Trade tension, an opportunity for Yiwu
Merchants explore new markets amid declining US imports
In the fourth district of the International Trade City in Yiwu, East China’s Zhejiang Province, also known as the world’s largest wholesale market for daily commodities, booths displaying swimwear and other beach products seem a bit deserted during the industry’s off-season.
One of those booths’ owners is Ji Dongchu, the president of Zhiheng Garment Company in Yiwu. Starting the business in 2010, Ji’s company mainly produces swimwear, of which 60 percent are exported to countries including the US, Mexico and Turkey.
Due to the ongoing China-US trade war, Ji’s business has been largely affected, with the number of orders from the US declining by 30 to 40 percent this year. US orders account for almost 60 percent of the total of his company’s foreign businesses, Ji said during an interview with the Global Times in his booth on Saturday.
By far, China and the US have imposed tariffs on hundreds of billions of dollars of each other’s goods. Although swimwear products have not been added to the tariff list yet, US President Donald Trump has directed aides to proceed with tariffs on about another $200 billion of Chinese goods in September.
“We have talked about the situation with our US customers. If the tariff could be maintained at around 10 percent, it’s still possible that the three sides, including distributors, US importers and us [exporters], could share and bear the rising cost by reducing some our profits,” Ji said.
“But if the tariff increases to around 25 percent, which means our profits might be squeezed more, and even to zero, we might have to give up the US market and explore new ones by then,”Ji noted. “I’m currently considering expanding the domestic market given the potential domestic booming demand of swimwear.”
Another trader in the Trade City, who mainly sells industrial tapes to the US and European countries, also told the Global Times on Saturday that she saw a slight decline of orders from the US market this year, refusing to disclose the specific trade number.
But overall, the number of total orders remained at a similar level with that of last year, since the rising demand from other countries have offset the withering sales in the US market, said the trader who only gave her surname as Jin, adding that most of traders in the city have developed stable multiple export destinations, instead of “putting all their eggs in just one basket,” so the impact is quite limited.
Jin’s remarks were echoed by the resilient trade data of Zhejiang, despite the unstable external trade environment. The province’s total import and export values reached 2.11 trillion yuan ($304.64 billion) in the first three quarters of 2018, growing by 12.5 percent year-on-year, with exports up 9.7 percent, hitting 1.57 trillion yuan, according to a report from the Xinhua News Agency in October.
However, Jin expected the US orders would drop further in the next year, thus she is considering to expand the domestic market, as well as to actively explore new overseas markets to shake off the negative impact.
“The trade war is forcing us to completely get rid of the reliance on the US market,” Jin said.
Time to transform
Except for low anticipation for the US market, traders told the Global Times that they have also seen rising challenges from Southeast Asian countries over the recent years, with their advantages in low labor costs.
“Labor cost takes up around 30 percent of the cost of swimwear, so countries like Vietnam and India are quite competitive from this perspective,” Ji said.
Against this backdrop, Manager of the Gulzad Hardware Tools company Wang Xiaona told the Global Times on Sunday that industrial upgrading is an effective way for small commodities traders in Yiwu to increase sales and gain a further foothold in the global trade market.
Wang’s company is among one of the first that have seen tangible benefits from industrial upgrading. Sometimes interrupted by customers who wanted to buy hardware tools when talking with the Global Times, Wang doesn’t seem to be affected, and her business gradually grows.
Shifting to a high-end market three years ago, by now, more than 40 percent of the company’s products exported to other countries are highvalue added, with profits increasing by around 10 percent year-on-year. Wang’s company exported goods worth $1 million to the US market this year, accounting for 10 percent of its total foreign trade volume.
“But we are thinking of turning to more stable markets such as Russia and African countries instead of the US next year, ”Wang said.
“For the whole manufacturing industry, we should focus on improving the quality of ‘made-in-China’ products in the following three years, then trying to brand our products, which will give them more value,” she said, adding that the low-profit business model which is taken by most of the traders in the Trade Center is not sustainable, and also vulnerable.
Irreplaceable powerhouse
Despite the rising competition from Southeast Asian countries, traders interviewed by the Global Times over the weekend cautioned that it’s impossible for them to replace Yiwu as the global manufacturing powerhouse in the short run, and the city is still attractive to foreign importers.
In the just concluded 24th China Yiwu International Commodities Fair, the largest exhibition in Zhejiang Province, Yiwu Fair attracted 204,695 visitors and buyers, up 13.09 percent year-on-year. More than 60,000 transactions and cooperation intentions were reached during the fair, with a total turnover of 18.43 billion yuan, up 3.1 percent year-on-year.
“It would take years for those countries to build a complete industry chain like China,” Ji said, adding that it would also take some time to cultivate a mature and skillful worker.
Therefore, it’s difficult for the US to immediately find an alternative country to import the same amount of products as they do from China, and if the tariff takes effect next year, the US consumers will inevitably suffer from the rising prices in the next year, Ji said.
Government support
Amid efforts taken by traders, the local government has also been ramping up efforts to promote the transformation of the city. For example, Yiwu optimizes the e-commerce environment and builds a support system for the entire industry of e-commerce.
According to a Xinhua report on October 31, Yiwu’s e-commerce transaction volume reached 222 billion yuan in 2017.
Meantime, nine freight rail routes have been launched from Yiwu to Central Asia, London and Spain, under the China-proposed Belt and Road initiative, the report said.
But the transforming process will never be easy.
When asked about the possible barriers small companies might encounter in the future, for example, the competition from domestic big companies, and rising costs of labor and raw materials, Ji seems optimistic.
“We have our strengths compared with those big companies and are not always the disadvantaged groups. Small enterprises are more flexible, and tend to be easier to shift business strategies when sensing something is wrong,” Ji said.
The growing trade tensions between China and the US, rising competition from Southeast Asian countries, as well as rising costs of raw materials have shed some light on traders in Yinwu, China’s biggest export hub of small commodities. Some have taken this as an opportunity to upgrade their products and grab shares both in China and other countries around the world amid the declining US orders.