Chinese Labor Costs Rising
The following article was translated from Modern Times. It talks about how there is significant wage pressure in China today. I strongly agree with the results of this kind of thinking in the long term, however in the short to medium term there may well be factors that prevent wages from increasing significantly in China (left unmentioned for now, but related to a possible global slowdown currently in progress):
Low [Chinese] Wages won’t Return
Along with the ever increasing inflationary pressures on Chinese wages, the era of the rest of the world enjoying low priced Chinese manufactured goods is already fading away.
For foreigners sourcing toys in China, the road to riches is simple: Purchase large quantities of stuffed animals, cartoon coffee cups, or unique toy figurines, and then sell them to European retailers at a high margin. For more than 20 years, substantial profits in China have been made in this way.
However the situation this year in Chinahas caught more than a few people by surprise. Foreign exporters in China preparing for the Christmas shopping frenzy are running into some troubles with sourcing in China.
Among the large suppliers in China, “inflation” is becoming the key word in supplier negotiations. Inflation is already inevitable under the influence of rising material and Chinese labor costs. In the past, competitive pricing pressures were widespread in China and served to keep down product prices, especially in industries where little product differentiation existed. Killer price competition was for all intents and purposes a necessary method to win foreign customers for Chinese suppliers. This process once allowed foreign export firms to thoroughly enjoy the benefits of low priced Chinese products. But this year is much different than normal years in China. It as if all suppliers agreed in advance to raise prices from 5 to 10 percent.
China’s low priced toys and daily necessities once brought convenience and joy to countless European and American households, but now it seems that this era is already fading away. The high speed Chinese economic train has creating an uncontrollable trend of rising labor costs.
The US Federal Reserve organized a special meeting to discuss how the world economy would be influenced without low cost Chinese exports. All of the Federal Reserve officials believe that over the past ten years, low cost Chinese exports have played a key role in keeping global inflation in check. Although there are economists and US Federal Reserve officials expressing the opinion that low cost Chinese exports won’t disappear in a short amount of time, more people believe that increasing prices have already become the trend, and that the golden era brought about by low cost Chinese exports is already coming to an end.
