Export slump brings lean times at China's "Wal-Mart on steroids'"

Mon Jul 9, 2012 3:49am EDT
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By Gabriel Wildau

YIWU, China (Reuters) - Christmas comes but once a year. For Leo Ho, who runs a factory that makes plastic Christmas trees in Yiwu, China's export capital for novelty knick-knacks, it comes in July, when tree orders start rolling in.

But early signs point to a lean Christmas for low-cost exporters like Ho, who told Reuters his sales were down 20 percent year-on-year in 2012.

Ho's pain reflects broader conditions in China's export sector. Amid a faltering global economy, Chinese vice premier Wang Qishan on Friday said that China would have trouble meeting its 10 percent trade growth target this year.

Yiwu, located 300 km (185 miles) south of Shanghai in eastern China's prosperous Zhejiang province, is considered a bellwether for China's low-cost exports, especially to emerging markets.

"It's representative of the price-sensitive, labor-intensive trade," said Ben Simpfendorfer, managing director of consultancy Silk Road Associates, explaining how conditions in Yiwu reflect China's broader export economy.

The Yiwu "Prosperity Index," which China's commerce ministry publishes based on data collected from Yiwu wholesalers, dipped below the level separating expansion from contraction for the first time since its launch in 2006.

Even when China's exports cratered during the global financial crisis in 2009, the index remained above its current level.

China's leaders have said the country's export sector needs to move up the value chain towards higher value-added products - including capital goods such as telecommunications equipment and industrial machinery - and away from low-end exports like toys and apparel. But this transition will take time.   Continued...

An employee works at the Yiwu Lianfa clothing factory in Yiwu, Zhejiang province, November 30, 2011. REUTERS/Carlos Barria