Author: South seven
Title: IC photo
“The situation is very complicated now.” Li Fang pointed to a packed box of N95 masks. “This is for American customers.” She looked dignified, and came to Shenzhen from Jiangxi to start a business in 1997 to make IC components. He has accumulated the first bucket of gold and has been active in the foreign trade industry.
She experienced the Asian financial crisis in 1998, SARS in 2003, and the global subprime crisis in 2008, but this time, she felt that the situation was different from the previous ones. The epidemic that is sweeping the globe is changing everything, including foreign trade and cross-border e-commerce. China’s foreign trade sellers are at the center of a storm of epidemic and potential economic crisis.
The roller coaster-like foreign trade market
The world cannot do without Chinese goods, and China cannot do without world purchasing.
According to Xinhuanet, in 2018, China’s manufacturing value added accounted for more than 28% of the world’s total. Jiangdu Taixing, a small town called Huangqiao, produces 30% of the world’s large and small violins. 40% of the world’s glasses are produced in Danyang, Jiangsu. 80% of the world’s air conditioners, 90% of personal computers, 75% of solar panels, 70% of mobile phones and 63% of shoes are produced in China.
Shiyan Factory in Baoan, Shenzhen (Photographed by Nanqidao)
Foreign trade export, oneIt is a pillar industry of the Chinese economy. According to January this year’s data from the Department of Foreign Trade of the Ministry of Commerce, from January to September 2019, China’s net exports of goods and services contributed 19.6% of GDP growth. Foreign trade has driven about 180 million people in employment, and taxes on imports contributed 11.6% of total national tax revenue.
The South China region, including Shenzhen, is also China’s major export town. According to official data released by Shenzhen, Shenzhen’s total exports in 2019 amounted to 1.708895 trillion yuan. In addition to commodities, cross-border e-commerce retail for small orders is also very active. In the first 5 months alone, Shenzhen Customs inspected and released 7.86 million votes of cross-border e-commerce retail export goods.
The off-season of the Spring Festival and the spread of the new crown pneumonia epidemic globally have a direct impact on China’s foreign trade exports. The announcement of the General Administration of Customs of China in March: “During January to February, exports fell 17.2% year-on-year.” “From January to February 2020, China’s exports to the United States were 300.1 billion yuan, down 26.5%. / p>
Due to the epidemic, the Canton Fair originally scheduled to be held on April 15 was postponed. Each session of the Canton Fair is the highlight of China’s foreign trade community, with about 200,000 overseas buyers from more than 210 countries and regions participating. This is the first time that the 126-year Canton Fair has been held for 63 years. During the SARS period in 2003, the Canton Fair remained normal.
In front of Chinese sellers in the takeaway industry this year, it is a roller coaster-like market. From January to February, due to the spread of the domestic epidemic, the domestic supply chain was completely disrupted. The start of the factory was postponed, local workers could not rework normally, suppliers could not supply production materials, and the factory could not start. By the middle of March, when domestic production capacity was basically restored, the epidemic situation in Italy, France, and the United States began to break out. Closures and shutdowns became the norm, and unemployment rates in various countries rose sharply. This directly affects the sales and business of Chinese foreign trade sellers.
Will the epidemic affect more than the 2008 financial crisis?
Analysis of many people in the foreign trade industry, if the epidemic continues to spread, the impact may exceed the financial crisis in 2008 and the Sino-US trade war in 2019.
From the perspective of Wanda, who has been engaged in foreign trade business for more than 10 years, the impact of the 2020 epidemic on the financial crisis in 2008 will be completely different for the foreign trade industry:
From the affected countries : The subprime mortgage crisis was mainly affected by developed countries such as Europe and the United States, which affected other countries,However, the epidemic is rapidly evolving globally. Currently, cases have been confirmed in more than 160 countries, and all countries are close to enemy;
From the industries involved : The subprime mortgage crisis has hit the financial industry and the real estate industry the most. The epidemic is sweeping across all industries, and no one or industry can stay out of the business.
From the perspective of economic performance : The subprime mortgage crisis is a problem with liquidity. Countries resolve the crisis by dissolving liquidity, and the epidemic is an invisible threat to life, leaving most industries in a halt. , Even the basic life has undergone tremendous changes;
But the comparison of production costs between 2008 and 2020 has changed dramatically. In 2008, a worker’s salary was around 2,000 yuan, and now it is 5,000 to 6,000 yuan. It is still difficult to find someone. In 2008, the rent of Baoan factory was RMB 10-12 per month per square meter, and now it is around RMB 40 a month. The prices of raw materials are also rising. Ex-factory prices are difficult to keep up with the pace of rising costs.
At the time of the trade war in 2019, the foreign trade circle was full of hearts, and the circle of friends and WeChat were full of various uncertain negative news. At the beginning, foreigners, including Wanda, felt the end of the world. Wanda’s European and American customers are worried that the impact will be too great, and they are required to open factories in countries with low tariffs such as Vietnam. Some manufacturers have indeed relocated, and some orders have started to flow to Vietnam and other places.
But soon European and American customers reported that Vietnam ’s supply chain was not working well, communication efficiency was poor, and service was poor, so some orders began to return to China. Counting the whole, after the trade war, overall orders have only dropped by about 5% to 10%. Fear often exaggerates pessimism.
China is the only country in the world with all industrial types. The advantages of its domestic supply chain are large and comprehensive, the price is relatively cheap, and the response speed is fast. The current manufacturing production is completely an ecosystem of deep cooperation in the supply chain and the industrial chain. Even small commodities cannot be completed independently, requiring the cooperation of multiple partners throughout the supply chain.
A seemingly ordinary audio and video transmission cable, including core fiber, PVC plastic, metal wire, terminal mold, tape, outer packaging, each part requires a supplier and small processing Factory, at least 6 suppliers are required to participate. Without a link, you cannot ship. No country can replace China in the short term. From this point of view, the overall transfer of the industrial chain is extremely unlikely.
Is the tide of closing foreign trade companies coming?
The only thing we have to fear, Franklin said, is fear itself. “After the previous storms, we are now from an optimistic point of view, the current industry sentiment is more pessimistic than the actual situation. Panic sentiment has been amplified.” After 20 years in the industry, Li Fang deeply felt.
Chinese foreign trade manufacturers were pushed to the crossroads by the epidemic. On the one hand, large-scale foreign trade manufacturers have not stopped work in a large area like the legend, or the tide of bankruptcy, and they are still working hard at the moment. However, they are digesting foreign orders in December last year and January this year.
But on the other hand, the situation of many small foreign trade factories with single products and single customers is not optimistic.
The peak period of the foreign trade industry is generally in the first year of December and the second year of January to February. At this time, after the Thanksgiving and Christmas in Europe and the United States, you need to replenish, and to avoid the Chinese Spring Festival Orders will be placed ahead of schedule. Then entering the summer is a low season, from September to the peak season.
Shenzhen Baoan, a foreign trade manufacturer specializing in the production of audio and video transmission lines, HDMI and other data lines, is currently under full capacity. The company has been in existence for more than 20 years and employs more than 400 people. There are factories in Shenzhen and the Mainland. The products are mainly used in enterprises, hospitals, administrative units, entertainment venues, etc. There are also data cables and charging cables for personal use. From product design, research and development, production, and sales to one-stop coverage, major customers include European and American companies such as Wal-Mart.
They have an annual output value of about 200 million and 50% of their orders come from Europe and the United States. During the peak period in Europe and the United States, orders exceeded 15 million a month, and normal production is currently underway, but these have been placed at the beginning of the year. Since April, new orders have gradually decreased. A number of foreign trade analysts have analyzed that according to the spread of the epidemic in Europe and the United States, it is expected that it will not be eased until August or October. Then the factory can’t receive the order and can only idle.
If the inflection point occurs in June, the entire plant will not be fundamentally affected. If it ends in October, the overall order loss will exceed 40% to 50%. The factory employees have a monthly salary of more than 1.4 million, and fixed-value expenditures of 300,000 rents for hydropower, at least 1.7 million per month. Fortunately, they have already started to lay out the domestic market before.
Executives from a high-voltage electrical company in Wenzhou, Zhejiang revealed that their work is now normal. The products are mainly high-voltage electrical equipment suitable for railways and electric power. With more than 300 million output values in 2019, 60% are sold.40% of foreign trade orders abroad are domestic orders. At present, the entire company’s production has not decreased, and it is started on the entire line. But all consume orders placed at the end of last year. After the completion of these orders, “because the new foreign trade orders have not yet been settled, we are planning to vigorously expand the domestic market share.”
On the other hand, there are indeed some foreign trade enterprises with low competitiveness that have been affected and impacted by the epidemic:
Single customer: Most of the output value and orders of a foreign trade factory come from a foreign customer. Such a state of existence is actually very fragile. Many large foreign customers are required to sign price reduction clauses. Manufacturers must reduce the price of purchasers by 5% a year. There is no room for negotiation. In this case, as soon as the customer coughs, the manufacturer will catch a cold.
On March 23, 2020, Dongguan Precision Watch Industry Co., Ltd. announced that due to the epidemic, the company’s largest customer, FOSSIL, the United States, cancelled the order, and this customer accounted for 80% of the order accuracy. Accuracy implements “shock therapy”: all employees are on vacation for three months, and employees can resign at any time.
Single product: For foreign trade processing enterprises, the division of labor is becoming more and more fine. Many companies produce and export only one accessory or part of the ingredients instead of a complete commodity. Over a single product line, profits are mainly dependent on processing costs. This state is basically free of critical technologies and moats, and can easily be eliminated or replaced. Once the industry is hit, such marginal producers will be affected first.
On March 18, 2020, Dongguan Panda Toy Factory, which was established in 1992, announced its closure. They have provided services to Disney and Hasbro. The main products are the production and sale of toy garments, cloth bags and woven bags. All they make is a part of the outer packaging of a toy.
Amazon’s official storage adjustment notice
Pure trader: Many Chinese sellers in the foreign trade industry are just middlemen without their own factories. Amazon China sellers are typical examples. Under the impact of the epidemic, production has an impact. In addition to rigid demand, personal consumption in various countries is falling, sales are falling, coupled with changes in Amazon platform policies, multiple attacks.
There is a saying in the foreign trade industry that 50% of Amazon sellers come from China, and 50% of Chinese sellers come from Shenzhen. Amazon CEO Jeff Bezos said that (including Chinese sellers) the proportion of sales by third-party sellers, from 30 in 2008 % Rose to 58% in 2018. Sales increased from $ 100 million to $ 160 billion, with a compound annual growth rate of 52%.
On Amazon, clothing is one of the categories most affected, and textiles and clothing are the top priority for Chinese sellers. Some sellers said: “The company’s clothing is mainly summer vacation clothing. Due to the epidemic, foreigners have no plans to take vacations recently, or they have cancelled it.” .We used to make 100 orders a day, now we only have 30 orders. “
Influencing cross-border e-commerce sellers also has rising logistics costs. According to the convention of , empty delivery (Air freight plus short name for delivery) Logistics channels, generally one kilogram after the Spring Festival is 32 yuan, now It rose to 40 yuan, a 25% increase. Even with the price increase, many channels have been unable to ship due to overseas epidemics.
At this time, the strategy of the Amazon platform also changed: “We have decided to give priority to household necessities, medical supplies and other products that just need to enter our storage center.” For products other than the above categories, we will temporarily stop storing them. This has left many Chinese sellers somewhat overwhelmed.
Self-help of Chinese foreign trade sellers
When the global turning point in the epidemic will occur is unknown. For the second half of the year, Chinese sellers are cautious. But life and business must continue. Chinese sellers are conducting self-help in various ways:
Open source: Lao Cai, who opened a factory in Baoan, Shenzhen, said that foreign trade factories around him are opening up new channels including AliExpress. The biggest impact is currently in the United States and the European Union.It was the main sales area before Chinese sellers. In 2019, the top four import and export countries of China are the European Union, ASEAN, the United States, and Japan. Chinese sellers are also actively developing new customers, including areas not affected by policies in Japan, Singapore, India, Australia and other places, to explore new opportunities.
The boss of the company where Wanda is located made a pre-judgment in advance, and made a layout for customers to spread the risks. In the early years, we optimized 100% foreign trade orders to 50% foreign trade and 50% domestic market. At the same time, it has expanded from the original offline channels to domestic Tmall and Taobao merchants. In this outbreak, the impact of domestic orders is not obvious.
At the same time, they have also strengthened communication with customers, including mailing masks to customers for free, appeasing customers, helping European and American customers to plan, doing local epidemic and business risk assessments, sorting out business problems together, and minimizing risks to the minimum . “Cannot abandon customers when they are difficult.”
Facing non-emergency products with excessive inventory and the impact of the epidemic, many merchants have begun to choose a killer–price reduction. This is a helpless choice, but it is also one of the fastest ways to collect funds.
Throttling: Saving expenses has become the most realistic thing. The most direct thing is to reduce or stop the advertisements that have been previously placed on platforms such as Amazon. Facing the problem of warehouse storage, we adopt a special mode of transportation-freight in transit. At present, Amazon’s policy is limited to around April 5, so some sellers calculate the unsealing time and shipping time, and then ship by sea. The shipping time is long and the freight volume is large. The card arrives at the time of unsealing and then enters the warehouse. However, the risks of this method are also obvious. Once Amazon continues to implement the restricted storage policy, it can only find warehouses by itself, and find logistics and delivery by itself. The cost will be high.
Management: A number of Chinese sellers have stated that they will shrink the size of the company this year, lower their annual operating expectations, and even a few peers have begun closing and transferring companies. “The development speed was good before, and the plate is relatively large. This year’s business goals will be appropriately lowered. Mainly to make the company’s existing categories and slow down the expansion. Take advantage of this time to grasp the company’s internal management quality.” After this epidemic, foreign trade companies’ risk awareness has increased, and they will be more cautious when developing new products. “This is a very valuable experience for the long-term development of the company.”
But there are also many bosses who say they will not lay off blindly. “ (Redundancies) is a cure for the symptoms, but the key is to find new orders. OrderIt ’s not even worse when there are no workers. “
Policy: At critical moments, government policy support will also stimulate the recovery of exports and the trade economy. In 2008, in order to maintain the stability of foreign trade, a series of policies were issued intensively from the central government to the local government, including four consecutive increases in export tax rebates. Elimination or reduction of some tariffs, unbundling of processing trade, etc. After the outbreak, the central and local governments are actively promulgating policies to stabilize foreign trade and exports.
The Ministry of Commerce and the Ministry of Finance issued a letter emphasizing that “special funds support the stabilization of foreign trade, foreign investment, and promotion of consumption.” The Shanghai government “increases financing support for foreign trade enterprises and encourages financial institutions in Shanghai to increase support for foreign trade enterprises.” But everything is at the root of the order. Without the order, the machine cannot run. Without export orders, export tax rebates on policy will not be discussed.
A foreign trade veteran said that an epidemic actually showed the closeness of China and the world economy, and also exposed some of the disadvantages of China’s foreign trade manufacturing. One of them is to follow the trend, follow the trend. Some time ago, medical supplies such as masks were hot, so many people abandoned their original business and switched to manufacturing masks and other products.
Opening the WeChat foreign trade group or circle of friends, more than 50% of people are using medical resources such as masks. Many hastily produced masks fail to meet industry standards, and they cannot be exported to Europe and the United States. They just make quick money while taking advantage of the epidemic. These people don’t have a long-term plan, they just walk and watch. Now many mask manufacturers have started to overcapacity and are facing new transformation problems.
The closer the global economy is integrated, the more frequent irregular fluctuations may be. But every time the industry faces huge uncertainty, a new industry and model will be born. After the financial crisis in 2008, global industries including “Made in China” were shuffled. Most of the industries originally positioned at low-end manufacturing have taken the initiative or were forced to accelerate industrial upgrading and evolve towards the high-end of the global industrial chain. . In Guangdong, emerging industries such as optoelectronics, environmental protection, new materials, new medicine, and new energy have all developed rapidly after 2008.
In Lao Cai’s opinion, the epidemic will end sooner or later, so he is still confident in foreign trade. He said: “The market will recover when this epidemic is over. For us manufacturers, we will still sell Chinese products abroad. But our products do need to be more technical.” p>
(All characters in this article are pseudonyms, thanks(Lao Cai, Wanda, Li Fang, etc.)