They say that Christmas comes just once a year, but there can be more than one holiday surge in the hectic world of China’s exporters. As the big day approaches, product orders placed during the summer months are often topped up over the autumn as retailers – mostly in the US and Europe – ensure stock is sufficient to fill Christmas stockings.
This year, consumer spending in developed markets remains subdued amid weak US employment figures and as European markets come to terms with the effects of the debt crisis. However, back-to-school spending in the US appears to point to an upswing in consumer confidence and a loosening of purse strings.
According to a survey by Washington DC-based National Retail Federation (NRF), the world’s biggest retail association, US consumers are expected to have spent an average of US$606 on back-to-school items this summer, 10% more than last year. Back-to-school spending is widely considered a weather vane for forecasting holiday spending. However, on the release of its survey, NRF president Matt Shay noted that the industry is still only "cautiously" optimistic about recovery.
Many of China’s export manufacturers are also taking a guarded view: Wang Shaoqing, vice director of the Shenzhen Association of Arts & Crafts Industry, which counts makers of watches, toys and household gifts and decorations as its members, told CHINA ECONOMIC REVIEW that he sees consignment orders as little changed from 2009, but expects this Christmas to mark a turning point in the fortunes of holiday season exports.
"Delivery sizes to Europe and the US are still not as big as in 2007, but we haven’t seen a fall in orders either," Wang said. "The effects of the financial crisis are beginning to ease and demand from the international market will increase. This will help further drive China’s export growth."
There are numbers to support Wang’s neutral-positive outlook. The China Federation of Logistics and Purchasing’s Purchasing Managers’ Index (PMI), which measures the expansion and contraction of the manufacturing sector, climbed to 51.7 in August from a 17-month low of 51.2 in July. The new orders index edged up to 53.1 from 52.7 in July while the export-order index rose to 52.2 from 51.2.
However, the picture is clouded by less-cheery customs figures. According to the customs bureau, August exports grew 34.4% year-on-year to US$139.3 billion, slipping from year-on-year growth of 38.1% in July and nearly 44% in June.
Exports to the EU over the January-August period grew 36.2% year-on-year to US$305.81 billion and deliveries to the US were up 32% year-on-year to US$242 billion. But base effects stemming from the financial crisis take the positive edge off these growth figures, particularly when EU export growth narrowed to 38.3% year-on-year in July, against 43.2% the previous month. Shipments to the US grew by 35% compared with 43.8% in June. Some economists expect this downward trajectory to continue.
"We will surely see a big fall in export growth from July’s 38.1% to below 20% in coming months," Bank of America Merrill Lynch (BAC.NYSE) economist Lu Ting said in a note to investors. "The only question is which month."
While anemic Western markets continue to place downside pressures on light industry manufacturers and export growth, there are other variables at play when considering Christmas book orders. One of these is time, and the lag effect between retailers’ anticipation of local demand in the early summer months against indications of consumer spending in the autumn. All the while, there are on-the-ground issues to consider.
Problems at home
Mr Huang, general manager of Xiamen Family Gifts Import and Export, a maker of Christmas household gifts based in south China’s Fujian province, explained that his company received overseas orders in March and April, but domestic factors mean there may be repeat requests from Western retailers.
"Due to a lack of labor, production and handling has been affected," Huang said. "Shipping takes between 30 and 60 days so any current consignments must be delivered by mid-September at the very latest. This would allow 20-25 days for overseas customers’ goods to travel from the ports to inland cities."
He said that these delays could lead to a resurgence in last-minute orders as retailers grow concerned about not being able to capitalize on an upswing in consumer sentiment, no matter how marginal.
But export-focused manufactures that depend on Christmas orders to bump up sales have been hit with other worries. Liu Yuzheng, an analyst at Shippingchina.com, an industry e-commerce portal, notes that labor shortages have produced higher pay demands, compounded by the rise in minimum wages in several cities and provinces across the Pearl River Delta. Logistics costs have also been rising, along with the prices of raw materials and other overheads. On top of these factors is the ongoing issue of the renminbi’s mild appreciation against the dollar.
Despite the higher costs, Liu is upbeat about the near-term outlook for China’s Christmas exporters. Talk of low-margin firms leaving China aside, there have been few indications of an exodus to other emerging economies. China overtook Germany to become the world’s biggest exporter last year, and will remain so – particularly when it comes to supplying stores around the globe with Christmas fare.
"Yes, last year was the lowest point for Christmas gift exports, but we see recovery further down the road," Liu said. "Currently there are no signs that US and European Christmas orders are moving from China to other developing economies. China is still the main supplier to the world economy."
While government officials increasingly turn their attention toward the domestic market as external demand remains weak, Christmas exporters may well be looking at a jump in last-minute orders this year, and a rebound in book order growth beyond 2011. For those companies that have not yet integrated export sales with growing domestic consumer demand – which can hardly happen overnight – autumn may bring some pleasant surprises.
"Will Christmas come early for Chinese exporters? I’d say yes," said Liu.