As the all-important holiday shopping season draws near, consumers in Western countries will not find it as easy as before to buy Christmas wreaths, trinkets and baubles made in China, specifically those of Guangdong Province.

Guangdong is seeing a noticeable drop in exports of Christmas merchandise. The latest release of customs data shows that in the first nine months of this year total exports plunged 15.9 per cent, to US$510 million over the same period last year.

Last year was beset with difficulties arising from two catastrophic events for businesses: the Iraq war and SARS. Despite these problems, Guangdong vendors still managed to sell US$800 million worth of Christmas goodies overseas, which was a 25.2 per cent increase over 2002.

The slide started early in the year, but it was brushed off as an aberration. Come summer, the climax of Christmas export season, people were rudely awakened to the reality that sales would plummet. During July and September, exports from Guangdong experienced declines of about 20 per cent year on year while August saw a modest 5 per cent rise.

Shrinking occurred across the board for all export destinations including the US, EU and Hong Kong, three of the major export markets. As of the end of September, the US had bought US$310 million of Christmas merchandise from Guangdong, a 15.3-per-cent reduction; EU US$92.48 million, a 7.4-per-cent fall; and Hong Kong US$71.77 million, a 34.7-per-cent drop.

Insiders say that there are many reasons for the pullback. The main one is the rising price of PE plastic, which is the principal raw material for much of these products. When the plastic went up 18 per cent in price, many of the manufacturers were caught off guard.

The ultimate culprit is the surging price of crude oil, the main ingredient of plastic. In the spring season, manufacturers tried to absorb the loss by trimming fat inside their organizations. But by summer they had realized the crippling effect of the price pressure.

With crude reaching US$55 a barrel and no limit in sight, manufacturers and exporters were caught between a rock and a hard place. They complain that buyers seem to be oblivious to the crisis as they (buyers) stick to the original prices before oil on the international market began its inexorable ascent when many of the contracts were signed.

Empirical evidence points to an emerging crisis in the industry as about a quarter to a third of the manufacturers, mostly smaller ones, have already gone belly up. Many of those still in operation cannot fill half of their capacities.

Manufacturers have resorted to a variety of countermeasures: Some have tried replacements for materials, while others have to adopt a policy of "zero inventory", which means, they would only buy as much raw material as orders dictate.

Some speculate that this will inevitably lead to an industry shakedown, with orders flowing to only big manufacturers who can weather a short-term loss.

Guangdong is a major export base for Christmas merchandise, representing 65.6 per cent of the whole country in 2003. China makes 80 per cent of the world's total manufactured Christmas goods.

This year's slowing exports cut across the whole nation. Zhejiang Province, another big manufacturing base, suffered an 11.9-per-cent fall, to US$130 million, in the first three quarters of the year. Nationwide, they slid by 12.8 per cent, to US$850 million.

Editor: Olivia