Chinese firms adjust strategies amid EU crisis

Chinese trading companies are having to adapt their import-export strategies, as recession continues to bite in Europe, with many switching their focus to improving quality and cutting costs, as well as expanding more into emerging markets.

According to the latest figures release by China's customs agencies, there has been a marked shift in demand for Chinese goods from various parts of the world in the first five months of the year.

In Hangzhou, for example, the latest customs figures show that although export and import volumes of Zhejiang province dropped sharply in the first four months this year, total volumes exceeded $28 billion in May, an increase of 7.6 percent year-on-year.

In Shanghai, export and import volumes for the first five months exceeded $176 billion, a 3.8 percent rise on the same period last year. The volumes in May were $39.7 billion, an increase of 10.4 percent year-on-year.

But traders said business with the European Union has been hit hard.

"Orders from European clients have dropped by at least 30 percent compared to last year, while we have seen a 5 percent rise in orders from South American countries," said Jiang Kexing, the manager of Yiwu Hongxu Trading Co Ltd, which is now attempting to expand its business in emerging economies.

Jiang added that all the trading companies he knows are trying to improve their profit margins by getting out of the markets affected, as the European slump continues.

"Switching to regions and countries that haven't been affected by the European debt crisis is the obvious way to avoid losses," said Jiang.

"Clients in developing economies seem very interested in our products, which has allowed us to have some relief from the worsening market in Europe," he added.

But as well as expanding into different markets, Jiang said he has had to upgrade the technology being used on his production line too, to enhance the overall quality of the products, as well as gradually increase volumes.

There has been a marked shift in priorities, too, at Shanghai Ruinian Fine Chemical Industry Co.

Luo Gang, chairman of Shanghai Ruinian, said the company has been introducing various measures to cut production costs and boost efficiency.

"We've also transformed ourselves from being just an equipment manufacturer, to becoming a product supplier for certain clients from overseas in the past 10 years, and that's increased annual profitability by over 30 percent in the process," said Luo.

He added that to stand out from local competitors, his team has shortened the production process, and applied cheaper materials to reduce costs.

Companies that produce high-tech items, meanwhile, say they have actually been largely unaffected by the slower trading industry — but again changes have had to be made, to adapt to the changing conditions.

"We have been focusing on reducing the cost of materials and improving the performance of our solar technology," said Qu Xiaohua, the founder of Canadian Solar, one of the world's largest solar panel producers.

Qu said the company has turned itself from being solely a manufacturer to being a worldwide "total solution provider" on solar energy.

The company has managed to minimize the unit cost of items from $7 to $8 in 2007, to less than $1 at the moment.

A quarter of its business now focuses on this total solution approach, and that's likely to rise to 40 percent next year.

"Orders from European countries declined sharply due to the crisis, but demand for our products is still experiencing gradual growth," said Qu.

Tu Jun, the owner of a trading company which specializes in exporting gift packaging in Wenzhou, Zhejiang province, said he too has noticed more emphasis from his clients on quality, and he's been doing increasing amounts of business in developing economies such as Chile, Panama and Russia, as business has dropped elsewhere.

Orders from the United States and European countries have dropped dramatically, by over 50 percent.

Tu added that lower material and labor costs in China no longer represent the advantage they once did. So he decided to switch to the middle- and high-end of the market, instead of struggling in the tough competition of the low-end market.

"Smaller numbers of quality orders, have helped to expand our business," Tu said.