Global Times US Edition - - BIZCOMMENT - By Shen Wei­duo in Yiwu

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.

Wei­duo/GT Photo: Shen

A view of the first dis­trict in the Yiwu In­ter­na­tional Trade City on Sun­day

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