Strong Q2 2010 sales are not enough to dispel notions of a less-than-stellar second half.
China's overseas trade in the first half of 2010 grew more than 35 percent, but a lower PMI and a still weak EU economy are all expected to curb the pace of exports by year-end. A report published recently in the China Securities Journal projected a decline of at least 50 percent, with H2 2010 export growth estimated to slide down to 16 percent.
Lei Dai, a senior macroeconomic researcher at Avic Securities Co. Ltd, attributed healthy growth in H1 2010 to fiscal policies implemented to help global economies recover from the financial downturn. But because of measures aimed to discourage hedging and investing in highly polluting industries, the latest PMI fell below the 50 mark for the first time in 16 months. From 50.4 in June, the PMI released by HSBC Holdings and Markit Economics dropped to 49.4 in July.
Lingering effects of the EU's debt crisis are expected to impact China's overseas sales as well, with various member countries not likely to boost imports significantly in the months ahead.
Several manufacturers said most of the transactions they completed during the first half consisted of short-term purchase orders, which they expect will continue through Q4 2010. This can exacerbate the situation in lines such as LCD TVs, furniture and bags, where the second half is generally considered a lean season.
To slow down the decline in overseas sales, some China makers are shifting their focus to developing countries. Not only is there room for growth in such markets, many of them do not have stringent export barriers as well. Albert Mak, managing director at turnkey EMS company Timely Electronics Ltd, said compared with developed countries, shipments to emerging markets are stable. He is expecting roughly 10 percent growth in H2 2010 as he expands business in South America and Africa.
Others are exploring setting up an import business instead. Shenzhen Huacun Textile Co. Ltd is anticipating H2 2010 exports to be 50 percent lower than H1 shipments and 10 percent down year on year, due mainly to the weak EU economy. For instance, because of last year's poor sales, one of its EU buyers reduced orders by 10 percent. Legal representative Jiang Jianhua expects such cases to increase in the months ahead if the EU economy does not improve. He does see potential in the raw material imports business, and is considering heading in that direction instead.
Strong second quarter
China’s exports amounted to $705 billion from January to June 2010, up 35 percent from the previous corresponding period. For the second quarter alone, overseas sales for the major product lines increased by at least 20 percent.
The color TV, computer and motorcycle lines performed the strongest in Q2 2010, with exports up 54, 51 and 50 percent, respectively.
The lean buying season during Q4 and Q1 is one of the reasons for the significant growth in the TVs line in Q2. Within the sector, LCD TVs are expected to dominate shipments for the next few years. Output for plasma TVs is not anticipated to increase in coming years, while that for CRT models is on the decline.
Strong market demand for LCD TVs is also boosting growth in the auxiliary industries. Many flat-panel display makers in South Korea, Japan and Taiwan are setting up production facilities in mainland China's inland provinces. They are taking advantage of the manufacturing boom not only for TVs but also for laptops and desktop computers.
The motorcycles line showed strong growth as well, but exports are still not back to predownturn levels. The China Association of Automobile Manufacturers said that although shipments in H1 2010 were up 39 percent year on year to 3.8 million units, they are 23 percent lower than what was registered in the same period in 2008.
While TVs performed the best during the second quarter, bicycles grew the slowest, with sales up 20 percent to $710 million. China Bicycles Association director Ma Zhong Chao said despite the line's relatively weak growth in the period, exports are on a steady path to recovery.
This article was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.