China's quick economic rebound, albeit exciting, is putting more pressure on export-focused manufacturers.
Some lingering issues — such as the labor shortage, unpredictable pricing and lead times, and currency instability — are receiving renewed attention. There are no simple fixes for these problems, exhibitors from mainland China said at the recent International Home + Housewares Show in Chicago.
While they expressed different views on some of the hot issues, most of those exhibitors remain optimistic that China's role as a major exporter will continue in the future.
Appreciation of yuan
“I won't be surprised if the yuan rises 1 or 2 percent against the dollar by the end of the year,” said Helen Yang, vice president of sales at Guanghaida Rubber & Plastic Co. Ltd. of Dongguan in Guangdong Province.
It wouldn't be a “big deal,” she said, considering that the Chinese currency has strengthened more than 20 percent in the past five years.
China revalued the yuan by 2.1 percent against the dollar in July 2005, let it climb another 19 percent until the global financial crisis hit in mid-2008, and has since kept it stable.
Yang said she is not worried, because “everybody else has this problem too.” It is up to the government whether to protect exporters, she said at the March 14-16 show.
An increasingly stronger yuan, combined with rising raw material and labor costs, is challenging Chinese exporters to constantly look for new ways to cut costs, Yang added.
Another Guangdong-based exporter is hopeful that the export market will remain profitable despite the potential currency fluctuation.
“As long as we can tap the potential of the market, the currency issue is not a major concern,” said Rachel Wu with Jiangmen Dajiabei Plastic & Hardware Manufacture Co. Ltd., a first-time exhibitor at the Chicago housewares show.
The currency re-evaluation is not just impacting exports to the United States, Wu added, as transactions with European clients are also conducted in U.S. dollars.
“We will not give up the market because of the exchange rate,” said Sonny Zheng, who works for plastic food container and housewares manufacturer Haixing Plastic & Rubber Co. Ltd. of Jieyang, also in Guangdong Province. “It is having an impact, but we are more focused on the recovery of the U.S. market.”
Edward Zhang, president of El Monte, Calif.-based Dowin Enterprise Inc., believes the exchange rate will be stable until the end of the year. “I don't see it going up in April, although many people speculate so.”
Zhang said the Chinese government has no other option but to support the export sector. Some of the Chinese exhibitors at the housewares show received a government allowance that covers up to 70 percent of their exhibiting cost, he added.
Workforce shortages
Just as Chinese factories started seeing growth and taking more export orders, a new wave of labor shortages hit the major manufacturing regions, especially after the Chinese New Year in mid- February. Local government agencies posted significant labor shortages and helped companies recruit workers from inland areas.
“This year [the labor shortage] is definitely worse than before,” Guanghaida's Yang said. “It's because many former migrant workers chose to stay where they were from, instead of coming back to factories in the east coast.”
Injection molder Haixing said its Jieyang factory had some difficulty filling positions after the Chinese New Year. The problem has since been solved, Zheng said. However, from a macro perspective, it will continue to be a problem.
“The older migrant workers are retiring and their grown children are not willing to take over the factory jobs. They don't want to operate machines or work on the assembly line. But they also can't find the type of jobs they would like in the cities,” Zheng said.
For Jason Jin, however, labor is solely an issue of compensation. Jin helps Wuxi-based Juhua Electric Appliances Group Corp. market small appliances in the U.S.
“All it takes is a raise,” he said, “But that would inflate the cost, and the importers are not willing to pay at this point.”
The competition
The cost and lead-time issues associated with buying from China are opening up opportunities for other developing countries, such as India and Vietnam. But the Chinese are not ready to relinquish dominance.
India and Vietnam may offer cheaper labor, but China has a more developed supply-chain network, Yang said. “I've heard about American buyers who switched [from China] to Vietnam, and not much later came back to China because they couldn't find as good packaging material and service there,” she said.
It's hard for competition to catch up with China's large-scale manufacturing, according to Yang. “A big factory comes with more certainty than a smaller one. By the same token, the Chinese economy has less uncertainty than many of the smaller economies in Asia.”
Global sourcing varies by the industry, Zhang noted. “[If you are sourcing] bamboo handicrafts, smaller orders, Vietnam is a good choice. But when it comes to plastic processing, China is the way to go.”
Despite wage increases and labor shortages, Zhang said he would not move his factory from China to Vietnam for cheaper labor, because it would inflate other non-labor costs. “For example, it costs a lot more to repair an injection press in Vietnam than in China. … Also, a foreign country doesn't offer the support we get from all the established connections in China.”
Eventually, Yang said her firm would like to move up the value chain and create its own brand instead of solely relying on U.S. agents. “I design my own products. We just need to catch up on marketing knowledge and skills — which Chinese companies lack — and also protect intellectual properties.”
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