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Dour Economic Outlook at Shanghai Fair

Existing difficult economic conditions are expected to persist for apparel and textile industry.

Visitor attendance during the show’s first two days declined.

SHANGHAI — Exhibitors at the Intertextile Shanghai Apparel and Fabrics fair felt the sting of the weakening global economy and are losing confidence that conditions will improve next year.

Intertextile Shanghai, which ended its four-day run Oct. 23 at the Shanghai New International Expo Center, reported that its exhibitor list expanded 28 percent to 2,559, with domestic participants up 36 percent to 1,866 and international producers increasing 20 percent to 733. However, the number of exhibitors at sister fair Yarn Expo dropped to 55 from 91 in 2007, and visitors to Intertextile in the first two days were down to 32,000 from 34,000 a year earlier.

Show organizer Messe Frankfurt cited the poor economic conditions as the primary factor for the decline in attendance.

“Export figures have decreased, but the domestic consumption is growing,” said a show spokeswoman.

Tight restrictions on business visas to China — particularly for applicants from other developing countries — that have been in place since spring are believed to have crimped textile exports, as well as trade fair attendance.

“The economy will have a lot of influence on every company and some will wait until they have the budget before attending shows again,” said the spokeswoman.

Intertextile occupied 1.24 million square feet of floor space and for the first time organized domestic producers according to end product, with sections such as women’s, men’s, innerwear and activewear. Participants from Germany, Italy, Japan, South Korea, Pakistan, Portugal, Thailand and Taiwan were again grouped into national pavilions, with Taiwanese producers the largest contingent, followed by Italy and South Korea. Source It, representing Southeast Asian nations, returned for a second year. Fiber pavilions by Invista, Dow and Lenzing also expanded.

Larger and more export-focused producers expressed the most concern about economic conditions, while some smaller manufacturers were optimistic that still-strong domestic consumption will buoy their business. All agreed that production costs that have been rising since last year because of tightened labor and environmental enforcement, higher wages and material costs, and the declining dollar, are hurting their margins more than the U.S. credit crisis. Still, fallout from recent economic developments is only beginning to be felt in China.

Business at the fair “is bad because of the market; the U.S. economy is hitting us hard,” said Guo Qingli, marketing director of Z by Zhonghe Cotton. “We had a lot of U.S. customers, but they are delaying their orders. We do the higher quality levels of cotton, so feel it the worst. We will have to adjust, reducing or closing some offices.”

The fair got mixed reviews from participants who expressed frustration with its size and organization. Z by Zhonghe’s Guo said generating business was difficult and while old customers had returned, new customers tended to be smaller players.

At Tung Ga Linen, sales manager Bonnie Chen reported strong results, but attributed it mostly to a larger, better-placed and more ornate stand. Tung Ga Linen exports the bulk of its product to the U.S. and European Union. In addition to dealing with economic headwinds, Chen said Chinese manufacturers are grappling with currency fluctuations.

“The currency adjustment has gone too far,” Chen said. “We take an order, then after three months when it is done, the price has changed and we lose money.”

With currency instability and China’s domestic production prices rising, the fair has increasingly transitioned into a global networking hub for budget apparel sourcing. Producers from Southeast Asian nations and Pakistan viewed China’s declining competitive advantage as their opportunity.

“Garment production is a chicken in other countries but is an elephant in Cambodia,” said Kaing Monika, a representative of the Garment Manufacturers’ Association in Cambodia. “It is 80 percent of our exports and 30 percent of our [gross domestic product], employing 350,000 people. Cambodia has 310 apparel factories, of which the most are Taiwanese owned, about 60 to 70. Then Hong Kong, [Mainland] China and [South] Korea each have about 40, and Australia, the U.K., the U.S. and Malaysia all have a few.”

However, smaller producing countries are feeling the global economic pinch harder and faster than larger economies like China.

The fallout will “coincide with the end of safeguards on China and monitoring of Vietnam, so it will be harder for us to compete,” Monika said. “Already there has been a 1 percent drop in our exports to the U.S., and 70 percent of our exports are to the U.S. We are very worried about the rest of the year and for 2009.”