EU debt crisis hurting labor-intensive industries

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Last updated: 26 Apr 2011

China's exports to the EU continue to grow despite the area's financial malaise. But manufacturers of bags, apparel and consumer electronics claim sales have fallen and orders reduced.

The EU's debt crisis has not affected China's exports yet, but there are signs that it may do so in the months ahead. Some labor-intensive companies have experienced a reduction in overseas sales for H1 2010, a few by as much as 40 percent.

China customs statistics show the country's exports to the EU in the six months to June 2010 increased 36 percent to $140.7 billion. Manufacturers such as Danbio Sports & Entertainments Products Co. Ltd, however, have not felt that growth. The company exports different types of bags mostly to Germany, Italy, Spain and other countries in the EU. During H1 2010, its total export sales remained flat year on year at $1.5 million, but down 20 to 40 percent compared with the same period in 2008. This is attributed mainly to slow shipments to the EU. Exports to the US, on the other hand, have improved slightly.

Danbio said for the bags industry, second half sales are normally lower than H1 2010 exports, sometimes by 30 to 50 percent.

Overseas sales at Shenzhen Huacun Textile Co. Ltd were hit badly by the EU's debt crisis as well. The company boosted shipments of casual wear to France and Italy in late 2008, when one of its major US clients went bankrupt. Business recovered gradually, but started slowing in late 2009, when the value of the euro started falling against the US dollar. Since then, the volume of orders from various EU buyers has dropped 10 to 50 percent. The company now expects overseas sales in H2 2010 to be 50 percent lower than first half exports.

Dongguan Elcoteq Electronics Co. Ltd is projecting weaker sales for H2 2010 as well. A midsize manufacturer of consumer electronics such as mobile phones and accessories, the company believes the situation in the EU is worsening, affecting the purchasing power of its buyers. One of its EU clients requested to have 70 percent of ordered goods shipped first, paying for this batch of products. But when Dongguan Elcoteq was preparing to send out the balance, the buyer wanted only 20 percent of the remaining items, citing poor retail sales. Such cases have been happening more frequently the longer the debt crisis in the EU remains unresolved.

Further, orders placed at the start of the second half are 20 to 30 percent lower than in H1 2010.

Analysts have a more optimistic view than suppliers. While manufacturers fear the situation in the EU will spread to the rest of Europe, Avic Securities Co. Ltd senior macroeconomic researcher Dai Lei does not think this will happen. He believes that as long as the euro stops depreciating so steeply against the dollar and Europe's Central Bank controls its expansionary monetary policy, circumstances will not worsen. But Dai does not expect conditions to improve soon, projecting recovery to take place in the next three to five years, or even longer.

 


Read the full article at 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.


Posted: 11 October 2010, last updated 26 April 2011

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