By Ellen Zhang, Xihao Jiang and David Kirton
GUANGZHOU, China, April 17 (Reuters) – Shao Haixia’s plastics factory in China has seen raw material costs jump 20% since the Iran war started and has not been able to fully pass those extra costs onto its foreign customers.
Xiatao Plastic Industry mainly sources from local refiners and makes components for electrical appliances, which it sells exclusively abroad. Like many others attending this year’s Canton Fair, China’s largest trade exhibition, Shao is worried about rising input costs and the impact a prolonged conflict could have on global demand.
“We’ve had to re-quote prices and clients are still considering it,” said Shao, the general manager of the 27-year-old factory.
“For foreign trade companies like us, things are difficult. We just hope the war will end as soon as possible,” she added, saying her margins halved to 5%-6% since the war started.
PRODUCTION COSTS RISE, GLOBAL DEMAND STUTTERS
Xiatao is among 32,000 companies exhibiting at the Canton Fair, showcasing products to foreign buyers over an area larger than 200 football fields.
Before the war, China’s export sector was feeling triumphant, having weathered U.S. President Donald Trump’s tariff hikes by conquering new markets and achieving a record trade surplus – the size of the Dutch GDP – last year.
But the energy shock and higher commodity prices are raising production costs in the world’s biggest manufacturing power, threatening already-thin margins at factories that collectively employ hundreds of millions of people.
At the same time, global demand is taking a hit – as trade data from Beijing showed this week – exposing China’s overreliance on exports for economic growth.
Liang Su, general manager at rice cookers and kettle-maker Weking, was among the most pessimistic exhibitors, having seen his output halved due to slower orders and the cost of plastic, copper and aluminium surging.
Liang is selling at a loss even after raising prices by 15%.
“If the fighting keeps going, it’s not just us – Europe’s economy is in bad shape. Southeast Asia’s economy was already weak to begin with. Now the U.S. dollar has fallen as well,” Liang said.
Unless the war ends soon, his next move is to “cut everything that can be cut,” including jobs, he said.
Steven Shen, who manages a firm producing industrial blowers, vacuums and hair dryers, is less downbeat because he’s been able to fully pass the higher cost of fibres, metals and plastic on to consumers.