Rising costs prompt firms to revamp

(China Daily)
Updated: 2010-12-11 10:28
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SHANGHAI - Faced with rising labor costs and an appreciating yuan, China's exporters are more eager this year than ever to restructure their businesses in a move to add value to their products.

The nation has vowed to restructure its economy, shifting to a consumption-driven growth mode. Meanwhile, it has decided to bring exports more in line with China's long-term development. For more than a decade, product upgrade has been a hot topic among China's exporters, whose trade focuses on low-end labor and energy-intensive products that have a narrow profit margin. But this year they seem more determined than ever to take concrete steps as higher wages and a stronger yuan are significantly eroding the already slender profits.

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The yuan has risen nearly 3 percent against the US dollar since June, when China vowed to allow greater exchange-rate flexibility. Meanwhile, more than 20 provinces and regions have raised their minimum wage. Feng Bin, general manager of Chunlan Import and Export, a trade arm of Chunlan (Group) Corporation, a leading Chinese air conditioner maker, said the company has changed 60 percent of its product line into more value-added and differentiated products this year.

"After our export business was hit hard during the financial crisis, we realized that selling low-end products and pinning our competitiveness on low prices is not sustainable. It has a narrow profit margin and is highly vulnerable to market swings," Feng said.

Chunlan is diverting more funds into research and development (R&D) and quickening its steps to set up R&D centers, he said.

In July, the company set up a new-energy R&D center, in cooperation with the Institute of Computing Technology of the Chinese Academy of Science, to develop new-energy batteries. "Adding more value to our products has become our long-term strategy," he said. Jiangsu Pares Sanitary Ware Equipment Co Ltd, a bathware exporter based in Jiangsu, is putting more effort into design to cater for customers in the United States, its biggest market.

"Selling products similar to other companies brings fierce competition and low profit," said Zhu Zhengwei, president of the company. "Now, with labor and material costs and the exchange rate all rising sharply and cutting profit, we have decided to offer something different and more value-added. Better design is the way forward in this industry." Last month, the Ministry of Commerce, Ministry of Human Resources and Social Security and the General Administration of Customs jointly issued a notice to pilot a processing-trade upgrade program in the cities of Suzhou and Dongguan, which together account for about a quarter of China's processing trade.

The notice requires exporters in these cities to turn from sales-oriented to quality-oriented development by "significantly" improving their technology and expanding both upstream and downstream.