Rio Olympics orders send warning to Chinese exporters

HANGZHOU -- Wu Xiaoming runs a sports export business, but the upcoming Rio Olympics has not brought him additional fortune.

Despite the European Football Championship, and the Olympic Games in Rio de Janeiro, Wu's Ao Kai Sports Goods Ltd., which makes sports balls, has not seen any marked increase in exports this year.

"Two major sport events packed in one year but our ball exports are flat with last year," Wu said at his company headquarters in the eastern Chinese city Yiwu, one of the country's busiest export hubs.

Olympic orders used to be a significant source of revenue and profit for many Chinese exporters, but momentum began to lose steam in the wake of the global financial crisis.

Many Chinese exporters see the world's major sport events as a temporary boost to sagging export orders. China was a major supplier of the Vuvuzela, a horn used by cheering crowds at football stadiums during the 2010 FIFA World Cup in South Africa.

But many exporters in Yiwu said demand for national flags, cheering batons and many other items has been lukewarm ahead of this year's Olympic Games, shattering hopes that the sports tournament could improve China's shrinking foreign trade.

China's foreign trade of goods fell 3.3 percent to 11.13 trillion yuan during the first half of this year. Exports shed 2.1 percent, at 6.4 trillion yuan, customs figures show.

Shi Xingqing, who owns a factory producing flags, said there has only been a slight increase in flag orders. Except for Brazil's flag, demand for flags of other countries has been sluggish.

Wu said he exported 300,000 footballs to Brazil on average during each of the past few years. But football orders for the Rio Olympics dropped one third.

He blames the slump in orders on Brazil's slowing economy.

"It's not just Brazil, exports to the whole of South America have slowed this year," said Wu.

What is also likely to have weighed on demand, according to Shi, is that Brazil has just held a World Cup, leaving it with a high inventory of sports goods that could be reused during the Olympics to trim costs.

Other than shrinking orders, profit for Chinese exporters has been minuscule. Wu said he earns less than one yuan on a football he exports to Brazil for 10 yuan.

"When the football gets to Brazil it will be sold at more than 200 yuan," he said.

For flag exporters, the margin is "as thin as blade," Shi said, adding that the business can only be slightly profitable if they make sales on a massive scale.

Already slim profits are also be eroded by exchange rates.

"If the order is paid in US dollar and the yuan weakens, you can expect the margin to be nearly wiped out," Wu said.

The scramble for orders among hundreds of exporters has also left them with very little bargaining power.

"There are ways to help exporters improve margins. They can drive for consolidation, coordinate orders and production, and ask for more flexibility in currency exchange," said Tu Xinquan, deputy dean at the China Institute for WTO Studies at the Beijing-based University of International Business and Economics.

"But all these measures will only work to a certain extent, and at some point these exporters will have to look for more value-added production," Tu said.

As for Wu, the solution for his sagging export business might be found at home.

"Consumption is on the rise in China and we will keep an eye on demand at home while trying to fix the export problem," he said.