China's biggest trade fair is all about 'low price'

From Monday, foreign buyers will flood the halls of China’s largest trade expo to find bargains on Chinese products that U.S. government and European governments claim are flooding global market.

The 135th Canton Fair coincides with China's strategic policy shift. It is accelerating the distribution of resources towards its manufacturing complex, and away from the crisis-hit real estate sector in an attempt to move up the value chain.

Washington and Brussels are concerned, particularly about what China calls its "new three" industries, which include electric vehicles, solar energy and batteries. The world's second largest economy is rapidly becoming a dominant global exporter.

Officials in the U.S., EU and other countries are worried that their industries will not be able compete with China's massive industrial capacity which is driving down prices.

The deep and prolonged deflation of factory gates has also become a concern in the United States, where many manufacturers, especially those at the lower end of technology, are engaged in a price battle to compete for a rigid and tepid demand.

Zhiwu Chen is a professor of finance at HKU Business School. She said that the key word for this year's fair will be "low price", whether it's low-tech or hi-tech products from China.

Manufacturers have to lower their prices in order to increase exports. The domestic demand is low and there is a high level of overcapacity across all industries.

The three-week fair is expected to attract 93,000 buyers from abroad. They will be able to browse the products of 28600 exhibitors, who sell everything from frying pans and massage chairs to garden ornaments. Their booths cover 1.5 million square metres - or about 280 football pitches.

The fair, according to organizers, will demonstrate China's efforts in moving up the value-chain in line with President Xi Jinping’s call for "new production forces" in the economic system.

Exports of "the new three" only accounted for 4.5% of all shipments in China last year, despite the media hype about China's growth in the green sector. Most factories are not as sophisticated, and the low domestic demand makes them vulnerable to foreign buyers.

Kris Lin, a regular Canton fair exhibitor who owns a factory of lighting products in Zhejiang province, has spent tens and thousands of yuan renting a booth, but is not traveling with high expectations.

Lin stated that "fewer and fewer buyers have come to our country in the last few years to inspect our products."

The big Western supermarket used to send between five and eight people dressed in suits. In recent years, I've only seen one or two people. They were just walking around.

The last Canton Fair, held in October, saw $22.3 billion worth deals signed. This was a 2.8% increase over the April 2023 event - the first show after three years of pandemic disruptions. This is still far below the $30 billion pre-COVID return.

The lower numbers could be due to a decline in volume rather than value, given the deflation of producer prices in China. China's March exports and imported goods, both of which contracted, provided more evidence on Friday that exporters are in trouble.

Chen stated that foreign procurement managers who attend the fair would find prices so low they could not resist them and will likely sign up for many deals similar to fire sales.

This year's fair is a great example of the conflict between government priorities in developed countries and business priorities at micro-level. Reporting by Ellen Zhang and David Kirton, Shenzhen and Beijing respectively; Editing by Marius Zaharia & Jacqueline Wong

(source: Reuters)