resource products. .

In this regard, the person in charge of the Finance Department of the Ministry of Commerce stated that this adjustment will not affect the growth momentum of foreign trade recovery.

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

On the day of the policy announcement, a research report issued by CITIC Securities stated that the policy reflected the government’s determination to reduce and adjust the production capacity of the steel industry. In addition, at present, China’s exports have exceeded 10% of the global export share. This proportion has reached the bottleneck value, and the continued increase in the share of exports will face greater trade pressure. At this time, the structural adjustment of the export tax rebate initiative will be helpful. Relieve trade disputes and upgrade export products.

CITIC Securities also said that although the adjustment of export tax rebates may continue in the future, it will still focus on the products of the two high-funded industries, and CITIC still maintains a 22% increase in exports in 2010.

Zhao Jinping also believes that exports are mainly determined by demand. If demand is still there, then an export tax rebate policy alone may not stop the trend of exports. He said that the government should guide exports through a long-term and stable foreign trade policy, that is, a long-term stable export tax rebate policy and a floating exchange rate leverage. The situation in the past two years has been reversed. The exchange rate has not moved since November 2008. The export tax rebate rate is constantly adjusted.

"Now that the exchange rate is back to the floating mechanism, the export tax rebate policy should be stabilized. If both factors oscillate back and forth, companies will not have stable expectations and the business will inevitably be affected," said Zhao Jinping.

Worry about profits

Changes in the international situation, rising labor costs and raw material costs of enterprises also constitute the most important basis for the export companies to observe the situation in the second half of the year. "This is the most important factor for us." Zhang Wei said.

Tianjin Garment Import & Export Co., Ltd. exports its destination mainly to Europe and the United States. Dilan Lan, the deputy director of his office, apparently felt that some companies in Europe were “deliberately searching for defects” and demanded “discounts” because some companies were in trouble or even went bankrupt. From the actual transaction point of view, the transaction will generally be reduced by 5% and 10%, and the returns have recently increased. Di Lanlan believes that this should have a great correlation with the European debt crisis.

Xiaohua Wang, the business manager of Qingdao Fulin Tire Co., Ltd., who is in charge of the European market, said that orders from Europe began to decrease from June, which is a 30% drop from May. As the exchange rate of the euro continues to decline, customers are mainly short-term orders, which require immediate delivery of orders. "It is all about asking us what we have. If it is appropriate, we have to do something. Customers are particularly concerned about the delivery date. They are afraid that the long time will cause variables and increase the cost."

However, Xiaohua Wang also said that this does not mean that the market demand in Europe has decreased. They still have great demand, but they are now in a wait-and-see attitude. When the euro stabilizes in a certain range, this demand will immediately appear.

Compared to 2009, the order volume of export companies is no longer worrying.

However, having an order does not mean profit.

"The profit of trade is relatively limited, sales increase, but the profit rate is relatively limited, gross margin is 3% to 4%." said Li Chuanlong, director of international business of Qingdao Fulin Tire Co., Ltd.

The rise in labor costs and raw material costs are all reducing the profitability of export companies.

“Our orders have been increasing, but profits have been decreasing.” Zhang Zhenjie, chairman of Qingdao Yaojie Fashion Co., Ltd., said that raw material prices have risen sharply. Up to now, the price of raw cotton has risen by 40% compared with that before the Spring Festival. Upgraded by 20%, the cost has risen dramatically. Net profit is reduced, which is a decrease of 10% year-on-year.

In addition, trade frictions, various tariff barriers, and technical barriers have put pressure on companies' costs. In particular, for exporters of processing trade, the overall profit margin has been continuously narrowing.

Transformation is imminent

On the one hand, the recovery of foreign demand continued to show good export performance. On the other hand, corporate profitability has been declining. At this time, powerful export companies are embarking on the expansion of their factories, hoping to increase their production capacity to balance the rising cost pressures and gain more profits.

Zhang Zhenjie, chairman of Qingdao Yaojie Fashion Co., Ltd., said that Yao Jie has 3 factories in the local area and will build 3 more in the future. At present, one company has started construction and will be able to start production early next year.

“Now if you do not expand production, you will wait for death.” Zhang Zhenjie told reporters that he hopes to reduce the cost pressure caused by the increase in workers’ wages, raw material prices, and possible appreciation of the renminbi.

Zhang Zhenjie’s company mainly makes OEM exports for some of the well-known mass brands in Europe. He said that for at least the next five years, OEM exports will still be profitable. The basis is that at present, China's textile and garment industry accounts for nearly 50% of the international market share. China's processing exports still have considerable advantages in the industrial division of labor and supporting industries. No other country can replace it.

However, Zhang Zhenjie expressed concern about the longer term future. For example, the wages of current workers in Bangladesh are much lower than those in China. At the same time, raw cotton produced in Bangladesh is not only of good quality but also of high output. Their production costs are far lower than those of China. "We can't compete with Bengal in the future by relying on low prices."

The difficulties faced by enterprises in recruiting workers that Qingdao has encountered since the beginning of the year have been ubiquitous, and Cong Yan, deputy inspector of the Qingdao Municipal Bureau of Commerce, told the “Financial National Weekly” reporter that even though companies are processing materials to varying degrees, workers are still dissatisfied. Labor shortage has become an irreversible phenomenon, and it has also become a deadlock, and it will be a forceful mechanism to force companies to transform.

Zhang Yansheng, director of the Institute of Foreign Economic Research of the National Development and Reform Commission, said at the 2010 Summer Situation Analysis Conference of China's Foreign Trade and Economic Cooperation on June 27th that China, as a world factory, has been involved in the international manufacturing division for low cost for 30 years and is mainly engaged in OEM manufacturing. The current model is under very great pressure, and China will be able to transform faster as a factory in the world.

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

Zhang Yansheng reminded that it is very difficult to change from low-price competition to differentiated competition and brand competition, especially for the current large-scale processing and trading enterprises that rely entirely on OEM and foreign trade sales channels, and they themselves have no preparation for transition. “If China is to face obstacles as a major transformation of the world's factories, China may face a period of economic slowdown or even a period of stagnation that is as long as Japan.”

For the future, Zhang Zhenjie is not unprepared. He revealed that his company had already started trying to become its own brand two years ago. Although it is now very small, it already has its own design, sales, production and stores. This business is aimed at the future domestic market.