Tough Times, Big Profits In Furniture

While the furniture industry of Guangdong Province is benefiting from massive government-subsidized housing projects, it still has to cope with a softening domestic economy, a weak global economy, rising costs and the appreciation of the yuan.

The Guangdong Furniture Chamber of Commerce and Guangdong Furniture Industry Institute make these points in their joint report on the industry.

Sizable furniture enterprises in Guangdong generated 130.288 billion Yuan ($20.68 billion) in output last year, a year-on-year rise of 17.8 percent, according to the report.

Statistics from the Guangdong Furniture Industry Association indicate the output from the sector in the province stood at 280 billion yuan last year, increasing by 14.3 percent year-on-year and accounting for 27.7 percent of the national total. 

The Guangdong Furniture Industry Association predicts that the output of the provincial furniture sector will go up by 14 percent this year.

Furniture exports from Guangdong rose by 10.4 percent to $14.93 billion last year, which made up 38.4 percent of the national total, according to Guangzhou Customs.

The growth, achieved during an adverse global market, is mainly attributable to a positive turn in the US and European economies toward the end of last year, said Guangzhou Customs.

A strong export growth came from the Association of Southeast Asian Nations thanks to the zero-duty policy and trade-facilitating measures resulting from the building of the China-ASEAN Free Trade Area.

Despite these relatively encouraging results, profit margins in the industry were eroded by the rising costs of labor and the appreciation of the yuan. Some export enterprises recorded a more than 40 percent drop in profit margins in the year, according to the joint report.

Rising costs also impact the furniture industry adversely, and the situation may be even worse after the implementation of new foreign trade regulations worldwide.

According to the European Commission, Regulation (EU) No 995/2010 of the European Parliament and of the Council will start from 3rd March 2013, which is likely to impact furniture exports from China in the form of rising raw material costs. 

The Timer Regulation counters the trade in illegally harvested timber and timber products through three key obligations: 

1.For the first time, it prohibits the placing on the EU market of illegally harvested timber and products derived from such timber;

2.For the first time, it requires EU traders who place timber products on the EU market to exercise 'due diligence';

Once on the market, the timber and timber products may be sold on and/or transformed before they reach the final consumer. To facilitate the traceability of timber products economic operators in this part of the supply chain (referred to as traders in the regulation) have an obligation to 

3.Keep records of their suppliers and customers. 

The Regulation covers a wide range of timber products listed in its Annex using EU Custom’s code nomenclature. Timber and timber products covered by valid FLEGT or CITE licenses are considered to comply with the requirements of the Regulation. 

The Regulation is legally binding on all 27 EU Member States, which are responsible for laying down effective, proportionate and dissuasive penalties and for enforcing the Regulation.

Uncertainty in the world economy, the domestic property market and the amount of investment in infrastructure affect Chinese furniture makers, said Zhu Changling, Director-general of the China National Furniture Association. 

It is projected by the Ministry of Commerce (MOC) that there will be a 10-percent rise in China's foreign trade in 2012. 

The country might register a trade surplus in 2012, which will narrow from last year's trade surplus of 155.14 billion U.S. dollars, MOC spokesman Shen Danyang said at a press conference in Beijing. "China's foreign trade will be basically balanced this year with a small surplus," Shen said. 

"The external demand was worse than expected. Demand from the European Union, the country's biggest trade partner, dropped significantly," he said. 

Exports of labor-intensive goods, including watches, bicycles and furniture, grew by at least 10 percent last month, Shen said. 

Meanwhile, China's exports to emerging markets maintained sound growth momentum, as the country has sought to reduce dependence on exports to developed countries which have been mired in debt crises and a slow recovery. 

On the domestic side, the still-rising property market, although at a lower rate, massive government-subsidized housing construction nationwide and a policy to encourage housing construction in rural areas are positive factors, said Chen Shuihe, an adviser to the Guangdong Furniture Chamber of Commerce and Guangdong Furniture Industry Institute. 

The Guangdong Furniture Chamber of Commerce and Guangdong Furniture Industry Institute suggest that furniture enterprises carry out further reforms and counter the impact of rising costs of transport, labor, raw materials and the appreciation of yuan. 

It should also try to make breakthroughs in mergers and acquisitions and explore markets in third- and fourth-tier cities in China.