Chinese government has a history of moving swiftly to adjust to challenges, making it difficult to forecast conditions
MONTREAL—Economic challenges in China appear to be putting pressure on Canadian companies to search for other countries to source some of their goods.
“For the first time in almost a decade, we have heard customers say they are going back to older sources (of goods),” says Robert Cutler, CEO of Delmar International, a shipping company.
Canadian customers are closely watching China’s economic slowdown, currency devaluation and stock market volatility.
The fall of the renminbi to its lowest level since mid-2011 reduced the cost creep of Chinese-made goods. But it’s also cut the value of foreign investments in the world’s second-largest economy.
Cutler said the Chinese government has a history of moving swiftly to adjust to challenges, making it difficult to forecast how conditions will settle.
While China will likely remain a dominant manufacturing centre for consumer goods, he added that companies are increasingly looking at alternatives in Asia, the Indian subcontinent and Latin America.
“The whole trick (for importers) is to keep their supply chain well-oiled and stuff in the pipeline. They don’t want that pipeline to stop flowing,” he said.
The Montreal-based company, which bills itself as Canada’s largest privately owned freight forwarding and customs brokerage firms, celebrates its 50th birthday this month.
Delmar has leveraged its expertise getting goods out from behind the Iron Curtain during the Cold War to expanding operations in other regions, including Asia. It began operations in China in the late 1970s and now has its own offices across the country, employing hundreds.
About 20 percent of Canada’s imports came from the Asia-Pacific region last year, with about half—or $58.6 billion—shipped from China, according to Industry Canada.
Chinese imports to Canada have been growing, but imports from other low-cost countries—including Vietnam, India, Sri Lanka, Malaysia, the Philippines, Thailand and Indonesia—have seen their exports grow even faster, including in the first six months of 2015.
Stockwell Day, former federal trade minister for the Asia Pacific region, said it’s understandable that unpredictability about China’s growth will create nervousness. But he said those bumps in the road aren’t enough to offset the benefits of doing business with China.
“Any business person will be looking around but the fact is China is such a giant market, and it will continue to be so,” said Day, a distinguished fellow with the Asia Pacific Foundation of Canada.
As costs in China rises, importers naturally look to other regions, but more factors need to be considered other than simply chasing cheaper labour, he said from Vancouver.
Dollarama, which sources more than half of its goods from more than 25 countries outside North America—mainly China—said it hasn’t been adversely impacted by Chinese economic developments.
But it’s nonetheless considering hiking its top price from $3 to $4 because a sharp decrease in the value of the Canadian dollar far outweighs the small price discounts flowing from the Chinese currency devaluation.
“They’re still the best source of supply (for cheap products),” CEO Larry Rossy said during a recent conference call.