Chinese exporters facing several harsh realities
Brian Carroll, E-business editor -- Furniture Today, September 22, 2008
I've been thinking a lot about China lately, as many have. The Summer Olympics ended less than a month ago, and memories of the Bird's Nest and the Water Cube still are fresh in my mind.
But just as Michael Phelps was amassing a record gold medal collection inside the Cube, Chinese factories were seeing orders for exports plunge. Like many of the country's economic sectors, China's $80 billion furniture industry got quite a boost from hosting the Olympics. But after the new hotels and Olympic Village had been furnished, it was back to the reality of diminishing demand from both the United States and Europe.
In representing approximately two-fifths of Chinese furniture output, the U.S. market is China's biggest problem. This country's subprime lending crisis, underlined two weeks ago with the government bailout of Fannie Mae and Freddie Mac, has combined with inflation, high fuel prices, job instability and a roiling stock market to dramatically decrease the flow of Chinese-made goods into this country. With weak demand also from Europe, export growth in China is the slowest it has been in six years.
China has responded by reining in its currency; the yuan had been allowed to rise sharply against the weak dollar for most of this year. The central government also is looking for ways to decrease the cost of exporting, including a lowering of some export taxes.
But Chinese furniture exporters face harsh realities inside their own country, as well. They, too, face high fuel costs. And as its industrial base matures and China's middle class — on its way to becoming the largest consumer market in the world — expands, labor costs will continue to rise. Minimum pay scales are on the rise, and more regular overtime pay is being required of employers.
These trends are evidenced in China's gross domestic product numbers, projected to grow between 9% and 9.5% this year — a number any other country in the world would throw a party in the streets for, but for China will be well off 2007's blistering 11.9%. A three-percentage-point slowdown in growth is a shock to any economy, with far-reaching ripple effects.
Perhaps the biggest potential effect of these changes is one not easily pinpointed on a balance sheet. When demand drops off as quickly as it has, when orders are canceled, when bills take a bit longer to pay, relationships can become poisoned.
Both Chinese exporters and U.S. suppliers and merchants will have to work hard and communicate well to prevent relationships from souring. The inextricably linked economic fortunes of the two countries should provide enough of an incentive to do this.
Opinion columns are available online at www.furnituretoday.com.
