Did your Chinese supplier raise price?

Recently many clients expressed their concerns to me that their Chinese factories wanted to increase price, they tried to figure out what happened and what might happen in the near future with made-in-china products price.

The price rise is inevitable

There are many factors contributing to the recent large scale price rise: historical high inflation rate, increasing production cost, RMB appreciation against USD, tax rebate rate cut.

Workers wage increased by 200% in the last three years

We have an associate door mat manufacturing factory in coastal city Taizhou, their workers wage has increased from 1500RMB to 3800RMB/month within 3 years, many factories in Yangtze river delta and Pearl river delta areas are facing the same problem - shortage of workers. They have to increase salary to recruit work force, the salary increase is one of the major factors that affect production costs.

Apart from that, the price of land, equipment, facility are keeping increasing, the production cost increase will eat out the profit margin if they don’t shift the price increase to the buyers.

RMB keeps appreciating

In 2010, RMB to USD conversion rate rise from 6.80:1 to 6:55:1, which means RMB has appreciated 3.8% in the last year. If the price remains the same, then the suppliers will earn 3.8% less profit. That is huge, especially for many low-margin industries, such as textile products, rubber and plastics products, many suppliers earn only 10% profit, the strong RMB is eating out their profit.

Tax rebate rate cut

It is a trend that the government will cut down the tax rebate rate, actually Chinese government have been doing this, especially in 2010, tax rebate rate of as many as 406 products has been significantly cut or canceled, companies in those industry are facing life or death challenge. This is an uncertain issue the suppliers shall worry.

The inflation rate is at historical high at the moment, the government is trying whatever they can to lower the inflation rate; the inflation is actually the sequel of financial crisis and large-scale stimulus program.

As discussed above, we anticipate the made-in-china products will experience more price rise in the future, but we don’t think it will significantly affect the competitiveness of made-in-china products.