Wal-Mart Says Major Sourcing from China Will Continue

As China’s currency increases in value, Chinese-made products are being sold for more here in the U.S. Despite the inflation, Wal-Mart is staying loyal to its partner-in-trade and says it will continue to source several billion dollars worth of goods from the country. Until it can find another country with a weak economy, exploitable labor and natural resources for the taking, that is.

Wal-Mart’s Chinese purchases hold at $9B [Associated Press via CNN Money]

Wal-Mart Stores Inc., a major buyer of Chinese-made shoes, toys and other goods, expects procurement in China to hold steady this year at about $9 billion despite a rising exchange rate and product safety concerns, the retailing giant’s vice chairman said Monday.

Chinese suppliers have stayed competitive amid higher inflation and a rise in China’s currency, the yuan, by improving efficiency and product quality, said Michael Duke.

“I wouldn’t see any major variation” in procurement from the 2007 total of $9 billion, Duke told reporters. “China will continue to be a major production portion of direct purchases by Wal-Mart for a long time.”

Duke’s comments were a positive sign for Chinese exporters that have been squeezed by the yuan’s rise against the U.S. dollar, which makes their goods more expensive in the United States. The yuan has risen by 16 percent against the dollar since July 2005, when Beijing ended a direct link between the currencies. Some exporters have been forced to close, while others are trying to switch to more competitive products.

Exporters also have been hurt by a surge in prices at home that propelled inflation in January to an 11-year high of 7.1%.

“There could be certain categories of products that may be decreasing from China, but there are other categories of products that are increasing from China,” Duke said.

He declined to give a global total for Wal-Mart procurement or say what percentage is from China.

China’s trade surplus with the United States in January shrank 6.7% to $12.1 billion as demand for Chinese goods weakened, according to government data reported last week.

Duke said Wal-Mart also is watching product quality closely in China.

Wal-Mart (WMT, Fortune 500) and another major toy retailer, Toys “R” Us Inc., announced last week they were tightening standards for lead allowed on paint for toys shipped to their stores. The companies are also phasing out chemicals found in PVC, or vinyl, that have raised safety concerns in products for infants and young children.

“We are pleased to see the focus and the priority” by Chinese suppliers on safety efforts, he said. “And we are happy to be helping both the government and our suppliers to produce safe, quality products.”

Wal-Mart, based in Bentonville, Ark., also has been expanding retail sales rapidly in China, and opened 30 outlets last year, bringing its mainland total to 102.

Duke and Wal-Mart’s president for China, Ed Chan, declined to give sales forecasts or the number of new stores that will open in 2008. But they said China sales were growing faster than the 18% rate for the rest of Wal-Mart’s non-U.S. operations.

Duke said relations with the communist government are good despite a high-profile campaign to form unions at Wal-Mart stores and complaints by foreign business groups that Beijing is trying to support Chinese companies by hampering foreign investment in some industries.

“I believe we’re being treated very fairly and we have very good relationships with both the government and nongovernment organizations,” Duke said.

Chan said nearly all of Wal-Mart’s outlets in China now have unions affiliated with the government-sanctioned All-China Federation of Trade Unions. The group, which launched its campaign to unionize Wal-Mart in early 2006, had accused its managers of trying to block its effort before the company agreed to cooperate in forming unions.

Wal-Mart has resisted efforts to organize unions at its stores in the United States.

Posted by Alex Goldschmidt on Monday, February 25, 2008