More businesses shift from exports to home market
Updated: 2008-02-28 17:29
Zhang Yang, the driving force behind a major Sino-foreign joint venture knitwear exporter in East China's Zhejiang Province, has cultivated a habit of opening his computer and checking the daily exchange rate when he enters his spacious office.
Zhang was understandably disturbed by the appreciation of the yuan, also known as the renminbi, because it had a strong impact on the performance of his firm.
"We keep an average profit margin at about 3 percent from exporting garments. We would struggle through it if the yuan remains to stand so high."
A one percent appreciation in the currency results in a loss of two percent in profit margin in the labor-intensive textile industry, the bulk of China's foreign trade, said Guotai Junan Securities Research Institute statistics.
The yuan has appreciated more than 13 percent since it was de-pegged from the US dollar in July 2005. It climbed 6.9 percent against the greenback in 2007 and has already appreciated more than 2 percent so far this year.
Zhang, however, was well prepared to face up to the growing export risks rather than await doom. His way out was to divert many of his orders to the domestic market and sell the products as "export goods withdrawn for sale on home market" shops.
"These days, exported garments make profit largely on the basis of volume. Sales in the home market creates higher profits, normally hitting 10 to 15 percent," said Zhang, glancing away from his computer screen, hastening to issue more orders of woolen sweaters and underwear to Hangzhou, the Zhejiang Province capital.
Exports, a driving force of the Chinese economy along with fixed-asset investment, has come to a turning point, as evident in the declined monthly growth rate in January, industry experts said.
China's trade surplus jumped 22.6 percent year-on-year to US$19.49 billion in January, according to the General Administration of Customs. However, the trade surplus declined in monthly growth rate for the third consecutive occasion. In addition, the surplus has been at least US$20 billion a month since last May.
Noticeably, imports grew 42 percent year on year to US$45.65 billion under the general trade mode in January. The year-on-year growth rate was 8.8 percentage points higher than that of exports. Imports via general trade exceeded 50 percent of the gross import values for the month, the first time ever in recent years. In January, China exported US$51.9 billion of goods, up 33.2 percent year on year.
"The slowdown in export growth in January is largely a result of weakening demand from abroad, a fallout from the US subprime mortgage crisis, the appreciation of renminbi and, in some cases, China's decision to curb exports of certain items by cutting export rebates or imposing export taxes," said Li Yushi, Chinese Academy of International Trade and Economic Cooperation vice president.
Resembling their counterparts in the textile and garment sector, hosts of Chinese grain enterprises have also felt the chill and decided to turn their eyes away from European and American markets and focus back on the domestic market. This assuredly serves as a "cardinala ampoule" to ease ever-mounting inflation pressures in the country, industry experts said.
Chinese grain exporters made big profits last year. In the first 11 months, net cereal exports grew 320 percent, compared with the same period a year earlier. The impressive growth was largely a result of price increases on world markets, observers said. They said a decrease in grain yields worldwide caused by unfavorable weather and growing demand for cereals used for bio-fuel production conspired toward the continuous price rises. However, industry observers forecast the growth will slow this year.
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