Santa Claus' China Operation Not So Jolly

By Zhang Bin
Published: 2008-10-16
From News page 5 issue October 13 2008
Translated by Liu Peng
Original article:

Even Santa Claus' outsourcing operation is being affected by deepening US economic woes--US orders for Christmas products made by Chinese manufacturers have dropped off a cliff.

Yuki Fan's company was among them. This time in years past she would be swamped with orders, but lately it's almost as if she's on holiday.

"We usually received orders worth hundreds of thousands of dollars in Christmas gifts at this time in years past. However, there are only a few orders this year," she said.

Yuki works as a senior salesman for US markets at the Roosevelt Gift Manufacturing Company in Xiamen, Fujian province.

Her company is one of the three largest craft manufacturers in Xiamen, who mainly produces Christmas products for the America market.

"Nowadays, the business environment at home and abroad is poor. On the one hand, we have to face pressures from rising costs and yuan appreciation; on the other hand, many orders have evaporated due to weaker US market demand," she added.

She said her company was searching for counter-measures. For instance, since later last year, the company had switched its target market to Europe out of concerns over its US partners' likeliness to breach contracts. But even the European market is unpredictable.

The firm even tried to squeeze costs by simplifying their products. "The US clients were more interested in lower prices, because expensive Christmas gifts may not be popular," Yuki said.

She added the company had considered marketing domestically but was frustrated by thinner profit margins and complicated marketing channels.

Roosevelt was not an isolated company. Zhejiang province's Yiwu county, one of China's major Christmas product exporting bases, is also facing a colder market.

He Songping, president of Yiwu Zhong Sheng Crafts Company, which makes Christmas trees, told the EO that orders from the US have shrunk over 50%. Furthermore, since steel prices have jumped 30%, despite simplifications to product design his firm's products are still 15% more expensive.

The trend reaches beyond Christmas paraphernalia. Yiwu's export volume with the US registered negative growth for three consecutive months earlier this year. In April, local enterprises began to diversify their markets, and from May, Europe replaced the US to become Yiwu's largest exporting market.

A professional market consultant institute forecast a further decline in the trade against US and the US financial crisis would be bound to jeopardize its real economy. Under such condition, China had better diversify its exporting market like opening up new market in Middle-East, South Asia and Latin America areas.

In America, consumers would often queue for shopping during the month-long golden shopping season that ran from Thanksgiving to Christmas Day.

The season has traditionally contributed nearly half of total revenues and profits to US retailers. In the US, Christmas is not only a festival but also a huge economic cake.
However, Santa seemed likely to be less generous this year.

Smith was a US retail agent and a client of He Songping's company. He paid a visit to He's firm for Christmas gift orders every year, but this year, he passed.

He told the EO: "I didn't switch the orders to other suppliers. The main reason is that we can't sell those products."

"Owing to the bad economic situation last year, Christmas spending on the average child stood at around 200 dollar in the US. However, many families planned to halve that spending this year, because nobody wants to face a heap of credit card bills after the holidays. In addition, the unemployment rate in America is climbing and many people are living off of social welfare services."

On September 23, the US National Retail Federation forecasted weakness in the US retail business.

The federation contributed the reason to the downturn in the real estate market, climbing unemployment and rising food prices.

When interviewed by the Wall Street Journal, Laurence Meyer, vice-chairman of the board at Macroeconomic Advisers, a US-based economic forecasting firm, said that "The worst-case scenario is that the Fed loses its ability to stimulate the economy further as the funds rate moves to zero."

His firm sees the U.S. unemployment rate rising to 7% next year; though he says it could go to 8% or even higher if credit markets don't improve.