A butterfly flapping its wings in the Amazon rainforest of South America may cause a tornado in Texas, USA in two weeks. In the field of trade, when the "butterflies" around the world flapped their wings simultaneously in the first half of the year, foreign traders in the world's largest commodity trading country also felt a different "vibration".
Chen Qian, a clothing industry trader based in Yiwu with nearly 20 years of experience, has never experienced such an uncertain first half of the year. In the first five months, the company's export volume decreased by at least 50% year-on-year. Due to these uncertain factors, some overseas company customers choose to tear up the contract at the cost of losing the deposit even if they have already paid the deposit and the goods have been produced.
In the past, when conflicts or exchange rate fluctuations occurred in a certain region in the short term, Chen Qian and her peers would actively adjust the market focus. But this year, her feeling is that the political conflicts in the Middle East, the drastic fluctuations in exchange rates in many African countries, the turmoil in many South American countries, and the rapid rise in shipping costs, combined with other factors, have led to a comprehensive tightening of product demand for enterprises.
In the past month, the OECD, IMF, and WTO have all listed geopolitical tensions, regional conflicts, and economic uncertainty as the main risks facing global trade when predicting global trade, and warned that governments should focus on national security, self-reliance, and support for domestic businesses.
Traditional traders targeting the European and American markets are also lamenting that the "golden age" of foreign trade has passed. In the first half of this year, Luo Xiaohua, the president of Guangdong Meijie Group, which is engaged in the export of high-end bathroom products, traveled around the European, American, and Australian markets. A small number of customers gave him feedback that "if the demand can remain the same as last year, it is very good", while most have lowered their expected demand for this year.
Some export-oriented industrial cities have sent signals - in the first quarter of this year, Foshan's exports decreased by 40.4% year-on-year, with exports from the four major industries of furniture and its parts, ceramic products, clothing and lighting fixtures, and lighting fixtures and their parts all declining by more than 50% year-on-year; In the first four months, Dongguan's exports decreased by 3.7% year-on-year, with a single month export decline of 8.9% in April.
Many uncertainties in emerging markets
From October last year until now, in just six months, Chen Qian has experienced market fluctuations from "explosive orders" to a rapid decline in demand.
In recent months, Chen Qian and her colleagues have frequently encountered situations where customers choose to break contracts due to skyrocketing shipping costs, extended transportation cycles, or sudden changes in the local market, even after paying a deposit and completing the production of goods. The customer lost the deposit, while the trader had to face the dilemma of hoarding goods. Currently, Chen Qian's factory has stockpiled goods worth several million yuan.
With the repeated occurrence of similar incidents, including Chen Qian, they have to face a situation where "overseas customers dare not place orders easily, and foreign traders dare not accept orders easily". She said that the order volume in the first two months of this year was barely flat compared to last year, but the order volume declined significantly from March to May. The upstream manufacturing factories located in Foshan also reported that the production capacity situation in recent months is not optimistic.
Due to 40% of the company's products relying on exports, Wang Tingting, the foreign trade manager of Guangxi Xinguilun Rubber Co., Ltd., also lamented that she "cannot understand this year's market trend" - on the one hand, many overseas emerging market customers have reported to her that local demand is sluggish and consumers have no money, so the market has not achieved the expected recovery; On the other hand, uncertain events such as rising sea freight rates, tire products facing anti-dumping and anti subsidy investigations in multiple countries, and rapid fluctuations in exchange rates in some regions have also occurred intensively within the past six months.
She said, "In the past, we could roughly predict the market trend in the next six months when doing foreign trade, but now various situations may arise in a short period of time, which is difficult to predict. Now it's not the company actively choosing export markets, but we have to look at which markets can still be exported
Export competition is also intensifying. In the process of exporting high-end tire products, Wang Tingting's company has encountered continuous price pressure from some domestic manufacturers this year, ultimately leading to a spiral decline in the prices of exported tire products domestically. In order to cope with this situation, enterprises can only make more use of Guangxi's geographical advantage and further expand into the Southeast Asian market.
Even if demand shrinks, "internal competition" intensifies, and shipping costs rise, the operation and export of foreign trade companies' production capacity cannot be easily stopped.
Wang Tingting said, "The market situation is not good in the short term, so it is reasonable to slow down the production pace. However, factories have to pay rent, and they cannot easily give workers holidays. In addition, the pressure of raw material inventory is forcing companies to ensure a certain level of production and sales
In addition, the rising cost of tire raw materials has also brought new problems to tire manufacturing enterprises since the beginning of this year. Wang Tingting said that in the process of rising costs, it is difficult for enterprises to cope through productivity growth or technological breakthroughs, so they can only "take one step at a time" and try to maintain friendly relationships with old customers.
European and American customers are deeply affected by inflation
During his visits to the European, American, and Australian markets in the first half of the year, Luo Xiaohua's most intuitive feeling was that ordinary consumers were affected by inflation, resulting in a significant decline in purchasing power, which led to a much smaller market "cake" compared to last year. In order not to lose their original market share, suppliers are severely "involuted" in terms of price.
Before 2019, Luo Xiaohua chose to abandon the mid to low end and pursue a high-end development path, investing nearly 300 million yuan to establish a new bathroom product research and development production project. At the same time, he also purchased an electroplating factory to improve the manufacturing level of bathroom products. Currently, the company's products have achieved complete independent processing.
He said, "In recent years, many bathroom product manufacturing companies in Foshan and Dongguan have chosen to take the high-end route, mainly to stabilize order volume and cater to the high-quality demand of European and American customers. In contrast, the order demand in Southeast Asian and Middle Eastern markets is relatively less high-quality
From 2022 to 2023, Luo Xiaohua's company won new orders from several large home decoration and building materials supermarkets in Europe and America with the addition of production capacity, and the factory has been operating at full capacity almost all the time.
But the order volume has also started to decline this year. During the visit, Luo Xiaohua learned that due to sustained inflation, the middle class in Europe and America have seen a significant increase in various costs for buying, renting, and renovating houses, resulting in tight budgets and a decline in demand for high-end bathroom products.
Luo Xiaohua said: "At present, the demand for high-end sanitary products will gradually rise only when inflation has dropped to a certain extent, but we can't see when such a turning point will come. These factors are not determined by our traders, and we can only wait for the restart of market demand."
Luo Xiaohua misses the "golden age" of foreign trade enterprises five or six years ago. He said that before 2019, there would never have been so many uncertain events. At that time, peers were full of expectations for foreign trade, and companies dared to invest in expanding production if they had expectations. Overseas orders also basically did not need to worry.
Despite the current uncertainty, Chen Qian still hasn't 'laid flat'. She said, "Although colleagues are lamenting that the 'golden age' of traditional product trade has passed, foreign traders are still actively seizing all potential opportunities. When there are no orders, they are busy developing new ones, and when there are orders, they are busy completing them. This is the fate of foreign traders and they can never stop.
Reprinted: Economic Observer
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