VZCZCXYZ0006
RR RUEHWEB

DE RUEHGZ #0627/01 3100926
ZNR UUUUU ZZH
R 060926Z NOV 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 1086
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0332
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0195
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0115
RUEAIIA/CIA WASHDC 0315
RUEKJCS/DIA WASHDC 0311

UNCLAS GUANGZHOU 000627 
 
SIPDIS 
 
Dept for EAP/CM and EAP/INR 
State pass USTR 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KIPR PREL EINV CH
SUBJECT: CHINA'S 106TH CANTON FAIR SHOWS GRADUAL EXPORT RECOVERY 
 
REF: A) GUANGZHOU 626, B) GUANGHOU 613, C) GUANGZHOU 290, D) 2008 
GUANGZHOU 648, E) 2008 GUANGZHOU 249 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (U) Summary: Guangzhou's semi-annual Canton Fair concluded its 
106th installment this week and reported that Chinese export orders 
continued to strengthen.  However, orders have not recovered to 
pre-financial crisis levels, highlighting the need for China to 
further restructure the economy from an export orientation to one 
that relies more heavily on domestic demand.  IPR complaints surged 
almost 50% this session, when compared to the 105th session, and 
authorities determined that a greater number of firms infringed 
others' IP than at either of the previous two sessions.  About a 
dozen U.S. exhibitors occupied small booths in the International 
Section during the first of the fair's three phases.  End Summary. 
 
Evidence of Slow, But Continued Export Recovery 
--------------------------------------------- -- 
 
¶2. (U) Press reports announced that total attendance for the 106th 
China Import Export Commodities Fair (Canton Fair) had increased 
13.7% by its close on November 4.  A total of 188,170 visitors 
visited the fair, with a 16.2% increase in the value of orders 
placed when compared to the April 2009 session (ref C), but still 
down 3.4% from the 104th session in October 2008 (ref D).  The total 
value of orders was US$30.47 billion, which represented continued 
recovery for three of China's largest export markets, Europe, the 
Middle East and the United States, accounting for US$9.33 billion, 
US$4.26 billion and US$4 billion, respectively.  More surprising 
were a 98% increase in orders from Brazil, to US$1.07 billion, and a 
19.9% decline in orders from ASEAN countries, to US$1.55 billion. 
 
¶3. (U) Private enterprises - mostly small and medium enterprises 
(SMEs) - continued to dominate the majority of deals signed by 
Chinese exporters, accounting for US$19.59 billion or 64% of the 
total, according to media reports and statistics released by Canton 
Fair organizers.  China's State Owned enterprises (SOEs) garnered 
US$5.75 billion, or approximately 17% of the total, and Foreign 
Invested Enterprises (FIEs) signed US$5.23 billion, also 
representing approximately 17% of the deals signed.  The order 
totals for each of these vendor categories all experienced 
double-digit growth at this session of the fair. 
 
¶4. (U) Almost all product sectors attracted increased orders at the 
106th fair, a marked turnaround from last spring when all but three 
sectors experienced declining orders.  Mechanical and electrical 
products continued to represent the largest proportion of orders at 
44.6%, followed by light industrial products, which accounted for 
32.04% of the total.  Orders for these two dominant sectors each 
increased between 15-20% at this session of the fair.  However, 
despite the increases, media reported that orders showed signs of 
softening, both with smaller individual orders and shorter-term 
contracts, suggesting that long-term order recovery could take more 
time.  On the other hand, orders from "emerging" sectors like 
traditional Chinese medicine (TCM) and green energy products showed 
impressive growth at the 106th fair, but order volumes for these 
sectors remained limited to less than one per cent of the total at 
US$36 million and US$30 million, respectively. 
 
Domestic Consumption, Anyone? 
----------------------------- 
 
¶5. (U) Several media reports focused on the question of domestic 
substitution for flagging exports, but highlighted challenges to 
this transition.  (Refs A and B described similar challenges 
reported by business leaders.)  According to the news reports, 
Canton Fair exhibitors intent on shifting from export orders to 
domestic demand face a key structural obstacle in how they accept 
orders and do business - foreign buyers typically pay a 30% deposit 
on export orders and accept all inventory-related risks if any of 
the product does not sell after delivery.  However, domestic buyers 
are unwilling to pay the order deposit and customarily have the 
option of returning unsold wares to domestic suppliers after a 
pre-agreed sales period, placing most of the inventory risk on 
manufacturers rather than domestic retailers who might order their 
products for resale.  These factors led to a disappointing turnout 
at the "Export-for-Domestic-Sale Business Matchmaking Section" and 
prompted local media to conclude that most producers remain more 
interested in attracting export orders whenever possible. 
 
IPR Complaints 
------------------ 
 
¶6. (U) IPR infringement continued to be a hot topic for exhibitors, 
buyers and fair organizers.  The 106th session saw a 21.8% increase 
in IPR complaints, to 710 cases, when compared with the 105th 
session.  There were 1,113 firms involved in the complaints, an 
increase of 48.6%, and authorities determined that 689 of the 
accused firms had infringed others' IP, an increase of 43%.  Among 
the total number of IP complaints, 68.1% involved patent issues at 
this session of the fair. 
 
U.S. Exhibitors See Opportunities; Lament Absence of U.S. Pavilion 
--------------------------------------------- - 
 
¶7. (U) The CG visited U.S. exhibitors' booths in the fair's 
International Section on opening day, October 15.  About a dozen 
small U.S. firms, mostly from the San Francisco area, were making 
their debut at the fair, seeing it as an opportunity to introduce 
their firms to China.  Pointing to adjacent Italian and Turkish 
pavilions that featured lavish decorations, and reportedly sponsored 
by those governments, U.S. exhibitors lamented the absence of an 
American counter-part.  Representatives of one U.S. firm said this 
was their third year at the fair, and that, while they hoped to 
build their China business, it was international buyers from other 
regions such as Europe, Africa, and the Middle East that made 
participation attractive and lucrative in terms of orders. 
 
GOLDBECK