Fujian Businesses: Looking for Opportunities In the Midst

UNCLAS SECTION 01 OF 02 GUANGZHOU 000481 SENSITIVE SIPDIS STATE FOR EAP/CM, EAP/TC, INR/EAP, S/P E.O. 12958: N/A TAGS: ECON ETRD CH TW SUBJECT: Fujian Businesses: Looking for Opportunities In the Midst of Crisis ¶1. (U) Summary: Although the global economic crisis has severely impacted export businesses, the crisis has also created new opportunities, according to Fujian Province company executives. Larger, more efficient export-oriented companies said they had consolidated and increased market share as competitors have gone out of business; others have focused on streamlining the sales process by eliminating middlemen, increasing domestic sales or expanding sales to new regions. Several companies said they believe the drop in exports has bottomed out; they have seen slight gains during the past two months. Others worried that China's public spending-fueled recovery would lead to inflation. End summary. ¶2. (U) In late July, post's APP (American Presence Post) officer visited eleven Fujian-based companies engaged in the furniture, handicrafts, stone and construction material industries. Almost without exception, company executives quoted a Chinese idiom that says "the time of crisis is a moment of opportunity" to describe their strategies for weathering and prospering despite the challenging economic environment. For Many Fujian Companies, a Steep Drop in Exports -------------- -------------- ¶3. (SBU) According to executives in the stone and construction material industries, some Fujian firms witnessed huge drops in export orders, some in excess of 70 percent, which was especially damaging for many smaller firms that entirely depend on export sales for survival. In the furniture and handicraft sector, larger companies with established relationships to large international retail chains reported that they were weathering the downturn, although they have still seen exports fall. Minhou Minxing, a large manufacturer and exporter of decorative household items reported a 20 percent drop in export sales. Fuzhou Profit Trading Company said their sales to the United States were down by 50 percent and their sales to Europe down 30 percent. The company also noted that their U.S. agents have experienced difficulty in settling accounts, which has increased their trading risks. Looking for Opportunities in the Economic Crisis -------------- --- ¶4. (SBU) An executive of Hong Chang Machinery Manufacturing Company said the current economic environment has forced construction companies in many countries to look for ways to reduce costs. His company has benefited as these companies sought alternatives to the high-end, high-priced equipment that they have traditionally favored. The company has increased exports of its brick-making equipment in the Middle East and Southeast Asia. Hong Chang has also benefited from increased domestic sales as Chinese authorities have allocated huge sums for construction and infrastructure projects across the country. ¶5. (SBU) Another construction materials firm, the Guangyan Enterprise Group, said it has maintained steady sales by employing a strategy of direct overseas delivery, working through a U.S. branch office, to eliminate costly middlemen. Guangyan has also sought to balance its exports by beginning to import materials from the U.S. for sale in China. Two other stone export companies, Zongyi Stone Import and Export Company and Jet Boat Import and Export Company also told congenoff that they have offset the drop in export-related sales with increased sales in the domestic market. One company, Bonan Import and Export Development Company, said business has remained steady and predictable. The grave stone seller primarily exports to Japan, where an aging society and steady mortality rates assure steady demand. ¶6. (SBU) Executives at HomeStar Light Industry Company said that as major overseas retail chains have tightened their environmental and safety standards, many smaller companies have not been able to keep pace and remain profitable. This has directly benefited larger, more efficient firms. Founded in 2002, HomeStar grew rapidly by cultivating direct marketing links with a number of international retailers. The company's sales increased by 20 percent in 2008, with approximately USD 25 million in annual sales to the U.S. GUANGZHOU 00000481 002 OF 002 ¶1. (U) Summary: Although the global economic crisis has severely impacted export businesses, the crisis has also created new opportunities, according to Fujian Province company executives. Larger, more efficient export-oriented companies said they had consolidated and increased market share as competitors have gone out of business; others have focused on streamlining the sales process by eliminating middlemen, increasing domestic sales or expanding sales to new regions. Several companies said they believe the drop in exports has bottomed out; they have seen slight gains during the past two months. Others worried that China's public spending-fueled recovery would lead to inflation. End summary. market. Hoping to stem a 20 percent slide in sales revenue (from USD 100 million last year to USD 80 million this year),Minxing Weaving Company has applied higher quality standards and invested more in research and development. Hoping for a Recovery -------------- ¶7. (SBU) Most of the company representatives said that business for the first six months of 2009 was bleak. Several of the stone industry-related companies said they believed that the market has begun to stabilize; a few of the companies said that they had seen hopeful signs during June and July that sales have begun to pick up again. HomeStar noted that their business has continued to grow during this period - even in the United States. Nevertheless, they said a top priority is developing new business opportunities outside of the U.S. market. While acknowledging that domestic sales had been spurred by government spending, several executives expressed concern that China's public spending-fueled recovery might cause inflation. ¶8. (U) Comment: Although largely dependent on exports like their counterparts in Guangdong, Fujian companies appear to have weathered the economic downturn in better form. Although some of the credit may be due their assorted strategies for finding "opportunities" in the crisis, the comparative well-being of the Fujian companies may also stem from the use of a different business model. Several local businessmen noted that whereas many Guangdong companies utilize leased facilities, allowing the companies to rapidly close their doors in the face of an economic downturn, most Fujian companies own their land and buildings - likely encouraging the Fujian companies to take a longer-term view. End comment. GOLDBECK