Export employs 200 million people, nearly 25% of the working population. The sector has already gone through difficult times with the trade war. The health crisis has caused a sharp drop in foreign demand. Official figures show a decline of 3.3% in May after a 3.3% rebound in April, mainly due to one-off factors (see the article on the subject here). The Chinese government is planning various support measures, the State Council yesterday issued various recommendations, especially on conversion to the domestic market.
What are the challenges of these exporting companies for the reconversion? What are the avenues for improvement?
The challenges of reconversion
Already after the financial crisis of 2008, some companies had turned to the internal market, but with little success. The problems to be solved can be divided into four main points :
- Many factories are sub-contractors and have no real creation and research. They are not armed to attack the very congested Chinese market. Their notoriety is very low. Investments in marketing are essential to make a name.
- The international and Chinese markets are different. For textiles, the local demands are very different in terms of taste, size, and measurements. In ready-to-wear, in some cases, new lines for China have to be created.
- Reselling the production of foreign brands faces the problem of authorization and exploitation rights.
- The domestic market’s business model requires more investment because the raw material or the finished product must be purchased first. The cash inflow comes at or after the sale, whereas in export, factories may receive a deposit with the order and, in many cases, payment before shipment. A letter of credit opened by the buyer allows for bank financing; cash advances are less significant.
The government recommends the improvement of cross-border and local e-commerce, using live streaming to diversify distribution channels.
It is also necessary to accelerate the internationalization of standards, push Chinese standards internationally, actively participate in standards amendments, and eliminate differences between Chinese and international standards.
Conversion is not easy, and the government’s help is necessary. It is thinking of taking measures. Will it make greater use of the weapons at its disposal to support the sector, such as tax exemptions, speeding up the tax refund procedure, cash flow support, subsidies for the domestic market?
1rst of July 2020