Italian furniture exports to China slumped more than 20 per cent!
A recent report from the research centre of FederlegnoArredo, the Italian Wood and Furniture Association, which collates data from the Italian National Institute of Statistics (ISTAT), shows that exports to China showed a significant slowdown in the first seven months of 2023 with a double-digit drop (-20.6%) and imports are also decreasing, in the context of a 5% drop in total exports for the entire Italian furniture industry (- 36 per cent).
Even for 2024, FederlegnoArredo's estimates are not too optimistic. In addition to expecting an economic upturn, they are also counting on a change of political pace in China.
FederlegnoArredo pointed out that for the Italian furniture industry, which placed a lot of hope in "China" before the epidemic, the situation is not very optimistic. Even if Italian furniture exports to China grow by 1.1 per cent in 2022, this small increase is driven by the inflation of the price list.
"At the moment there are no encouraging forecasts even for the first half of 2024," explained Claudio Feltrin, president of FederlegnoArredo, commenting on the data processed by the Italian Federal Research Centre. "**The concern is for those Italian companies investing in China. Nonetheless, the market potential is still very large, as China has a large population and favours Italian furniture design."
Giuliano Nocchi, Full Professor of Strategy and Marketing at Politecnico di Milano and Vice Rector of the Regional Centre for China at Politecnico di Milano, said, "Today's China needs to be approached and interpreted in a completely new way because it has changed so much as a result of its quest for greater autonomy from the world. From 1978 to 2015, China achieved tremendous growth thanks to Deng Xiaoping's economic reform programme. The results are clear: China has become the world's second largest power."
"However, this extraordinary success also brought with it the seeds of the current imbalance: growth was supported by a modest system of compensation and strong incentives to the supply side, and therefore to the enterprise system. These firms grow and invest. In effect, wealth is transferred from markets to companies. To ensure high levels of growth due to a lack of internal demand, China's stimulus has been investment in infrastructure and property. However, the former is currently no longer profitable: China already has the infrastructure and today the returns are low. On the other hand, real estate accounts for nearly 30 per cent of China's GDP and there is no room for it anymore. Large companies are in trouble and real estate is an asset into which household savings flow. In addition, China is saddled with heavy debt. This set of considerations means that China is currently in a very delicate period of transition."
In order to reverse the downward trend, experts today see welfare reforms, opening up the financial system and measures to support demand as crucial. "We are facing a bubble that brings profits compared to the expansionary development that made China great. After all, when the normal and natural tendencies of a system are distorted, we must expect some consequences," Feltrin noted.
From an institutional point of view, there is an assumption in the agenda of the Milan Furniture Fair, which will return to China next year through Milan Shanghai. A preview of that return took place at Milan Shanghai's Red Night event on 7 November, which involved 300 companies, architects, creatives and buyers. "We are here to re-establish relationships," said Maria Porro, the show's president, "and today it is vital to broaden our horizons in order not to miss out on the many opportunities that this country has to offer." The goal is to intensify this targeted outreach, "but only if the conditions are in place: namely, a receptive market and companies that see to it that the market shares already achieved are defended and that they are strengthened.
In addition to a shift in the economy, we are counting on a change in the political pace," added President FederlegnoArredo. For the Italian economy, the hope for a change in trend is driven by the importance of China to its economy.
China has a middle class of about 300 to 400 million people, while Italian exports total 20 billion euros. "I think the most dangerous thing is that China's slowdown will cause Italian companies to turn to Europe rather than to future markets such as Asia, India and Africa," notes Nocchi.
Therefore, we have to be careful to get a proper grasp of what is happening: China is slowing down and facing difficulties, but Italian companies are still making profits through China. Moreover, as creativity develops in China, the competitiveness of Italian design may become weaker. Italian creativity is a bias, so the danger is not that Chinese interest in Italy will disappear, but that Italian interest in China will disappear. This market must be nurtured."
Maria Porro, President of the Milan Fair, added: "We think that it is enough to make good products, but in fact this is only the starting point. 'Made in Italy' can lead us to be stuck in our ways. Entering the international market framework requires us to be more than just product-centred; technical knowledge must be combined with structured management. Without change, 'Made in Italy' will become a liability."
