Friday, May 8, 2009

Who Will Buy China's Stuff?

As countries in the West are "a while" away from economic recovery, China's export-based economy is going to have to do some revamping.

From Reuters:

Image from Cargo News Asia

BEIJING, May 7 (Reuters) - China may have to endure weak external demand for a extended period of time as the world economy is unlikely to recover soon, the Ministry of Commerce said.

'There are some positive signs in China's external trade situation recently, but sluggish global demand may last for a relatively long period of time,' it said in a report published on its Web site.

The ministry also said the drastic currency swings in some nations has added uncertainty to the global trade outlook.

'Some developing countries that make similar goods as China saw their currencies depreciate significantly against the US dollar, which had a big impact on the price competitiveness of Chinese products,' it said.

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The US and the other countries that fueled China's export-based economy aren't going to be back for years, if ever. China is going to have to come up with domestic demand for Chinese products that will help take the place of foreigners'. This isn't going to be an easy proposition though.

From, again, Reuters:

Image from AFP-Getty

DACHEN, China (Reuters) - Like prodigal sons, China's exporters are returning home to sell their products as global economic gloom takes a toll on their overseas orders.

Yet exporters of goods ranging from apparel to electronics are hardly finding a fatted calf laid out for them.

Despite a track record in manufacturing products to global standards for leading brands, many are finding it tough to tap into China's domestic market due to cut-throat competition, lack of local brand names and poor domestic distribution networks.


Still, firms face hurdles in focusing on the domestic market, said Michael Gao, a salesman with Chaowei Industry, a maker of electronic gadgets, including talking alarm clocks, based in the southern boom town of Shenzhen.

For one, the tax rebates Beijing offers to spur exports of goods such as textiles and electronics mean that companies are forced to raise prices for their domestic clients, Gao said on the sidelines of the Canton Fair, China's top trade fair.

"We have no choice," Gao said. "At the very least, our prices are 15 percent higher for domestic buyers."

A difference in business culture also makes the transition difficult, Gao said.

"Domestic clients are very different. Be it the quality of the products, the quality of the clients themselves, or the size of the orders, these all tend to be worse than for overseas buyers," he said.

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Although China is certainly getting richer, it's still a poor country. It's people, as a whole, don't consume like westerners, especially Americans. This presents a problem when it comes to China doing something with its substantial manufacturing capacity.

With the admission that exports are going to stay surpressed from China's Ministry of Commerce, it sounds like the leadership in China aware about what the next few years are going to be like. Hopefully they have some good ideas about what to do with this knowledge.

1 comment:

Ramesh said...

While exports would be suppressed, China might actually start to gain a higher market share . Countries like Vietnam, Taiwan, etc will feel the heat even more. China might also be agile enough to change the sort of things it exports - for example it is aggressively raiding African markets with different types of products. It will also reorient to the two domestic markets that are growing nicely - its own and India's. Overall I think its not so gloomy for China's industry.