70% of China exporters see higher revenue in second-half 2013 [Survey]

Posted: June 14, 2013

Slow US, EU orders are less of a concern as more suppliers focus on emerging markets. Improving production efficiency is a top priority while pricing flexibility is de-emphasized.

Results from Global Sources' latest survey show China suppliers are significantly more optimistic about export growth in the second half of 2013 than they were a year ago.

Over 70 percent of the 503 respondents see July to December 2013 exports outperforming the last six months of 2012 in terms of value. This is the first time in the past year-and-a-half that the "increase" option was selected by the heavy majority, the last being in October 2011 when 93 percent of suppliers expressed optimism over first-half 2012 prospects. In contrast, only 59 percent of participants in a similar poll said they expected second-half 2012 income to rise.

Beneath the sunny disposition, however, lies caution. Among makers expecting higher revenue this coming half-year, 56 percent think growth will be moderate and will not exceed 20 percent. About one-fifth estimate they will earn up to 30 percent more.

As for respondents on the opposite side of the survey spectrum, many warn that the drop in export income could be significant. A decrease of between 21 and 30 percent is the most common estimate. Anemic orders from the US and the EU remain the primary cause behind this.

On a larger scale, however, slow business from traditional markets has become less of a concern.

Sluggish US, EU orders less worrisome

Fewer suppliers picked sluggish trade in the US and the EU as their biggest export obstacle in the next half-year. The option received 19 percent of responses, 12 percentage points lower than the results of the year-ago poll, although it remained the third most common answer to the "challenge" question.

Breaking down responses by industry, manufacturers of hardware and DIY, auto parts and accessories, and solar and energy-saving products are the least concerned.

Many suppliers within this subgroup are already pursuing growth opportunities elsewhere, partly due to trade sanctions and similar issues in their traditional US and EU markets. For PV-related products alone, US anti-dumping duties on solar cells have been in place since late-2012 and just recently the EU announced it is doing the same for China-made solar panels.

The continual shift in focus from traditional to new destinations is reflected in our survey.

Targeting emerging markets is the topmost priority for supporting export business in the next six months, with close to 70 percent of respondents selecting this option. In the past three Global Sources surveys, between 50 to 55 percent of interviewees said they would focus on developing regions.

South America will be a key destination for suppliers. The region was cited by 16 percent of respondents as their target in the future. This is more than double the share of responses the hub received as current market.

With regard to the US and the EU, suppliers are more optimistic about orders from the former in coming months. Twenty-seven percent said the US is their current export market. This figure goes up to 37 percent for future target destination.

In contrast, only 21 percent will focus on the EU in the next half-year although 35 percent of respondents are at present shipping the bulk of products there.

Pricing flexibility de-emphasized

Rather than focusing on low prices as their USP, China companies are underlining production efficiency and quality to position themselves in the higher segments of the market.

A year ago, 50 percent of suppliers said flexible pricing was a means to support their export business, but the number is down to 42 percent this year.

Meanwhile, more companies are boosting efficiency on the factory floor. The strategy is number 2 among survey options to sustain business in the coming second half with 45 percent of respondents selecting it.

In comparison, the option was third in our second-half 2012 projections, cited by 34 percent of companies.

Efforts to raise production efficiency also support the move toward upscale manufacturing. Companies are stressing the last further, believing that climbing the value chain will boost sales and profits.

Industrywise, the upmarket focus is most popular among makers of consumer electronics, and computer, telecom and security products. Many suppliers within these segments have already made inroads into the higher end, spurred by the rapid increase of "gadget love" in recent years. Export projections, as a result, are highly positive. Eighty percent of manufacturers in the subgroup expect to earn more in the coming six months.

Expansion plans will be supported by promotional efforts. For instance, companies will be investing in international exhibitions and their online B2B presence. Survey participant Rialli Vehicle Group Co. Ltd is going to strengthen its overseas operations center and distribution channel. The OEM supplier of motorcycle spare parts expects export revenue to increase 20 to 30 percent in the second half of the year. It is based in Guangzhou, Guangdong province.

Rising costs still top challenge

Higher production and labor costs have been the number 1 concern for three consecutive Global Sources surveys. This is followed by pricing pressure, mirroring the natural progression in the manufacturing chain: higher costs bring higher prices.

The percentage of suppliers selecting these two options as challenges has also been consistent in the past three surveys at roughly 30 percent for increasing production costs, and about 27 percent for price competition.

Rising expenditure is affecting suppliers of garments and fashion accessories the most as the industry is heavily labor-intensive. More than 40 percent of interviewees in this subgroup said they are dealing with cost-related issues. In contrast, just 23 percent of surveyed consumer electronics makers face the same difficulty.

China makers also identified the shortage of skilled workers and competition in alternative export markets among the issues they will face in the last six months of 2013. Both were added to this period’s survey to reflect recent developments across various manufacturing industries in China.

Lately, suppliers are hard-pressed to fill vacancies at their factories that require extensive experience or a specific skill set. Worker wages are at the center of the talent gap even though salaries have been rising steadily over the past several years.

Yuan a growing concern, again

From practically negligible in 2012, the yuan appreciation is now hitting China suppliers harder.

Overall, 8 percent of surveyed companies said the growing yuan is a challenge. This is up from 3 percent in our second-half 2012 survey, but still lower than the 10 percent response share the challenge received for first-half 2012 projections.

The issue got an even higher share, 14 percent, among poll participants that picked the Asia-Pacific region as their target market in the next six months.

It is also particularly big among optimistic suppliers, or those expecting more than 30 percent revenue growth this half. Within this subgroup, 14 percent are anxious about the rising yuan’s impact on exports.

On-the-ground developments support our survey findings. At a recent news briefing, Ministry of Commerce spokesman Shen Danyang said exporters are hesitant to accept international orders due to the yuan's rapid ascent and "a lack of confidence in long-term operations."

According to the MOFCOM, 78 percent of exporters in a recent poll reported a significant decline in profits from January to April 2013 because of the yuan appreciation. Seventy-three percent of respondents in that survey expected flat or lower profits for the entire year.

Manufacturers shipping to Japan are especially feeling the pinch. China's April 2013 deliveries to the latter fell 1.2 percent YoY as the yuan gained 6.1 percent against the yen due to Japan's policy of monetary easing. Japan is the fourth-largest importer of China products. It accounted for about 7 percent, or about $151.6 billion, of China's exports in 2012.

Suppliers are also concerned that the weakened yen could turn Japan products such as electronics into an attractive alternative to China goods. The yen has depreciated more than 25 percent against the US dollar in the past six months, reaching a four-year low. The yuan/greenback exchange rate, in contrast, is at a 19-year high.

Survey sampling

The sample selected for this survey is representative of the export manufacturing industry in China in terms of location, industry and company size.

The majority of the 503 survey participants are based in Guangdong, Zhejiang, Fujian and Jiangsu provinces, China’s primary export hubs. The companies are from various industries, including electronics, hardware and DIY, home products, garments and fashion accessories, and gifts and premiums.

More than 50 percent of respondents are midsize. Among these companies, most export between $1 million and $5 million annually. About one-third of interviewees are small, posting export sales not exceeding $1 million. The rest are large enterprises with revenue of $10 million to $50 million.