The Contradiction between Large Orders and Few Revenues
“It was not until the last week that our shipment had been loaded on board which should have been delivered on Aug 15th the last year. The shipment was delayed for a total of three months. And we still have a mountain of products piled in our warehouse and still to be delivered. The freight is incredibly expensive… and we are informed to wait.”
said Hualiang Xu the production manager of a packaging machinery manufacturing company in Shaoxing, Zhejiang.
Ever since the outset of the covid pandemic, a majority of the small and medium manufacturing companies that used to be reliant to export have been struggling to survive. Bunches of negative impact and subsequences brought by the pandemic have severely taken a strong head-on blow on their business – upsurging freight, ever-increasing exchange rate, raw material prices …. – all these factors have turned their business into a Nightmare-mode game.
“We have seen that a lot of companies now is trapped into a predicament where they constantly receive orders, however, do see increase in income, for which reason companies are now afraid of getting orders – they’d just get busier yet no more income”
Official statistics show that China’s export volume in the first quarter 2022 reached 9.415.100 million CNY, attaining a year-on-year growth of 10.7%, reported on Apr 18th.
The more Orders, the more Difficult the Game Becomes
In Yiwu, another trade-and-export-focused city of Zhejiang, companies were faced with the same situation just like that of Xu.
“The peak season arrived earlier that it was expected in 2021, and we saw an upsurge in the quantity of orders. I guess it was due to that fact that global supply chain was in a chaos now that manufacturing companies in Southeast Asian countries were shut-down due to the pandemic and thus orders were transferred to China.”, said Chen, a manager of Yiwu local company.
The increase in orders, together with the chaos of supply chain of upstream like raw materials and with other suppliers, caused the previous orders delayed while there were still new ones arriving. “Gradually the company is not capable of arranging its workflow properly, everything ends in a mess.” He complains.
The shipping is another obstacle for them. Generally, in the past, it would take only one week for shipment booking after the products were ready, and now it takes almost a month.
No Increase in Income
The price increase of raw materials is a black hole that swallows profits. Starting in February this year, the price of raw materials has risen significantly. Taking textile and garment raw materials as an example, cotton yarn, staple fiber, and spandex have started to rise almost across the board. Among them, the price of cotton has risen from an average price of about 14,000 yuan/ton last year to a maximum of 24,000 yuan/ton this year, an increase of as much as 71.4%
And the high cost is more than that. Since August this year, at least 20 provinces in China have been plunged into varying degrees of electricity restrictions. The electricity restriction has also brought about electricity price adjustments. Since mid-October, a number of provinces have introduced policies to adjust the time-sharing electricity price mechanism, and the proportion of peak electricity prices fluctuating up and down has reached 20%.
The Contradictory Situation
In stark contrast to the difficulties of foreign trade enterprises, our country’s export performance has advanced by leaps and bounds. After the scale of import and export hit the best level in the same period in history in the first half of the year, the export growth rate slowed only in July, and the year-on-year growth rate continued to rise in August, September, and October.
Why does this phenomenon occur? Wang Meiting, a researcher at the Bank of China Research Institute, told me that “high growth in export data” and “difficulties in operating foreign trade enterprises” seem to be contradictory, but in the context of the global epidemic and supply chain tensions, the huge contrast between the two is also reasonable. .
“On the one hand, this year’s global economic recovery and rapid demand growth have driven China’s export growth. However, under the repeated epidemics, the production capacity of emerging markets has been hindered and the global supply chain is tight, which has enabled China’s industrial chain advantages to be fully utilized. Foreign demand for Chinese imports has been increasing, resulting in high export data growth; on the other hand, the surge in demand in Europe and the United States has brought about an increase in commodity prices. At the same time, China’s exports are strong and the supply of containers is in short supply, which has brought about an increase in shipping prices, which has increased the export costs of foreign trade enterprises. Exports are looking lively, but the growth rate of corporate profits is not high, and there are even losses and reduced orders. ”
In fact, the PMI index, which reflects export expectations, fell all the way in the second and third quarters of this year, which seems to support this contrast from the side. Huo Jianguo, the former dean of the Institute of International Trade and Economic Cooperation of the Ministry of Commerce, mentioned in an interview with the media that the export order index has fallen and the export volume has risen. On the one hand, it may be that the price increase of raw materials has led to passive price increases of enterprises’ end products and increased export data; on the other hand, despite the strong external demand, companies dare not take orders on a large scale and give priority to digesting inventory. This shows that companies are unwilling to expand production capacity and continue to sign orders.
At present, the survival situation of small, medium and micro foreign trade enterprises is not optimistic. At a recent press conference of the Ministry of Commerce, Ren Hongbin, Vice Minister of Commerce, mentioned that there are still many trade risks, many rising costs, and many supply chain congestion points.