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Towards the end of 2020, China’s foreign trade surplus hit a record high, exceeding US$75.4 billion in November. Behind this figure is the export growth rate of 21.1% that month. In May, this figure was still negative.
China's foreign trade situation has reversed within six months. In June 2020, the General Office of the State Council also issued a document to support the transfer of export products to domestic sales. The rescue of foreign trade enterprises was a topic at the time.
How did the reversal happen?
"Affected by the epidemic, we only started working in March 2020. There were almost no shipments in March and April, but we have been very busy since May, and our annual performance is better than in 2019." A person in charge of a procurement agency in Yiwu told "China News Weekly", he helped European customers purchase products in the Chinese market. "The export volume of individual products has surged, especially indoor products, such as small humidifiers used indoors after the heating season."
From the November 2020 National Export Key Commodity Value Table released by the General Administration of Customs, it can be found that the commodities with the highest increase in cumulative exports from January to November over the same period in 2019 are medical instruments and equipment, an increase of 42.5%, ranking No. The second place is textile yarns, fabrics and products with a year-on-year increase of 31%, and its increase in the month is also close to 21%.
As a low-profit commodity, along with factors such as rising labor costs and the Sino-US trade war, some textile trade orders have flowed out of China. "The Sino-US trade war has an impact on the European and Australian markets. They subconsciously followed the US. In 2018, many orders began to transfer, and some companies simply stopped placing orders with Chinese companies." A head of the foreign trade department of a textile company Tell China News Weekly.
The foreign trade of China's textile industry has "unexpectedly" growth in 2020. However, behind it is the embarrassment that companies are difficult to make profits.
Order surge
In fact, China's textile exports performed well before November 2020. The year-on-year growth rate of exports in April has turned positive. The monthly export volume in May exceeded US$20 billion, a year-on-year increase of 77.3%.
But in the memories of some textile company leaders, April and May are the most difficult time for export. "In the first half of 2020, textile exports are mainly driven by masks, which should account for more than half of textile exports. It must not be conventional textiles that drive textile exports. At that time, corporate exports encountered unprecedented stagnation." The person in charge of the aforementioned textile enterprise foreign trade department said. According to data from the General Administration of Customs, in the first four months of 2020, China's exports of masks to the United States, Japan, and Europe accounted for 1/3, 2/5, and 1/2 of the exports of textiles respectively.
He told China News Weekly that after the supply of large quantities of masks is in place, the export of masks in the second half of 2020 will not be much needed. "Nowadays, both demand and prices have fallen. The price of masks may only be one-tenth of that of the first half of the year. The rebound in foreign trade in the textile industry in the second half of the year is definitely due to the rebound of traditional textile exports."
"The orders received so far have been scheduled until March 2021, which is rare in history. Generally, orders for home textile products such as towels will be scheduled for about one month to one and a half months." Vosges Group Director and Deputy General Manager Yu Conghai told "China Weekly newspaper". The Vosges Group is China's largest exporter of home textiles. It mainly exports home textile products such as towels and bedding. The export accounted for 80% to 85%. Sales in the American market reached US$270 million to US$280 million.
Introduced from Conghai, the export value of the American market has increased significantly from the second half of 2020 year-on-year, about 15% per month.
The export value of towels to the United States in the fourth quarter exceeded US$50 million. Even before the epidemic, such a single-season export value was not easy to achieve. "The factory has been operating at full capacity since the second half of the year, and some outsourcing needs to be invited. This momentum will continue until the first quarter of 2021 without any problems."
In normal years, the peak period of foreign trade orders is from October to March of the following year. In previous years, the Vosges Group’s beach towel orders will increase during this period, and the goods will be stocked for the next summer. However, this year's beach towel orders are small. With the increase of orders in the American market in the second half of 2020, the structure of export products has also undergone some changes, and orders for household and indoor products have increased significantly. "The overall performance of home textile products is good." Yu Conghai said.
According to the National Bureau of Statistics, from January to September 2020, the export delivery value of domestic textile enterprises above designated size fell 6.05% year-on-year, but the third quarter has achieved positive growth, an increase of 9.34%, and an increase of 19.56% in September.
In addition to home textile products, export orders for fabrics have also surged. A quarter of the world's fabrics are traded in Keqiao, Shaoxing every year. The foreign trade prosperity index in the Keqiao Textile Index released locally shows that in November 2020, it increased by 10.4% year-on-year to 911.77 points, the highest value since 2019.
Yan Liangmin, the person in charge of Shaoxing Zehao Trading Co., Ltd., told China News Weekly that 90% of its products are exported to the American market. “Since August, the monthly export value has increased compared with the same period last year. The growth in the four months from January to November has made up for some of the previous losses. In some months, the increase in export value even exceeded 50%." But he told reporters that the company's annual export value will still drop by about 6%.
This seems to be the consensus of many textile companies interviewed. Although foreign trade orders surged in the second half of the year, it was still difficult to make up for the losses in the first half of the year. The data provided by the Keqiao District Bureau of Commerce also shows that even after the third quarter of order growth, from January to October 2020, the cumulative export value of enterprises in the district fell by more than 20%.
"Even if there was a retaliatory growth in the second half of the year, it did not make up for the export share lost in the first half of the year. Especially in the second quarter, the year-on-year decline was large." Yu Conghai said.
Then, given the weakening of conventional textile exports in the first half of 2020, where did the surge in foreign trade orders in the second half of the year come from?
Order backflow
"India is probably also taking the route of herd immunity, which is difficult to control." The head of a textile company is very concerned about the situation of the new crown epidemic in India. "Indian companies are our main competitors. At present, only a few large factories have started operations, and they are not operating at full capacity. Some small and medium-sized factories have directly shut down, resulting in more orders returning from India in the second half of the year."
But he emphasized that "India has not completely lost its combat effectiveness", but the factory's operating rate is only about 80%, otherwise more orders will be returned. "We learned from some customers that they are still placing orders for Indian companies, but considering the risks, they are seeking to "back up" in China."
“We have very few new customers now, mainly some old customers who transferred their orders to India and handed them back to us.” In the impression of Wang Qijun, director of the Vosges Group and general manager of the Third Home Textiles Company, the orders were placed in July and August. Begin to return, "The trend of return in October is more obvious. It will temporarily "rescue" many orders for Christmas season products. Some orders have already been placed to Indian companies, and they have even been proofed and withdrawn to China, mainly because Indian companies cannot be on time. Delivery, and the Christmas season products can’t miss time."
"The delivery time of Indian companies has always been at a disadvantage. It used to take two months, but now it may take three months. Some'rush orders' from US customers require us to break the routine. Originally, our delivery time was 30 to 40 days after the samples were confirmed. It has been considered very fast, but they may need to deliver the samples within two weeks after confirming the samples. This puts a lot of pressure on the factory and will also increase costs. The order is mainly for demonstrating strength." Wang Qijun believes that in addition to the delivery advantage The return of orders from India also shows that the prices of Chinese companies’ products are not too expensive.
"In the second half of this year, the orders returned to China from India are mainly mid-range home textile products." The person in charge of the aforementioned home textile company said that in recent years, Indian companies have posed great challenges to Chinese companies in low-end home textile products, and India is particularly good at mid- and low-end home textile products. For high-end projects, cheap raw materials and low labor costs, coupled with China's tariff restrictions, have caused a lot of such projects to flow to India, such as the white towels commonly found in restaurants.
Take towels as an example. The price difference between Chinese and Indian products is between 10% and 30%. This does not take into account the additional 7.5% tariff imposed due to the Sino-US trade war.
"After the epidemic, some of the returned orders will leave. For example, products that are extremely price sensitive will definitely go. Even if there is only a 5% difference, we are mentally prepared for this." However, in Wang Qijun's view, it will support the second half of 2020. Among the factors contributing to the increase in export orders to the United States, the return of orders may only account for about 30%. "The reason for more than 60% is the counterattack of overseas demand."
"Order backflow is not suitable to explain the growth of all textile export orders. For example, some domestic companies made pure polyester bedding, after the 7.5% trade war tariff was cancelled, and the export volume surged. These products are not the strong points of India or Southeast Asia. , The export growth is mainly due to the increase in demand in the US market, which directly squeezed out some low-end cotton bedding products made in India and Pakistan.” A textile industry insider analyzed to China News Weekly, “US consumers are In the second half of 2020, retaliatory consumption, and because of fewer trips, the demand for home textiles has increased."
The most direct manifestation of the demand counterattack in overseas markets, especially the US market, is the increase in orders during the Christmas season. For textile companies, especially home textile companies, they start to receive orders for the Christmas season every August, most of which are products with holiday elements. "The consumption rebound that began in the second half of 2020 has made many customers in the United States judge that the economic situation has improved, which directly led to more orders for Christmas products than in previous years." The head of the aforementioned textile company said.
"According to current statistics, the Christmas season orders from the United States have increased by about 20%, especially for kitchen towels." Yu Conghai said. However, the growth of export orders triggered by the backflow of orders and the rebound in overseas demand has brought bitter results. "Everyone is so busy, but in the end they didn't make any money." This seems to be a common phenomenon in textile companies.
was "eaten" profit
The situation where the orders of home textile companies are scheduled to be three months later is "rare in history", and a person in charge of a freight forwarding company sighed to the reporter, "I have been a freight forwarder for more than ten years, and I have never encountered such a situation." Refers to the looting of containers and rising sea freight.
"In October 2020, the price of a 40-foot-tall container sent to Europe was still stable at about US$3,000, and it could reach more than US$2,000 when it was lower. Since then, the price has risen all the way, reaching 4700 US dollars by November, and by mid-December. It will cost USD 7,500 to USD 7,700 in the second half of the year.” The person in charge of the freight forwarding company told reporters.
A person in charge of the logistics department of a home textile company recalled that shipping costs to the United States began to rise slowly from September 2020, probably when the return orders increased. And it will continue to rise."
On December 31, 2020, the China Export Container Freight Index (CCFI) released by the Shanghai Shipping Exchange broke through 1,600 points for the first time, reaching 1,658.58 points, setting a record high. The CCFI record has been continuously refreshed in 2020.
Behind the rising shipping costs is the tight supply of containers. "Before, even if the price increased, containers could still be found, but starting from the end of November 2020, even the containers were difficult to grab. Even if the space was booked very early, it was discovered that there were no containers when loading the containers, resulting in a backlog of goods in the warehouse." The person in charge of the freight forwarding company said.
"Just like an airplane ticket, even if you have money, you may not necessarily buy a ticket. The shipping space is the same, and even if you have a space, there may not necessarily be a container for loading." The person in charge of the logistics department of the aforementioned home textile company said that in the past only needed Book a space one week in advance, and now it needs to be at least half a month in advance, and it may not necessarily be available. "Because of the inability to ship in time, the value of the products currently affected by the company has reached 35 million US dollars."
The status quo of "a box is hard to find" is considered to be the result of multiple factors. According to the analysis of the aforementioned freight forwarding company, the slow change of the container week is one of the reasons. "The container can't be returned after it goes out. The goods are shipped to Europe and the United States, and they are held in the port warehouse. In the past, the goods could be picked up in 3 days and distributed to various channels. Now they may not be finished in 7 days. Due to the decrease in exports, shipping companies cannot pull empty containers back, resulting in a drop in container turnover."
The Port of Los Angeles experienced its busiest month in 114 years in October 2020, handling more than 980,000 standard containers.
But this freight forwarder believes that the most important reason is that the capacity has not returned to the level before the epidemic, and exports have rebounded to a level that is better than normal. "Many routes used to be three ships running, but now there is only one ship, or there are three big ships, but now there is only one small boat. This can't all depend on the shipping company. In September, there was no cargo to ship and the ship ran empty. Now there are only so many spaces available. The supply is less than the demand. The price increase makes up for the deficit. It makes sense from the perspective of the shipping company."
But when talking about the impact of rising shipping prices on textile exports, Yan Liangmin said bluntly, “It’s terrible, it’s eaten up our profits.”
"Textiles take up more space. The value of a container, or the added value, is not high. For example, the value of a container of machinery and equipment may be hundreds of thousands of dollars, while the value of a container of textiles is more than three to four thousand dollars." The person in charge of the logistics department of the aforementioned home textile company said.
"Most of our orders are FOB (customer bears freight) model, but a customer in Europe adopts CIF (export company bears freight) model. The original container was more than 3,000 euros, now it has become more than 7,000 euros, and the freight accounts for 22% of the value of the goods. , This is too scary, and it has already suffered a serious loss." The head of the aforementioned home textile company told reporters that the home textile industry is originally a meager profit, with a gross profit between 10% and 15% and a net profit of only 3% to 5% in normal years. "Even the FOB model is uncomfortable for customers. It is actually difficult to pass on the cost of growth to consumers because retail prices do not dare to increase too much."
It is difficult for retail prices to increase. Similarly, the increase in factory prices of enterprises is also limited. Even so, Wang Qijun introduced that the price of the product was increased by 2% to 6%, mostly by two or three points. "Especially as the exchange rate has risen in recent months, if the price is not raised, the impact on profits will be obvious."
For the Vosges Group, which adopts the FOB model in most cases, the factor that "eats" profits is more from the appreciation of the RMB.
"The thin profit in the second half of 2020 is mainly due to the exchange rate. The rise in the exchange rate has directly eaten up seven or eight points of our profit. In the second half of the year, we will lose about 50 million yuan due to the rise in the exchange rate." The person in charge of the aforementioned home textile company also expressed emotion. "The currencies of our competitors are depreciating. For example, Turkey is a competitor of high-end products. The exchange rate against the US dollar has depreciated from more than 3 points to 7 points in the past three years.