Alexandra Harney: Ready to pay more for Chinese goods?
11:23 AM CDT on Sunday, April 20, 2008
For years, American im****ters and Chinese factory managers have been
having the same conversation. The im****ters would demand lower prices
for products destined for American shelves. Factory managers would
counter with a long list of reasons why they needed to charge more.
Most of the time, American im****ters would prevail, and Wal-Mart
shoppers would rejoice.
Not anymore. The era of cheap Chinese consumer goods may finally be
ending, thanks to irrepressible inflation.
Now when the Chinese present their lists, some American im****ters are
conceding higher prices, meaning that U.S. shoppers, for the first
time in years, are starting to pick up the tab for rising costs in
China. Some Chinese factories are now asking their American customers
for price increases of as much as 30 percent.
And this is only the beginning: We'll be paying higher prices for
Chinese goods for years to come.
Consumers of Chinese ex****ts (read: you and I) have for the past two
decades benefited from an extraordinary confluence of factors. China's
desire to attract foreign investment, rural workers' hunger for higher
wages than they could earn on the farm and excess capacity in nearly
every industry helped limit price increases for Chinese ex****ts. The
renminbi was undervalued, wages were low, raw materials were cheap,
and government officials turned a blind eye to labor and environmental
violations.
But now a perfect storm has hit China's manufacturers. So far this
year, the renminbi has been appreciating at a 16 percent annualized
rate. And prices for raw materials, which account for 60 to 70 percent
of manufacturers' costs, are soaring. Hundred-dollar-a-barrel oil has
raised trans****t costs.
Although some economists expect raw material prices to weaken in the
second half of this year, in the long term, the emergence of millions
of new car drivers, homebuyers and office workers in India and China
will keep the price of steel, plastic and other raw materials high.
At the same time, China is rolling out wage increases around the
country and tightening its labor laws. Leaders hope that better
protection for workers will placate its increasingly restive
manufacturing workforce. But a tidal ****ft in the country's
demographics =96 a dwindling supply of young workers as a result of the
"one child" policy in effect since 1979 =96 will counteract those
efforts.
China's Generation Y, the children born after the one-child policy
came into effect, are increasingly aware of their rights to a legal
wage, health insurance and time off. Their demands for better
treatment will continue to drive up the cost of manufacturing.
Already, southern China's Guangdong province, known as "the workshop
of the world," is short 2 million workers, the equivalent of 14
percent of America's entire manufacturing workforce.
The problem for American retailers and consumers hooked on $3 T-****rts
and $30 DVD players is that there is no other China waiting in the
wings to make cheap goods reliably for American shoppers.
American im****ters are now arriving by the planeload in Vietnam,
hoping to take advantage of the country's lower wages. But Vietnam,
hard as it tries, has only 85 million people =96 the size of one Chinese
province. And only a fraction of its population is suitable for
factory work.
India, the other country often mentioned as a China surrogate, has not
yet managed to get its act together to take advantage of China's
rising ex****t prices. Im****ters say India is good at certain things =96
embroidery, for instance =96 but not at the volume production that the
world depends on for cheap goods. India's road and ****t
infrastructure, while improving, is nowhere near as efficient as
China's.
So im****ters are looking back to countries they once rejected in favor
of China =96 Indonesia, Mexico and Malaysia. And they are looking ahead
to countries not yet integrated into the global consumer-goods supply
chain, such as Brazil and Kenya.
Every country, however, offers its own special risks: strong labor
unions in one, political instability in another. None offer the one-
stop shop appeal of China, where factories make everything under the
sun.
For the time being, then, we will all still be buying a lot of "Made
in China" products =96 and paying ever more for them.
Alexandra Harney is a former Financial Times correspondent and author
of "The China Price: The True Cost of Chinese Competitive Advantage,"
which was published last month. Her e-mail address is
thechinaprice@[EMAIL PROTECTED]
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