Costs, shrinking demand squeezing exporters

Chinese exporters at the nation's largest trade fair said profit margins are becoming thinner due to increased costs and shrinking overseas demand.

Profit in the first quarter "dropped by 6 or 7 percent from a year earlier", Liu Wen, marketing manager of Hunan Chenzhou Grain and Oil Machinery Co Ltd, said at the spring session of the Canton Fair, which opened in Guangzhou on Sunday.

Liu Fujin, sales director of Guangdong Vanward New Electric Co Ltd, said the company's profit margin declined by 3 percent year-on-year in the first quarter, putting the heater exporter under a great deal of pressure.

Sluggish demand in traditional markets such as the United States and the European Union mainly accounted for the company's woes, Liu said.

"Orders from the US and the EU are becoming smaller and the delivery period is shorter than before," he added.

Rising costs had intensified competition among Chinese exporters and squeezed their profit margins, Liu said.

"Labor costs grew by more than 10 percent this year compared with 2010, while the cost of raw materials rose 8 percent during the same period.

"We did increase our export price, but that did not make up for rising costs. A big increase in our export price will drive customers to other suppliers in the global market," he said.

Export growth slowed to 7.6 percent in the first quarter of this year, according to data from the General Administration of Customs.

Wang Haifeng, director of international economics at the Institute for International Economic Research, a think tank under the National Development and Reform Commission, said that "thinner profit margins for Chinese exporters are a natural phenomenon of China's industrial upgrading and show that Chinese exports are shifting from low-end to high-end.

"As China transforms its industries, traditional or labor-intensive ones will see their profits from exports become thinner mainly because of the sluggish overseas market and intense domestic competition," he said.

Chinese exports remain competitive in the global market since exporters in emerging economies including India, Vietnam and Brazil are also seeing their profits shrink, Wang said.

"There is still much room for Chinese exporters to expand their profits in the future if they can enhance their core competitiveness, such as increasing investment in research and development, and building up their own brands and sales networks."

Ding Pinggui, head of the overseas division of Guangdong Macro Gas Appliance Co Ltd, said that the company's exports would grow by 50 percent this year because the company has a technology advantage in developing heaters.

"Even low-end Chinese exporters still see good prospects for profits in the coming three to five years compared with their peers in Vietnam or India owing to lower labor costs and better infrastructure in China," Wang said.

Adna Rivero, purchasing executive of Mexican company Santual, said despite the price of oil tools growing by 5 to 10 percent in the Chinese market, she still came to the fair because prices were lower than in other markets.