(Yicai Global) Dec. 4 -- Furniture manufacturers in Anji county, which produces half of China’s exported chairs, are experiencing a huge leap in orders from around the world as the pandemic drives the growth of home offices. However, margins remain tight in these Covid-19 times as the Chinese yuan keeps strengthening and shipping rates soar.

This year both export volumes and local production capacity have hit record highs, Wu Ye, chief economist of the Anji County Bureau of Commerce in southeastern Zhejiang province, told Yicai Global. Some companies have orders lined up until June next year and there is no end in sight, she added.

“The trend of working from home has boosted consumer demand,” said an employee of UE Furniture, which exports over 75 percent of its products.

“We are expecting our orders for office chairs to more than double this year,” said Xue Dong, general manager of Anji Wanbao Furniture. Business has never been so good, he added. The factory has doubled its workshop area to cope with demand.

“Originally, we thought we would have a 50 percent growth in revenue this year, but the epidemic has doubled this,” said Xue, who set up his business in 2017. The vast majority of his orders, some 80 percent, come through cross-border e-commerce platforms.

Firms with online sales channels have done particularly well, with an over 70 percent jump in revenue, Wu said. The earnings of some furniture companies have increased by 12 times. Many firms in other industries are turning to making furniture, she added.

Lean Margins

However, despite the surge in orders, exporters’ profit margins remain under pressure amid Covid-19. Shipping costs have nearly tripled, Xue said, slashing 10 percent off our profits. And the Chinese yuan has appreciated almost 9 percent against the US dollar since July. Once all this is taken into account, there is very little left of our original 15 percent profit margin, he said.

Xue is able to break even as Anji Wanbao has developed its own brands and has multiple sales channels, he said. But many companies might be running at a loss. It is better to have orders even if the margins are thin, though, he said.

In fact, Anji Wanbao’s overall profit is likely to drop 10 percent this year from last year, despite being able to make quite a bit of money in July and August, before the yuan and shipping rates really began to climb, Xue said.

As an industry leader, UE Furniture is able to pass on some of these costs to its customers and is not suffering the same dent in earnings. The company’s net profit jumped 44.6 percent in the third quarter from the same period last year to CNY207 million, according to its latest financial report. Revenue was up 31.1 percent to CNY2.32 billion (USD355.1 million).

Put to the Test

Many companies have learned a lesson from the hardships of foreign trade this year and are looking to build up their domestic client base, but this will take time, Wu said. Most companies will still try to put energy into their foreign trade business and strive to sell their goods earlier, she added.

The second half of next year will be the real test, Wu said. By then, the epidemic-driven demand should have passed. Firms will need to strike a balance between domestic and overseas sales as well as online and offline channels, she said. Some big companies have already started to do this, she added.

Editors: Tang Shihua, Kim Taylor