With or without Trump, China’s export machine is remaking itself as hi-tech gadgets dominate Canton fair
The first phase of the latest Canton trade fair, a major event for Chinese exporters seeking to woo overseas buyers for the last six decades, felt like a hi-tech show with thousands of booths displaying smart devices and gadgets.
In contrast to earlier editions when the fair’s shelves were filled with cigarette lighters, shovels or zippers that were relatively cheap and easy to make, the popular products at phase one of the fair, which ended on Wednesday in Guangzhou, formerly called Canton, are such items as virtual reality game stations and massive touch screens.
The booth belonging to Guangzhou NINED Digital Technology, a virtual reality game equipment maker, was one of the busiest in the massive exhibition hall that housed the electronics and mechanical products session of the 121st China Import and Export Fair as potential customers and general visitors queued to try the company’s shooting game device.
Kate Qiu, a sales manager, said the products,with prices as high as US$30,000 per unit, were popular with buyers from Europe and the Middle East.
She said the company expected to triple its sales in 2017 from a year earlier on “a conservative estimate”. The company, based in Guangdong, is hiring virtual reality device engineers from around the world and investing heavily in new product development, Qiu said.
A few metres away, Shenzhen iBoard Technology was promoting an “interactive white board” priced at US$300 and an 84-inch touch screen priced at US$4,000. Sales manager Jessica Zhu was explaining to potential clients how the products could be used in “smart classrooms”.
She said the products had sold well to European and US clients and the company was “actively forming partnerships with suppliers to lock in good deals” while spending large on research and development.
Such products, which require advanced technologies to make and accordingly cost more, are regearing China’s US$2 trillion export machine.
“Shoes and T-shirts are no longer what are driving China’s export engine, rather, it’s increasingly sophisticated gadgets stretching from smartphones and drones, to hover boards and semiconductors,” said Frederic Neumann, co-head of Asian economics research at HSBC.
With US President Donald Trump alleging that China deliberately made cheap exports to steal jobs from the US, many Chinese exporters, squeezed by rising domestic costs, have been trying hard to climb the value chain, and some of those efforts are paying off.
Although Chinese overseas shipments recorded a 16 per cent plunge in 2009 following the global financial crisis, Chinese exports regained momentum in the following years. In US dollar terms, the value of China’s exports in 2016, although down 7.7 per cent from 2015, was still about 50 per cent higher than in 2008.
China is now the largest trading partner for more than 120 countries. Despite a shrinking labour force, greater competition from low-cost markets such as Bangladesh and Mexico, and constant trade disputes with its major partners, China’s share of global exports has been rising.
China’s exports surged 16 per cent in March from a year earlier, generating a trade surplus of US$24 billion.
Behind the numbers is a giant export machine’s struggle to cut its dependency on low-cost production and its reliance on the traditionally rich markets of the US, the European Union and Japan.
An increasing number of young Chinese people like Qiu, the 20-something sales manager from NINED, are planning careers in technology related businesses, rather than taking a slot on an assembly line in a massive factory, and China’s economic upgrade is providing them such options.
The mainstream Chinese export picture looks less like what Leslie Chang described in her 2008 book, Factory Girls: From Village to City in a Changing China, after a decade of gradual but steady change.
“China’s exports have been upgrading over the past decade,” said Zhao Yang, the chief China economist at Nomura Securities in Hong Kong. “There is no question that the technology level of China’s exports has been increasing.”
While the chances have been slim for China to record annual double-digit export growth in the years following its entry into the World Trade Organisation in 2001, the country could still manage “single-digit growth” for years to come, Zhao said.
Neumann from HSBC said “the image of smokestack China where armies of workers toil at long assembly lines is increasingly misleading”.
“Across the Pearl River Delta, for example, an innovation culture has taken hold with manufacturing increasingly resembling that found in many developed markets,” he said.
A Bolivian factory owner, who introduced herself as Aidee, said she was attending the fair for her third time and had found something new each time.
“I can still find many new things here every year and the quality is improving every year,” she said. “[The Canton Fair] is still an important source for us to get quality at competitive prices.”
Kaumadi Uragoda from Sri Lanka was sourcing machine tools to process rubber in her home country, and said she had placed orders worth more than US$30,000 at the fair, which was crowded with Middle Eastern, African and Southeast Asian merchants.
“Normally we buy from India because it is closer but we switched to Chinese manufacturers because the price is better and the quality is also good,” Uragoda said.
Those exporters unable to reinvent themselves will suffer, as evidenced by a booth carrying fly swatters, which had a notable lack of visitors.
Hunter Dai, the owner of keyboard manufacturer Shenzhen SQT Electronics, said surging costs for rent, raw materials and labour were making his business harder than it had been since he founded the company a decade ago.
Dai said he relied on government tax rebates for exporters to survive. “All my 6 per cent margin came from the government tax rebates for exports,” he said.
Liao Qun, chief economist at China Citic Bank International, said it was “unavoidable” that labour-intensive manufacturing would wither in China as low-cost production was gradually relocating to Southeast Asia and even Africa.
“China hopes the process will be slow, keeping some low-end manufacturing at home while churning out more products in the fields of IT, AI and the Internet, because that’s where the future is heading,” Liao said.
Additional reporting by Sidney Leng