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Jittery economy forces Zhejiang companies to look for way out

 Photo: Jittery economy forces Zhejiang companies to look for way out
 Many Zhejiang factories have relocated inland. (Photo courtesy of Xinhua News Agency)
I. Overview of economic development

According to Zhejiang Provincial Bureau of Statistics, GDP growth in the province increased by 7.7% year-on-year in the first three quarters of 2012. Although the figure is the same as the GDP growth for China as a whole, compared with the 7.1% year-on-year increase in the first quarter and the 7.4% year-on-year increase in the first six months, Zhejiang’s economy has in fact stabilised and rebounded. Its GDP growth actually surpassed the national average in the third quarter. Zhejiang's GDP reached Rmb2,421.5 billion in the first three quarters of 2012. Of this, growth in the added-value of primary industry was Rmb102.9 billion, up 2.1%; growth in the added-value of secondary industry was Rmb1,226.9 billion, up 6.8%; and growth in the added-value of tertiary industry was Rmb1,091.6 billion, up 9.2%. In the secondary sector, the added-value of industrial establishments above a designated size was Rmb785.3 billion, up 5.9%, 0.7 percentage points higher than in the first six months of this year. Between January and August, industrial profits amounted to Rmb165.4 billion, representing a year-on-year decline of 16.1% but the fall was 1.4 percentage points less than in the first half of the year.

Among the major engines for Zhejiang's GDP growth, fixed assets investment continued to show fairly rapid growth. In the first three quarters of this year, total investment amounted to Rmb1,219.4 billion, up 23.5% year-on-year. This period saw the commencement of 18,000 new projects, with investment amounting to Rmb402 billion. This increase of 23.5% in investment is not only five to six percentage points higher than in the first quarter of 2012 but is also five to six percentage points higher than the national average. In private investment, in particular, investment in the first three quarters amounted to Rmb772.4 billion, up 26%, not only accounting for a larger share (63.3%) of total investment but its growth rate was higher than the provincial average and the increase was up 1.2 percentage points year-on-year.

Due to the sluggish external environment, Zhejiang only achieved an export value of US$166.7 billion and an import and export value of US$232.8 billion in the first three quarters of this year, up 3% and 0.9% year-on-year respectively. These growth rates represented declines of 2.2 percentage points and 2.6 percentage points respectively from the figures for the first six months but 0.5 percentage points and 0.1 percentage points respectively higher than the January-August figures. The traditional markets of Ningbo, Hangzhou and Shaoxing achieved year-on-year increases of 1%, 0.78% and 1.5% respectively in their import and export value, all lower than the provincial average. In September, Zhejiang's exports amounted to US$21.15 billion as a result of an increase in export orders for the second half of the year, representing a year-on-year increase of 6.4% and a month-on-month increase of 4.9%. This monthly increase in export volume is an indicator of Zhejiang's economic recovery.

II. Sales of consumer goods

Against the backdrop of sluggish economic growth in Europe and the US, a decline in economic growth rate at home, a significant slowdown in the real economy, continued tightening of the real estate policy and the expiration of policies for boosting the consumption of home appliances and automobiles, the following phenomena can be observed in Zhejiang's consumer market:

1. Consumption was steadily on the rise, with real growth seen to be picking up speed. In the first half of this year, Zhejiang's total retail sales of consumer goods reached Rmb637.34 billion, up 13% from the same period a year ago. Total retail sales of consumer goods amounted to Rmb318.5 billion in the first quarter, up 13.2%, and Rmb318.84 billion in the second quarter, up 12.8%. After allowing for price fluctuations, real growth was 9% in the first quarter, 10.5% in the second quarter and 9.7% in the first six months. The retail volume of commercial enterprises above a designated size showed increases of 4.5%, 7.1% and 9.8% in the months of April, May and June respectively. Although these were still lower than the 12.7% in the first quarter, a faster month-to-month growth was still observed in the second quarter.

2. Retailing and catering were among the first sectors to recover. In the retail sector, Zhejiang grossed Rmb507.62 billion in retail sales in the first six months, up 12.1% from the same period of last year. Sales volume reached Rmb691.75 billion, up 15.2%. The growth rates were on a par with the first quarter in both cases. In the first six months, business turnover of catering sector amounted to Rmb57.45 billion, up 14.9% from the same period of last year and the growth rate was 0.1 percentage points lower than in the first quarter. Total turnover amounted to Rmb74.54 billion, up 17.8% and the growth rate was 0.3 percentage points lower than in the first quarter.

3. The growth rate picked up again for most categories of consumer goods. Retail sales of clothing, footwear, headwear and knitwear, food, beverages, tobacco and wine, jewellery, and Chinese and western medicine showed year-on-year increases of 19.4%, 15.8%, 30.4% and 21.5% respectively in the second quarter, up 8.5, 2.8, 11.8 and 1.5 percentage points respectively from the first quarter. The decline in the retail sales of home related products reduced. Sales dropped by 2.1% in the second quarter, 3.2 percentage points less than in the first quarter. Among these, retail sales of home appliances and audio-visual equipment dropped by 10.4%, 4.4 percentage points less than in the first quarter.

4. The consumption indicators began to stabilise and rebound in some places and some categories. Some indicators showed signs of turning for the better. Other than Hangzhou and Ningbo, retail sales in second-tier cities like Jinhua and Lishui showed increases of 14.5% and 13.0% respectively, up 0.5 and 1.2 percentage points respectively from the first quarter. Wholesale and retail sales in Huzhou increased by 32.7%, 3.4 percentage points higher than in the first quarter. Business turnover growth rates of catering establishments above a designated size in Zhoushan, Taizhou and Lishui were 1.1, 1.4 and 6.5 percentage points higher than in the first quarter. The county-level city of Yiwu, as a pilot for comprehensive reform for international trade, achieved total sales of Rmb124.53 billion in the first six months, representing a year-on-year increase of 25.1%.

III. Tactics of enterprises in coping with difficult times

As the purchasing power of overseas clients declines and the number of business clients keeps falling, Zhejiang's export-oriented enterprises, especially private enterprises, are facing great challenges in their operation. Their difficulties are mainly twofold.

On the one hand, the products of Zhejiang enterprises have a low added value and they still have a long way to go before they can transform themselves into operations producing goods with a high technology content. On the other hand, the international market is fast changing and the shortage of demand cannot be effectively eased within a short time. Zhejiang's foreign trade and industrial enterprises are having a hard time under this double pressure. HKTDC’s Hangzhou Office has learned from its recent contacts with private enterprises in Zhejiang that large-scale private enterprises are doing steady business because they are stronger financially and have a more stable client base. They are also less affected by the financial crisis. Some large operations have relocated part of their production resources, including factories, to inland cities like those in Jiangxi and the western region to lower cost.

The pressing task for small and medium-sized enterprises is to keep orders coming in and to ensure a stable market under the current situation, but in the long run, transformation and upgrade are the crucial tasks for Zhejiang enterprises. Besides speeding up technological upgrade and improving upon the design of products, they must also explore different sales channels and new sources of customers, including both frontline and end customers.

The Zhejiang provincial government has also adopted measures to help enterprises in their economic transformation, such as the policy of assisting them in going global, giving impetus to their industrial upgrade, continuing to strengthen the development of industrial clusters and development zones (and industrial parks), accelerating the building of a modern industrial system, paying attention to the relocation of factories as a result of industrial transformation and upgrade, and energetically developing the headquarters economy.

While developing key construction projects, Zhejiang has also expanded effective investment by encouraging and supporting the return of Zhejiang businesses from outside the province, attracting investment from central and multinational companies, and making all-out efforts to promote the high quality development of the economy. It has also adopted different measures to boost domestic demand, such as expanding effective investment, increasing the income of urban and rural residents and improving the people's livelihood, with a view to maintaining the steady growth of Zhejiang's consumer market.

from Eileen Zhu, Hangzhou Office

Content provided by Picture: HKTDC Research
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