No immunity from the downturn

It seems the largest general merchandise trade city in the world is not immune to the damaging effects of the global economic downturn.

Yiwu, a city of about 2 million people in central Zhejiang Province near the eastern coast of China, is renowned for its small commodity trade and bustling free markets.

For six years it has topped China's 100 top open markets and is a shopping paradise for tourists.

But this year some sectors are struggling.

True, thousands still visit. But it seems many are checking out prices rather than buying. Caution in these uncertain times is the order of the day.

"The situation isn't as bad as we feared - which was a 30 per cent drop," said Lang Wu, sales manager of Yiwu Festival Gifts Co Ltd, a Sino-foreign venture specializing in festive gifts. He said sales had fallen 10 percent in the first quarter compared with last year.

Lang said an increase in orders from the Middle East had to some extent mitigated difficulties but his American clients had been emailing him complaining about the difficulties they faced and seeking discounts. His response was to immediately offer 10 percent reductions.

"We simplified our products and packaging which made the price more acceptable to the Americans," he said.

More than 32,000 items are shown in Yiwu's market across 3,000 categories. As many as 30 percent of buyers are from overseas, taking advantage of good transport links and hotels.

March and April saw an occupancy rate of 85 percent at Western (Premier) Yiwu Ocean Hotel, equal to the same period last year. The city has enjoyed 30 percent year-on-year growth with the US, exporting $63 million in goods there in the first quarter of this year. Total exports for the same period amounted to $372 million.

Several traders testified to a reduction in US visitors but an increase in orders from those who did attend, indicating, perhaps, the famous sales dictum common in the US - "Pile 'em high, sell 'em cheap".

"Although the economic downtown continues, the world's buyers will not refuse a bargain," said Zhou Wenbin, an official from Yiwu Foreign TradeDepartment. "American dealers are fewer than dealers from Middle East countries, but they place bigger orders and their increased demand is mainly focused on home decorations, cosmetics, jewellery and high-end women products."

Yiwu is known as "sock town" becaue it produces more than three billion pairs of socks for Wal-Mart. Pringles and Disney annually. It is also known as China's number one producer of fashion jewellery.

Local enterprise Langsha Group makes socks for Adidas and Puma and experienced a 58.8 percent year-on-year growth in exports to the US in the first two months of this year.

Some traders have noticed what is often referred to as the "lipstick effect" in trade. It's based on the observation that women traditionally turn to lipstick when they cut back on life's other luxuries. They see lipstick as a reasonable indulgence and pick-me-up when they feel they can't afford a whole new outfit. "When lipstick sales go up, people don't want to buy dresses," said Leonard Lauder, chairman of Estee Lauder Cos.

"We noticed that the US sock consumption recently is much bigger than that in Europe. It's part of the lipstick effect," said Weng Rongjin, Langsha's chairman.

Weng said Longsha will invest $100 million in equipment and technology to increase production this year.

Zhejiang Neoglory Jewelry Co Ltd., which exports to more than 70 countries countries, sent a team to the United States for two months to conduct market research and seek American partners

Its chairman, Zhou Yuxia, believes the economic crisis will not stop people from buying beauty products.

However, Vivian Wang, who spent five years working in promotions for Budweiser but quit last year when orders fell, believes there is a good future in sales of outdoor recreational products such as barbecues and solar backpacks.

"No matter how bad the economic climate is, Westerners don't like to change thweir lifestyle," she said. "And more and more urban Chinese citizens are adopting their tendency to go outdoors to relax."

She betrayed her optimism by opening her own international company specializing in selling promotional items for drink manufacturers, wholesale agents, restaurants and bars.

(China Daily 05/11/2009 page7)