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Is It the End of Cheap Goods From China?

18/09/2012

Rising labor costs in China are pushing up the price of manufacturing Chinese goods. For years, cheap labor made Chinese products cheap worldwide, but all that may be coming to an end.

Many Chinese factories have experienced labor shortages, which has increased labor costs. The Wall Street Journal reported higher prices of Chinese goods during last year’s Christmas buying season.

Additionally, the cost of raw materials is increasing in China due to its strong economy and increased demand. The end result is an increase in the cost of Chinese goods.

How much have prices increased so far? According to CPI (Consumer Price Index) summariesfrom the US Department of Labor, retail prices for lots of daily goods have increased for 5%-10% since last Christmas. That’s bad news for US consumers because the US imports a lot of goods from China.According to the Wall Street Journal, US imports from China include:

80 percent of US shoe imports

60 percent of furniture imports

80 percent of luggage imports

Due to the shortages in workers and raw materials, the price of Chinese goods will continue to rise. According to the Boston Consulting Group, labor costs in China will reach a “tipping point” by 2015.

The Chinese government is well aware of the rising labor, raw materials, energy and land costs that are puttingChinese manufacturers under high pressure.

The Chinese government released a trade plan for the country's 12th Five-Year (2011-15) period earlier this year. According to the plan, "Chinese enterprises, especially those in traditional industries and small and middle-sized businesses, face diminishing cost advantages, weakening external demand and capital shortages, and are caught in the dilemma of surviving and upgrading products and moving up the value chain". The plan also said China will urge developed countries to loosen the controls they place on exports of high-tech products, and import more energy, resources, raw materials and advanced equipment.

The plan also called for reductions in tariffs charged on energy, raw materials, essential components and advanced equipment, and for "appropriate" tariff reductions on consumer goods.

To increase exports, the plan said, the government will consider reforming its tax rebate system. Currently, local governments are partly responsible for providing the rebates. That system, at times, gives rise to a discrepancy between local governments' rights and obligations.

The plan also encouraged domestic enterprises to move into the upstream of the supply chain. Enterprises are encouraged to take on more clout in the international pricing of energy, resources and commodities.

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