Eno Qian, who runs a clothing factory in eastern China, says she makes a 20 yuan profit for every item she sells abroad and only a tenth of that on domestic sales, making a shift to the local market “not viable” for her tariff-hit business.
Beijing has made increasingly louder calls on exporters to find local buyers as an alternative to the US market, now frozen after Washington hiked tariffs on Chinese goods by 145 percent, but firms are concerned about complications in making the switch.
Many export-reliant factories have decried weak domestic demand, price wars, low profits, payment delays and high product return rates in the Chinese market.
Qian said she has “decided not to pursue domestic sales,” because of thin margins and “cash flow risks” caused by Chinese retailers not paying bills on time or demanding to return unsold items.
“Foreign partners are more stable,” she said.
These difficulties highlight the world’s second-largest economy’s over-reliance on exports for growth and the urgent need for measures to boost consumer incomes, analysts said.
Without fiscal stimulus that boosts domestic demand, any increase in product supply in the Chinese market might even backfire, by squeezing businesses and intensifying deflationary pressures, they said.
“In China, due to furious competition, the margin is very, very thin, or almost sometimes zero, which could cause some exporters to go out of business if they pivot to the domestic market,” Monash University economics professor He-Ling Shi (史鶴凌) said. “This will further make the consumption power worse, because if people go out of business, obviously they don’t have income to buy in the domestic market.”
The Chinese Ministry of Commerce this month said that one of its key strategies to mitigate the impact of US President Donald Trump’s tariff hikes was to support exporters to sell more domestically.
The ministry has since organized “matchmaking” events across China, including in Beijing, Guangzhou and Hainan, bringing together manufacturers and e-commerce platforms, supermarkets and other retailers to see if deals can be struck.
Local governments are forming special task forces to find solutions for the problems raised by exporters, including what officials identified as “unfamiliarity with the domestic market, lack of operational experience and low brand awareness.”
E-commerce giant JD.com has said it would launch a 200 billion yuan (US$27.44 billion) fund to help exporters sell their products domestically over the next year. It said nearly 3,000 firms have already made enquiries — about 0.4 percent of Chinese companies engaged in foreign trade.
Delivery firm Meituan (美團) has also said that it would help exporters with marketing and in other areas.
However, Qian said what she actually needs is support “in terms of taxes and subsidies.” She lost 30 percent of sales as a result of US tariffs and has had to cut staff.
“In the worst-case scenario, we may have to shut down the factory,” Qian said.
David Lian, who manages an underwear factory in southern China, said the domestic market is “extremely price sensitive, with high promotion costs and frequent returns.”
Foreign clients place large wholesale orders, while the Chinese market is primarily “retail and small batches,” he said. He is looking for new customers in the Middle East, Russia, central Asia and Africa.
Liu, who exports lighting products out of a factory in the eastern city of Ningbo and only gave her surname, said she would need to hire a separate team to push domestic sales.
“We are a small firm and don’t have the energy for that,” she said.
The Chinese Communist Party’s elite decisionmaking body, the Politburo, is expected to meet this month and efforts to support exporters’ domestic shift would likely feature in the state media summary of the discussions.
Shi said that would mainly serve to project strength to the domestic audience and defiance to Washington. Economists are more focused on any concrete demand-side stimulus steps.
China’s retail sales last year amounted to 43.2 trillion yuan, more than 11 times its exports to the US of 3.7 trillion yuan.
Theoretically, a 2 trillion loss in US sales over the next two years could be offset by a 4 percent rise in consumption over the same period, Capital Economics analyst Julian Evans-Pritchard said.
However, consumers would not dip into their savings if they do not feel confident about the economic outlook or unless the government commits to more generous social benefits, he said.
Alternatively, wages have to rise at a fast pace, which is unlikely given the tariff blow on employers, he added.
“Measures tied to the social safety net, particularly pension and fiscal reforms long overdue, are key,” GlobalData TS Lombard APAC senior economist Minxiong Liao said.
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