Trade tilt

Robust demand from Africa to help Chinese exporters offset losses in developed markets

In China, the arrival of the Lunar New Year is often associated with change, and as the nation prepares to usher in the Year of the Snake, Africa may well be the word Chinese exporters use most to describe trade prospects for the coming 12 months. Africa assumes such importance not only because of growing bilateral trade, but also because of continuing uncertainty about Chinese exports in developed markets.

Though the final days of the Year of the Dragon have been remarkable for many Chinese traders as exports rebounded surprisingly sharply to a seven-month high in December, experts say a big turnaround looks highly unlikely in the coming year, despite the rays of hope from Africa.

China's foreign trade posted a year-on-year growth of 6.2 percent in 2012 to $3.87 trillion, but was still far off from the anticipated full-year growth target of 10 percent. Exports grew by 7.9 percent to $2.05 trillion, while imports grew by 4.3 percent to $1.82 trillion.

Experts indicate that the demand for growth-oriented reforms in China does not augur well for exporters as most of these measures are intended to boost domestic consumption.

Though some experts maintain that they are cautiously optimistic about growth prospects, others feel that overall growth prospects are dim, and others are counting on Africa to dispel the darkness.

Wei Jianguo, secretary-general of the China Center for International Economic Exchanges who has been dealing with China-Africa trade issues for nearly four decades, says global trade is likely to become even more complicated this year.

"The biggest challenge for the global economy is whether the eurozone can overcome its debt crisis this year. The vitality of the EU is essential for China as the former is still an important trading partner. The second concern is the continuous appreciation of the renminbi, which will put further pressure on Chinese exporters. Though we expect a pick-up in trade with developing nations, it is not clear whether it will be enough to offset the losses in developed markets."

According to Wei, the overall prospects for 2013 are at best "cautiously optimistic". "The full-year numbers will be slightly better than those of 2012, but growth will still be in single digit."

Wei's opinion is shared by many other experts and also by a recent business confidence survey of Chinese exporters.

According to the survey conducted by B2B media company Global Sources, many Chinese exporters expect a tumultuous business climate in 2013, although some are still confident of boosting overseas orders.

The survey, conducted on Nov 27, 2012, had polled nearly 1,546 Chinese exporters in various industries, such as electronics, telecoms and computer products, fashion accessories, home products, and garments and accessories, on the export prospects for 2013.

Fifty-one percent of the respondents said they expect revenue from overseas shipments to be higher in 2013, with some estimating 10 to 20 percent growth, and others by as much as 30 percent.

In its confidence survey during the first half of 2012, 93 percent of the surveyed companies had anticipated a sales revenue growth in 2013.

Although confidence is low, Wei says people still have to look at the bright side.

"This year will be a year of opportunity for China to optimize its foreign trade structure. The traditional pattern of relying on exporting low added-value manufacturing products in large quantities cannot last long."

Zheng Yuesheng, spokesman for the General Administration of Customs, had on Jan 10 said that although the speed of China's foreign trade growth had slowed, there had been considerable achievements in optimizing the trade structure.

"China has become less reliant on one or some trade partners. Emerging and developing markets are now beginning to account for larger amounts of trade. The central and western provinces are also playing a key role in bolstering China's exports. A geographical export balance is certainly on the cards," Zheng said.

Destination Africa

The economic climate in most of the developed Western markets, especially the eurozone, is still unclear and thereby pushing China to forge closer ties in other markets such as Africa, experts say.

Li Jian, a researcher with the Chinese Academy of International Trade and Economic Cooperation, says it is an opportune time for developing markets to increase their share of China's foreign trade.

Nurturing emerging markets should be foremost in the mind of Chinese exporters, as losses in the developed markets are inevitable this year, experts say.

The one piece of good news that should drive Chinese exporters is the sheer number of developing markets, or in other words, the numerous choices to spread the export basket.

In 2012, China's bilateral trade with the ASEAN countries rose 10.2 percent year-on-year to $400.09 billion. China's trade with Russia grew 11.2 percent.

Wei says the ASEAN and African markets are two important areas where Chinese exporters should maintain growth this year. "These two regions are the most friendly markets for Chinese exporters. Although up to now, the scale of Chinese exports to these two regions cannot be compared with the EU and US markets, growth has been encouraging," he says.

Pascal Lamy, director-general of the World Trade Organization, said in November 2012 that trade between developing economies has been developing rapidly and will account for larger proportions in the global trade.

According to Lamy, Africa will overtake the European Union and the United States to become China's largest trading partner in the next three to five years.

On Dec 3, 2012, South Africa's biggest bank, Standard Bank, said trade between Africa and China in 2012 is likely to surpass $200 billion.

The bank said in a report written by its economists that in 2012 "it is expected the Sino-Africa trade will go beyond $200 billion from $166 billion in 2011". China's trade with Africa has grown nearly twice as fast as its trade with Latin America, which is the second-strongest performer, the report shows.

The bank said China accounts for 20 percent of Africa's trade and Africa has become China's fastest-growing export destination and trade partner. It estimated that 18 percent of Africa's imports were sourced from China in 2012, up from 16.8 percent in 2011.

Compared with China's total trade's year-on-year growth rate of 6.2 percent and 3.7 percent drop between China and the EU, the trade performance with Africa is more than encouraging.

According to statistics from China's General Administration of Customs, bilateral trade between China and South Africa reached $59.95 billion in 2012, rising 31.8 percent year-on-year. Exports from China to South Africa hit $15.33 billion, growing by 14.7 percent from a year earlier, while imports grew by 39 percent to $44.62 billion.

Yang Baorong, a researcher with the Chinese Academy of Social Sciences, says African markets can be good alternatives for Chinese exporters in many industries.

"We are expecting a higher economic growth in Africa this year, with an average of 4.8 percent. Growth is likely to be 6.3 percent for countries south of the Sahara Desert. Unlike developed economies, most markets in African countries are filled with potential in almost every industry. It is still at the first-come-first-served stage," he says.

In fact, some forward-looking exporters from Yiwu, East China's Zhejiang province, have already started to make their presence felt in the African markets.

As the world's largest center of small commodities trade, companies in Yiwu have been stretching out to the African market in a large scale as early as 2011.

Wu Bocheng, chairman of Yiwu China Commodities City, says the company, with large companies in Yiwu, has been establishing international logistics centers in Africa to better serve their expansion in Africa.

"Unlike Western clients, who pay more attention to standard and quality of products, African purchasers attach more importance to price. Good products with relatively low prices are where our advantages lie in."

Long Quan, sales manager of Zhejiang Shilei Socks Co in Yiwu, says the company has started to make inroads in the South Africa since July, 2012. "During the first half of last year, we realized that our export focus on the Japanese market would be a total failure for the full-year prospects. Since the European market was also in bad shape, we decided to concentrate on the African market, and it has paid off."

In 2011, 80 percent of Shilei Socks' sales revenue came from exports to Japan. Because of shrinking demand from Japan, Long says the company's revenue dropped nearly 30 percent to 70 million yuan ($11 million).

In November, Long and some sales representatives visited Cape Town in South Africa to attend an international textile fair. "At first, we did not expect to get orders directly at the fair. But the result was encouraging. Many local clients were interested in our products and some signed deals with us."

Long says the company plans to set up a representative office in Johannesburg to expand the African market by the end of June.

Fading aura

"The big question, obviously, is whether the EU can stop the debt crisis from deepening this year. Obviously, market demand from the EU will remain sluggish. Japan is also losing its position as China's third-largest trading partner because of economic recession and the unstable Sino-Japanese ties," Wei says.

John Ross, a visiting professor at Shanghai Jiao Tong University, says that situation of the developed economy markets as a whole is weak.

"Adjusted for inflation the latest data shows that imports by developed economies are still 5 percent below their level before the financial crisis, whereas imports by developing economies are 20 percent above pre-crisis levels. The majority of China's exports go to developing economies and this trend will be further reinforced in 2013," he says.

In 2012, bilateral trade between China and the EU dropped 3.7 percent year-on-year to $546.04 billion. Exports dropped 6.2 percent to $333.99 billion, while imports grew slightly by 0.4 percent to $44.1 billion.

Li says the trade declines may continue this year. "Trade with the EU will account for a lesser chunk of China's overall trade volume as the eurozone seems to be heading into a second round of post-crisis recession," he says.

In its October 2012 report, the International Monetary Fund had estimated that economic growth in the EU will be 0.2 percent in 2013, 0.5 percentage points lower than what it predicted in July, showing the agency's limited confidence in economic prospects for the region. The report also indicated that the eurozone crisis has deepened, citing pick-ups in the Spanish and Italian sovereign spreads.

Institutions inside the EU are also not that positive about the quick economic recovery in 2013.

In his speech on Jan 13 in Frankfurt, Mario Draghi, president of the European Central Bank, said economic weakness in the eurozone is likely to continue in 2013.

"The risks surrounding the economic outlook for the eurozone remain on the downside. They are mainly related to slow implementation of structural reforms in the eurozone, geopolitical issues and imbalances in major industrialized countries. There are indications that the fragmentation is being gradually repaired, but it is yet to percolate down into the real economy," he said.

Most Chinese exporters are fully aware of this situation, and have instead chosen to focus on new destinations.

Zuo Boliang, general manager of Shunde Hong Qiao Furniture Co, says his company's exports to the European markets have nosedived in recent years.

"Our products are faring reasonably well in the Middle East, Southeast Asia, Russia and even South Korea. So there is no point in focusing on the European market when we have far better opportunities elsewhere," Zuo says.

Exports account for nearly half of the company's total sales revenue, Zuo says without giving any numbers. Zuo's hometown of Shunde is the largest furniture-making center in China and was predominantly dependent on exports to Europe.

Qian Jiang, executive president of Shunde Furniture Design Institute, says the Middle East, South Africa and India were the new areas of growth for the city's furniture trade last year.

"The loss of market share in Europe had a major impact on industry fortunes. Luckily, there are other possibilities," he says.

According to the institute, the value of furniture exports from Shunde in 2012 was $1.5 million, a year-on-year growth of 2 percent. Average export growth over the past five years has been 6 percent.

Trade between China and Japan is even worse. Bilateral trade fell 3.9 percent to $329.45 billion, while imports dipped by 8.6 percent to $177.81 billion.

Li from the Chinese Academy of International Trade and Economic Cooperation says the Sino-Japanese trade relationship partly depends on the overall relationship between the two countries. "With disputes over the Diaoyu Islands continuing, imports from Japan may see further declines this year," he says.

Although the US market might seem to be the only developed market that can expect a steady growth rate this year, experts still warn that the outlook may not be as bright as it looks.

In 2012, the US replaced the EU to become China's largest export destination, with $351.8 billion worth of exports, an increase of 8.4 percent year-on-year. Trade surplus between the two sides was $218.91 billion, growing by 8.2 percent from a year earlier.

Wei says the ever-growing trade surplus against the US is pushing it to impose stricter rules on imports from China. "It has become a common practice for the US to issue anti-dumping and anti-subsidy investigations on Chinese products, as the trade surplus is too large," he says.

In 2012, 41 percent of US' anti-dumping and anti-subsidy cases were against Chinese products. At the beginning of this year, the US Department of Commerce imposed anti-dumping duties of up to 154 percent on food additives from China. This resulted in Chinese exporters of xanthan gum to even consider quitting the US market.

China's production of xanthan, an additive widely used in food processing, reached 74,000 tons in 2010, about 67 percent of the world's total production. "This is only a beginning of this year's trade frictions between China and the US. A lot more will follow, which will largely affect the export businesses," Wei says.

Global role

Although China's trade faced a tough time in 2012, its trade performance is still far better than most of the other major economies. From January to November of 2012, Japan's foreign trade grew only 1.1 percent year-on-year. For the EU, foreign trade dropped 2.1 percent from January to October. The US foreign trade growth was 4.2 percent in the same period.

"China is the best trade performer among the world's major economies, though it failed to accomplish the 10 percent growth rate target," said Zheng from the GAC.

According to a report from Associated Press, China had become the largest trading partner of 124 economies by 2011, rising from 70 in 2006. The figure made China the largest trading partner of most nations in the world.

The US used to be the biggest trading partner for most nations. It was the largest trading partner with 127 regions five years ago. However, the number has fallen to 76 by 2011.

He Weiwen, co-director of the China-US-EU Study Center of the China Association of International Trade, says that despite a sharp slowdown in global activity, China's foreign trade has continued to prosper.

"China's positive economic influence has been surging in surrounding countries over the past five years," he says.

Therefore, China's trade performance this year will be important not only to Chinese business people, but also to its 124 trading partners.

Apart from shrinking demand from developed markets, the biggest challenge for Chinese exporters is the trade barriers being set up by other countries. According to the Ministry of Commerce, 72 investigation cases were filed against Chinese products in 2012, a 38 percent year-on-year growth.

Li says the situation will be even worse this year, with an increasing number of emerging markets joining the campaign. "The emerging markets want to get the same 'benefits' that the developed markets got by establishing trade barriers for Chinese products. The problem is especially difficult in traditional manufacturing industries because these are the industries they intend to develop domestically."

Jin Shanfu, secretary-general of Zhejiang Yiwu Socks Association, says that many of the association member companies are worried about the trade barriers being created by developing countries.

"Some BRICS nations and ASEAN countries are creating barriers to reduce socks imports from China. I think that the most important reason is that our fabrics and techniques are better and the price is not high, thereby making our products highly competitive. But the socks industry in those countries is not as developed as ours. They want their people to buy more domestic products than imported ones," he says.

Meanwhile, developed markets have also shifted their emphasis from China's traditional manufacturing industries to advanced ones, where they can set up more technical barriers.

Zhou Zhenyang, general manager of Vollodis Furniture (China) Co in Shunde, says that trade barriers are the biggest obstacle for the company to expand in overseas markets.

"Developed markets like the EU and the US have very strict environmental protection rules and standards, which force us to adjust our sales structures. It will take a long time for companies like ours to adjust their products to meet these standards," he says.

According to Li, emerging industries like photovoltaic and telecommunications will bear the brunt of the trade barriers erected by Western countries. "The EU and US markets have taken trade protectionism to the political level, making it hard for us to counter it," he says.

But Ross says that no matter how fierce the trade protectionism is, which Chinese exporters have their strategies to fight back.

"There is not a great deal that can be done solely by China's individual export industries which are hit by protectionism - although lobbying, legal challenges and other methods should be used. China's strongest bargaining position is that it is the world's second-largest importer, with an extremely rapid growth of imports. Therefore other countries are extremely anxious to keep access to China's markets open for themselves," he says.

Yang Yang and Bao Chang contributed to this story.

yanyiqi@chinadaily.com.cn

(China Daily 02/01/2013 page1)