For items made in China, a tougher sell overseas

TRADE

U.S. orders have been hurt by the economic crisis, so the Asian nation's manufacturers are targeting emerging markets such as Latin America.

By David Pierson

November 11, 2009

Reporting from Guangzhou, China

With 190,000 foreign buyers roaming 12 million square feet of showroom floor, Sandy Wang hoped there would be plenty of new orders for her company's steel-toe work boots and leather loafers.

But despite recent signs of an uptick in global trade, Wang's booth at the Canton Trade Fair saw little action. There were plenty of lookers, she said, but few takers.

"Things will never be the same again," said Wang, whose orders from the United States dropped 20% in the last year. "We're all very worried."

As President Obama prepares for his trip to China this weekend, the recovering Chinese economy could complicate his push to "rebalance" the global economy.

The U.S. would like the Chinese government to allow its currency to appreciate, a move that could help U.S. companies ship goods to China. But China has resisted letting the yuan rise and hurt China's exports by making them more expensive.

At one of the world's largest trade fairs last week, exhibitors said they were adjusting to doing business in a world where the ubiquitous "made in China" label has been humbled by the economic crisis.

Many said they were targeting new markets such as Latin America to make up for the diminished role of U.S. consumers. Others spoke of having to drop prices or use cheaper materials to stay competitive.

It has been a difficult time for China's light manufacturers -- the mostly private enterprises that for years have produced the nation's bread-and-butter exports such as clothes, shoes and household items.

Lower demand has exposed their vulnerability to foreign markets. And when Chinese policymakers discuss the nation's continuing economic development, they speak of shifting away from being the cheap factory floor of the world. The future, they say, is in value-added products.

"Light manufacturing is still very important, but it is a little anachronistic," said Ben Simpfendorfer, chief China economist for the Royal Bank of Scotland. "It's less relevant than it was a decade ago."

Between 2002 and 2008, the share of China's light-industrial products fell from 45% to 30% of the nation's total exports, according to Dragonomics, a Beijing research firm. Exports of heavy industrial goods such as steel and chemicals grew from a 29% share to 40% in the same period. The remainder was made up of electronic goods.

The 52-year-old Canton Fair has, in more recent times, been considered a barometer for the health of China's light manufacturing industries, which make the everyday goods that fill the shelves at Wal-Mart, Target and Sears.

There may be no better place than the semiannual event in Southern China to witness the scope of the Chinese manufacturing machine. Tens of thousands of goods are showcased inside seemingly endless lanes of stalls, including velvet yarmulkes and a leather massage chair that plays the theme song from the movie "Titanic."

At the end of the three-week session, exhibitors hidden among the rows of sneakers, handbags and throw pillows said it would be difficult to return to the heady days before the financial crisis.

In dollar terms, China's exports from January to September decreased about one-fifth compared with the same period last year, Global Trade Information Services said.

But manufacturers said they were seeing some improvement in orders as retailers replenished their inventories for Christmas. The demand for factory labor has also rebounded.

Chinese exports fell 13.8% year over year in October, the slowest decline of any month this year and an improvement from the September decline of 15.2%. The exchange rate has helped Chinese exports but it has reignited calls for China to adjust its currency. The yuan is tightly controlled by the central government and widely agreed to be undervalued.

Although this has hurt competing exporters -- mainly in Europe and Japan -- it has given many foreign buyers more purchasing power.

"Everything is cheaper for us now," said Raphaelle Emery, a buyer for a French handbag wholesaler at the Guangzhou trade fair. "We can look for something trendy and original. We don't have to just buy anything."

Many producers are turning to emerging markets such as Latin America and Africa, where competition among Chinese manufacturers is not as fierce as it is in the U.S. or Europe.

Octavio Acevedo, a buyer for a Colombian chain of shoe stores, said Chinese manufacturers were learning to adapt.

"They have many more Spanish speakers," said Acevedo, who has been traveling to China on business for five years. "Before, you'd call to ask what shoes we should buy, and they'd tell us they didn't know anything about our market. Now they do."

Many aren't waiting for a return to the heyday in exports earlier this decade. Economists have been clamoring for Beijing to reform its economy so that it can rely more on Chinese consumers. Household consumption accounts for 35% of China's economic output. In the U.S., household consumption is responsible for 70% of the nation's output.

Simon Cheng of Xiamen Funchain Garments Co. makes board shorts and athletic pullovers for Wal-Mart and Sears, but orders have been down since the financial crisis began. The lesson Cheng took away was to diversify. He's now looking into South American and Australian markets. But his biggest leap was when he opened his own retail store in China.

"We have to balance things," Cheng said from his booth at the trade show. "We can't rely on the U.S. forever."

david.pierson@latimes.com

Tommy Yang in The Times' Beijing bureau contributed to this report.

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