China’s Troubled Exports; There Must Be a Trend

By June 30, 2008Trade

From Page A1 in today’s Wall Street Journal,  “China’s Export Machine Threatened by Rising Costs,” (subscription) documenting problems being faced in places like Honghe, “China’s Famous Town for Sweaters.” Excerpt:

Manufacturers say their profits have dwindled as they pay out more for raw materials and energy. China’s strengthening currency has made Honghe’s products more expensive for important markets such as the U.S., where the price of Chinese goods surged a record 4.6% in May from the previous year, according to the U.S. Commerce Department. Foreign buyers, used to inexpensive Chinese products and nervous about economic weakness at home, are often refusing to pay more.

Beijing, too, has contributed to the squeeze: Companies say the government’s tougher protection for workers and the environment has made it more expensive to do business. Foreign buyers say tighter visa policies have made it harder for them to visit Chinese factories or attend trade shows.

And the flip side, as previously noted, BusinessWeek reporting, “Can the U.S. Bring Jobs Back from China?” 

Lots of folks doing the story in one version or another:

Newsweek, “Dark Clouds Over The Delta“:

Twenty years ago Guangdong was the place most small, family-owned manufacturers in Asia flocked to, making it China’s top exporting province and a magnet for migrant labor from the hinterland. But since 2005, wages have risen 14 percent a year and the yuan began to appreciate, the trend has reversed. Tougher labor, tax and environmental rules implemented this year, combined with spiraling energy and material costs, have driven thousands of factories to quit the delta, the start of an inevitable “hollowing out,” says Tao.

Montreal Gazette, “Outsourcing to China not so cheap anymore“:

China’s cost advantage is being eroded by soaring oil prices, rising wages and an appreciating currency. Canadian companies that outsource their manufacturing to China are already feeling the pinch and some are even bringing production closer to home. Could globalization be reversed in an era of high oil? What would that mean for Canadian companies that have come to depend on the China Price?, Howard Gold, “China Bulls Get Shanghaied:”

After August’s Olympic Games, I expect Beijing to start raising interest rates sharply and also to allow its currency, the renminbi, to float upward more aggressively to reflect its true value in world currency markets. As China’s wages rise and the currency strengthens, exports will soften. Combine that with high material prices and weak economies in the developed world and you have a case for much lower economic growth down the road than the pundits are projecting (currently 9.8% this year).

Now how to extrapolate these developments for maximum negative media spin? Hmmm…

“China Downturn Threatens U.S. Jobs”

Which may even be true.

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