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Chinese exporters dealing with rising costs

By: Nina Ying Sun

April 5, 2012

ORLANDO, FLA. (April 5, 6:35 p.m. ET) — With rapidly rising costs and continuously strengthening local currency, Chinese exporters are under mounting pressure.

Most Chinese exhibitors interviewed at NPE2012 expect their export business to be at least stable, and many optimistically forecast double-digit growth. They, however, tend to acknowledge the tougher conditions. Some smaller companies argue that the overall market conditions won’t necessarily hinder their growth, as long as their customers are doing well.

Others said the cost hikes are manageable – “the business is still profitable for now,” one said. But they chose to not go into details.

One mold maker, which asked to not be named, said “business is not looking good. It’s much worse this year than last year. ”

“We don’t really know why the business took a fall in the first quarter. But we are trying hard to turn it around,” added the first-time NPE exhibitor. It is hoping to get some business from less established markets in North America, which now only represents less than 10 percent of its business.

The lost cost advantage is taking some manufacturing away from mainland China. Taiwan;s Longzu Plastic Molding Co. Ltd. said it has witnessed Taiwan-based manufacturers across end-market sectors move production from the mainland back to Taiwan.

Michael Lee of China’s largest B2B online marketplace Alibaba.com told Plastics News he expects some dip in the number of Chinese suppliers.

“I think the rising cost in China cause some factories to move operations to other developing countries such as Vietnam and Indonesia,” said Lee, the company’s director of marketing and business development of Americas.

“I personally think souring is just one step of the product cycle, and did not represent the whole picture of international trade,” he added. “[American] Entrepreneurs are benefiting cost savings from using Alibaba on sourcing, and be able to hire local workers in the US. Also, approximately 30% of our US Alibaba registered users as sellers. They may source raw materials or parts from overseas, and make the final product in the US and either export or sell domestically. ”

At the same time, China’s import demand is on the rise, partly because of the rising labor cost and currency exchange rate, said Alibaba U.S. General Manager Annie Xu. This is giving American businesses the opportunity to tap into the China market.

“Bell Performance, a maker of fuel and oil additives based in Florida, is a good example. They were at our meet up [at NPE] yesterday and I learned they have found their first distribution partner in China and are looking for more,” she said.

China has been pushing for the wider use of its currency, the Renminbi, for global trade and investment. But it has not yet made a strong impact for exporters. The vast majority of the trade is still based on U.S. dollars.

As recently reported by the Financial Times, Western Union Business Solutions surveyed 1,000 Chinese companies, and more than a third of them said they would prefer to be paid in their own local currency. Moreover, Western buyers could save up to 3 percent if they paid Chinese suppliers in renminbi.

“Our customers are well aware of the option of paying in renminbi, but they are not doing it,” said general manager Eric Zhang of Shenzhen-based King Tech Mould. “The Chinese currently is becoming more internalized, but not there yet.”