European Decline, Chinese Trade's Gain

"The opportunities in the Middle East this year are significant," said Ye Yikai, chairman of Guangdong Zhonghui Green Building Mobile Housing Technology Co., Ltd., as he brought his mobile housing solutions to the Middle East to discuss business in the last days of August.

Ye Yikai told Yicai that their orders in the Middle East this year have surged by 260% compared to the same period last year. His trip to Saudi Arabia was aimed at further expanding into the Middle Eastern market, leveraging the advantages of localized production and labor markets to provide customers with a 24-hour door-to-door service experience.

As the summer vacation comes to an end, the foreign trade industry, as usual, will usher in the most important peak season of the year. A large number of foreign trade professionals have also embarked on intensive travel plans to go out and secure orders.

The Middle East is booming, but Europe and America remain important.

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Like Ye Yikai, Ding Yandong, a foreign trade professional from Zhejiang, will also start his global journey in early September, "visiting major clients." At the same time, he will also take the opportunity to participate in exhibitions in the United States, the Middle East, and other places, returning to the country in the middle to attend the Canton Fair in the fall, "to accumulate a wave of orders."

Currently, their factory is still working intensively to fulfill orders, "there will be a small peak around November." With emerging markets such as the Middle East and Africa as their main focus, their export scale has maintained a double-digit growth overall this year.

Faced with the challenges of global economic uncertainty, Ding Yandong, who has expanded his production capacity layout in recent years, must be more proactive than ever in exploring markets—to preserve his traditional markets and expand into new markets such as Southeast Asia and South America. As for the Middle East, on the basis of rapid growth in the past two years, it continues to be a highlight of his company's export growth this year.

According to data from the United Nations International Trade Center's "Export Potential Map," by 2027, China's export scale to major Middle Eastern markets is expected to reach $178.6 billion. Data released by the General Administration of Customs this year shows that over the past 20 years, the total value of China's import and export trade with the Arab League has increased from 303.81 billion yuan in 2004 to 2.8 trillion yuan in 2023, a growth of 820.9%. Among them, in the first four months of this year, China's import and export trade with the Arab League reached 946.17 billion yuan, setting a historical high for the same period, with a year-on-year increase of 3.8%, accounting for 6.9% of China's total foreign trade value; exports increased by 14.5%.

For Ye Yikai, Southeast Asia was originally a major market but experienced a more noticeable decline this year. The rapid growth in the Middle East quickly filled this gap, becoming one of the main forces in the company's exports, accounting for about 40% of the share. In addition to the Middle East, the South American region has also become a destination for him to seek opportunities and gain additional volume.

In addition to emerging markets, the United States is a new market that Ding Yandong will focus on this year to "face challenges head-on," "We didn't do well in the U.S. market before, but we still need to make it work."In the continuous diversification and development of the foreign trade market, emerging markets are growing rapidly and full of opportunities, while traditional markets remain important and have huge potential. Customs data show that in the first seven months of this year, China's total import and export volume with the European Union, the United States, South Korea, and Japan reached 8.49 trillion yuan, a year-on-year increase of 2.2%, accounting for 34.2% of China's total import and export value. In the same period, the total import and export volume with ASEAN, Central Asia, Latin America, and Africa reached 7.6 trillion yuan, a year-on-year increase of 9.8%, and the proportion increased by 1 percentage point compared to the same period last year.

Chao Kang, the secretary of Changzhou Lingyue Equipment Co., Ltd., told Yicai that the United States has always been a major market. Faced with the challenge of economic downturn, they have felt a continuous increase in demand in the United States, which has also allowed them to continuously expand the market share. Faced with the start of the fourth quarter, they are trying to continue to maintain momentum through cross-border e-commerce and other methods.

Ma Tongwei, the general manager of Shandong Ruitu Laser Technology Co., Ltd., has started a new European trip these days. He told Yicai that Europe is not only the highlight of their growth this year but also the main market for the next three years.

According to his observation, in recent years, the purchasing power of the entire Europe has obviously declined, and it has been affected in terms of price sensitivity, acceptance, and purchase budget. However, crises have always been accompanied by opportunities - precisely because the overall purchasing power and budget of Europe have declined, Chinese manufacturing with ultimate cost-effectiveness has ushered in opportunities. He cited an example that a European customer purchased all European first-line brands for the entire factory five years ago, with prices more than five times that of Chinese manufacturing. This year, there is a strong motivation to find high-quality Chinese suppliers to reduce costs and meet new procurement needs.

In the frequent "going out" field visits, Ma Tongwei saw the opportunity for Chinese manufacturing in the machinery category, which is unmanned. "How to help European customers achieve higher output with less labor is where Chinese manufacturing may overtake the opportunity." This also means that the direction of improvement for Chinese manufacturing will continue to improve cost-effectiveness, product competitiveness, and unmanned, intelligent manufacturing.

Opportunities and challenges coexist.

Since this year, China's overall foreign trade export performance has exceeded expectations. However, global economic downturn, intensified geopolitical risks, high sea freight prices caused by the need to bypass the Cape of Good Hope due to the Red Sea crisis, and fluctuations in the RMB exchange rate have added greater uncertainty to this peak season.

Data released by the National Bureau of Statistics on August 31 show that in August, the manufacturing purchasing manager index (PMI) was 49.1%, a decrease of 0.3 percentage points from the previous month; the non-manufacturing business activity index was 50.3%, an increase of 0.1 percentage points from the previous month; the comprehensive PMI output index was 50.1%, a slight decrease of 0.1 percentage points from the previous month. From the export side, in August, the new export order index was 48.7%, an increase of 0.2 percentage points from the previous month, at a relatively high level for the same period, and has been increasing for two consecutive months, becoming a highlight of the August manufacturing PMI.

Gao Ruidong, the chief economist of Everbright Securities, believes that since the second quarter of this year, China's export growth has continued to rebound. On the one hand, it is due to the overseas restocking cycle, and demand is gradually recovering. On the other hand, the effects of stable foreign trade policies have gradually become apparent, coupled with some enterprises "grabbing exports," and the export performance has been better than expected.

However, in the individual indexes of China's non-manufacturing PMI in August, the new export order index was 47.6, a decrease of 2 percentage points month-on-month. The order backlog index, inventory index, input price index, sales price index, employee index, and business activity expectation index all decreased compared to the previous month.Wang Sijie, Vice President of the WanYiTong Group, which focuses on overseas warehouse business, previously told Yicai that unlike the peak seasons of the past, the current peak season has become shorter and more concentrated. "This is related to the not-so-good economic situation in Europe and America, where consumers wait until the discount season to place orders. From this perspective, it cannot be said to be a particularly good trend."

Under the ups and downs of the economic environment, in the eyes of foreign traders, doing global business has always been a coexistence of opportunities and challenges.

As the traditional peak season begins, the trend of ocean freight rates in the coming period will not only be a mirror of this year's foreign trade demand but also affect the prosperity of the whole year.

The Shanghai Shipping Exchange released the Shanghai Export Container Composite Freight Index on August 30 at 2963.38 points, a decrease of 4.3% from the previous period. Among them, the export freight rate (ocean freight and ocean freight surcharges) from Shanghai Port to the basic ports in Europe is $3,876/TEU, a decrease of 11.9% from the previous period.

According to data released by the Munich Economic Research Institute, Germany's IFO Business Climate Index in August fell to 86.6, the lowest level in six months, showing that the German business economy is facing a deteriorating situation, and expectations for the future are more pessimistic. As the most important economy in the EU, Germany's recent weak economic performance may continue to drag down the prospects of the European economy. In addition, after the implementation of the EU's decision to impose countervailing duties on China's exported electric vehicles, the export of China's "new three items" inevitably slowed down.

On August 30, the export freight rates (ocean freight and ocean freight surcharges) from Shanghai Port to the basic ports in the West and East of the United States were $6,140/FEU and $8,439/FEU, respectively, an increase of 3.1% and a decrease of 1.3% from the previous period. The market freight rate trends of the East and West routes of the United States showed some divergence. According to data released by S&P Global, the preliminary value of the U.S. comprehensive PMI in August was 54.1. Among them, the preliminary value of the manufacturing PMI was 48.0, falling to the lowest point in eight months, showing an accelerated contraction of the manufacturing industry. Although the service industry PMI remains stable, the difference between manufacturing and services shows that the U.S. economic development is not balanced, and the prospects for future economic recovery still face uncertainty.

However, the demand for the Australia-New Zealand route, South America route, and Japan route is good, and the freight rates also show an upward trend. Among them, the ships carrying various materials from Australia are almost fully loaded - on August 30, the export freight rate (ocean freight and ocean freight surcharges) from Shanghai Port to the basic ports in Australia and New Zealand was $2,235/TEU, an increase of 7.9% from the previous period; during the same period, the export freight rate (ocean freight and ocean freight surcharges) from Shanghai Port to the basic ports in South America was $7,698/TEU, an increase of 1.8% from the previous period.

The recent fluctuation of the RMB exchange rate has intensified, especially the appreciation pressure, which is also a major challenge facing foreign traders and squeezing the profits that have already contracted.

Since August, the RMB exchange rate against the US dollar has shown a clear appreciation trend in the turmoil of the financial market, changing the previous long-term RMB depreciation trend. After the RMB exchange rate against the US dollar returned to the 7.1 range at the beginning of August, on August 29, the offshore RMB against the US dollar broke through 7.09, setting a new high since August 5. On August 30, the RMB against the US dollar strengthened again. Among them, the offshore RMB against the US dollar increased by more than 160 basis points within the day, breaking through the 7.08 threshold, setting a new high in the past 15 months.

Wu Dan, a researcher at the Research Institute of the Bank of China, believes that due to the good performance of China's trade exports this year, and there is still a large amount of trade surplus that has not been settled, once the foreign exchange positions in the hands of enterprises are realized, it will support the appreciation of the RMB exchange rate. Considering that recent yen carry trade and other factors have an impact on the US dollar index, and the complex situation of geopolitical conflicts is still evolving, external uncertainties still exist. However, China's policies will support the stability of the RMB exchange rate, and even if there is appreciation pressure, the RMB exchange rate will not fluctuate significantly.Industry insiders believe that in the short term, the trend of the appreciation of the Chinese yuan undoubtedly means an increase in exchange rate risks for export-oriented enterprises. However, in the long term, if companies can manage expectations effectively and timely hedge exchange rates through forward contracts, options, or other derivative tools, they can mitigate the impact. By introducing new products and strengthening competitiveness, Chinese-made products are also expected to gain greater bargaining power when signing orders, which will also leave more room for profit margins.

Sun Tianhong, an expert in resolving import and export disputes, told Yicai that many national policies are changing more frequently than before, increasing the operational risks for foreign companies. As a result, China's foreign traders need to not only secure orders but also focus on securing good orders.

He suggested that the first step is to change the traditional mindset of relying more on relationships for foreign trade, to leverage the unique role of financial tools in the prevention and handling of import and export disputes, and to cultivate a group of talents who understand international trade and international finance. In addition, on the basis of analyzing micro-customers, it is important to pay more attention to the analysis of macro-trends. "You should not only be familiar with your customers but also with the direction of policy changes in their countries, and prepare in advance for the analysis of information such as foreign exchange controls, taxes, and interest rates in the trade countries."