Photographer: Qilai Shen/Bloomberg

China Is Losing Its Emerging Markets Growth Engine

  • Commodity price rally raises hopes that demand will pick up
  • Emerging markets now account for a third of China’s exports

China’s export growth to emerging markets that helped it weather the global financial crisis has fallen away, adding to the drag on manufacturers as demand from advanced economies fails to pick up the slack.

Exports to developing nations fell 6 percent in the second quarter while those to fuel-exporting countries in the Middle East and beyond flat-lined after a 22 percent plunge in the first three months. Weaker oil and commodities prices were the main causes along with the war in Syria that’s undercut demand across the Middle East, according to exporters and foreign buyers interviewed last week at the biennial Canton Fair in Guangzhou.

"Russians are big spenders and they’re no longer visiting the Middle East," said Riaz Khimani, a Dubai-based hotel supplier whose company Rikan General Trading LLC has been buying products from China for nearly a decade. "Hotel room rates have fallen. The boost for China’s markets has gone."

The emerging markets import slide shows the complexity of the challenge facing China’s manufacturers. Yet glimmers of hope are appearing: producer prices in September rose for the first time since 2012 and the official purchasing managers gauge jumped last month to a two-year high. A rally in commodity prices offers some hope that demand from emerging markets may be approaching a low point, and the International Monetary Fund last month raised a tad its estimate for growth this year in emerging markets.

"For a lot of commodity producers, things are getting slightly better," said Julian Evans-Pritchard, an economist at Capital Economics in Singapore. "But most of the drag will still come from emerging markets next year for Chinese exports. I wouldn’t say the worst is over."

Shipments to fuel-exporting countries in the Middle East and beyond plunged almost 12 percent last year after growth of around 30 percent in 2010 and 2011. To emerging and developing economies overall exports last year were just barely positive after surging 33 percent in 2010 and 26 percent in 2011.

Slumping sales to the Middle East was a recurring theme among exporters interviewed last week at the bustling Canton Fair, a biannual gathering where 25,000 exhibitors and 180,000 mostly foreign buyers ink export deals in booths spanning exhibition space equivalent to about 3,400 tennis courts.

For a story on how China’s factories are mulling price rises, click here

Orders from the Middle East, which account for 40 percent of sales at Guangzhou-based clock maker Dannol Electronics Co., have seen a "dramatic decline" since 2014, said senior sales representative Fan Miaochang. The company has cut staff to 80 from 150 in 2014.

For Fujian province-based bag maker Rogerlin, sales to its major markets including the Middle East, Russia, Brazil and Venezuela have been hit by commodity price falls, said Yu Jingling, the company’s Quanzhou-based sales manager.

With sales down 30 to 40 percent this year from Brazil and the Middle East -- even after discounts of 5 percent to 8 percent -- the company has combined two factories into one and cut staff to 150 from 350, she said.

"Next year and the year after, probably there will be some recovery," Yu said. "But still, there will be lots of pressure."

— With assistance by Yinan Zhao, and Kevin Hamlin

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