Trading firms facing fierce competition
China's market opening-up and accelerated competition are squeezing listed trading companies, which reported sluggish half-year performance.
But these long-time players will recover from ongoing stagnation after they adjust to market changes, experts say.
China National Technical Trading Co Ltd (CNTIC), a Shanghai-listed trader of machinery, light industrial products and oil products, posted a 33 per cent drop in its staple business revenues to come in at 108 million yuan (US$13 million) during the first half of the year.
Net profit experienced a sharp slump to stand at 2.1 million yuan (US$254,000). It was in stark contrast to 12.7 million yuan (US$1.5 million) a year ago.
Two Jiangsu-based trading firms also reported slowdowns on their profit growth compared with last year.
Jiangsu Sainty Co Ltd, the biggest trading house in East China's Jiangsu Province, witnessed a small net profit increase of 3.8 per cent year-on-year from January to June, 7.2 percentage points down against its annual growth rate in 2003.
Holly Co Ltd, Sainty's major competitor in Jiangsu, suffered a 37.86 per cent drop in its net profit.
The two companies are engaged in textile and apparel business.
Companies attributed the slowdown in profit and revenue to the competitive market, saying the newly-updated Foreign Trade Law has pushed them to compete with an increasing number of firms and individuals.
The new law, which took effect on July 1, de facto grants foreign trading rights to all domestic firms and individuals.
Before that, the market threshold for private firms was lowered by reducing capital requirements, and also Hong Kong and Macao investors were allowed to set up wholly-owned trading firms under the Closer Partnership Economic Arrangement.
"The market is subject to cut-throat rivalry," said an unnamed official from Jiangsu Sainty. "Too many newcomers have flocked into the market and are threatening to take business from traditional players."
"(So) the market is turning out to be increasingly tough to these traditional players, although China's trade volume surged by 39 per cent in the first six months," he said.
A less lucrative trading market has forced them to consider making inroads into other unfamiliar sectors in the face of increasing risks and uncertainty.
"It is not easy to cash in on foreign trade these days," said Qi Jianxi, CNTIC Trading board secretary. The company considered diversifying its business scope years ago.
It has invested heavily on the stock market since 1997, and has plugged into the medicine and health care market recently by establishing a joint venture with its parent company China General Technology (Group) Holding Ltd.
"Despite some gains in 2003, CNTIC Trading has lost 13.57 million yuan (US$1.64 million) due to the bearish stock market this year," said Wu Gang, an analyst at Kulun Securities.
Analysts, however, have expressed their confidence in these trading veterans, saying their reputations, experience, client resources and professionalism will help them out of the temporary stagnation.