Made in China's Getting Expensive
Aug. 10, 2012
By MarketWatch
By MarketWatch
Europe has finally found something it can export to China–falling growth. China’s July exports were up a miserable 1% year-on-year, compared with a 11.3% rise in June. Exports to the European Union led the decline, down 16.2% year-on-year.
Not all of China’s export woes are made in Brussels though. Zhang Bin, an economist at the Chinese Academy of Social Sciences, says that long-term deterioration in China’s export competitiveness is also to blame. He has a point.
China’s export growth peaked in 2004 at 35.4% year-on-year. Since then, costs for manufacturers have increased across the board.
Average wages have risen more than 150%. Land prices have risen more than 70%. Nate Taplin, China energy analyst at Dragonomics, says electricity prices are up more than 30%. Compounding woes for exporters, the yuan has appreciated more than 30% against the dollar.
Rapid increases in factor prices are bad news. The vast majority of China’s exporters compete on price, with no edge on technology or brand to distinguish them. Improvements in labor productivity–which the World Bank estimates is growing at more than 8% a year–offset some of the impact of rising costs, but not all of it.
Among those feeling the pinch is Hong Kong’s Li & Fung, which has grown rapidly mainly by sourcing Chinese goods for Wal-Mart and other western retailers. The company’s core operating profit fell 22% in the first six months of 2012 compared with the same period last year as lower margins took their toll. Its shares fell 20% Friday.
July’s terrible export data, taken together with decelerating growth in industrial output, and a sharp fall in new loans, makes it virtually certain that China will do more to stimulate growth. Yuan appreciation will stay on hold, and Beijing also has scope to cut interest rates and increase public spending.
There is enough policy firepower to support growth in China’s gross domestic product above the government’s 7.5% target this year. Turning around deteriorating export competitiveness will be a tougher challenge.
China’s export growth peaked in 2004 at 35.4% year-on-year. Since then, costs for manufacturers have increased across the board.
Average wages have risen more than 150%. Land prices have risen more than 70%. Nate Taplin, China energy analyst at Dragonomics, says electricity prices are up more than 30%. Compounding woes for exporters, the yuan has appreciated more than 30% against the dollar.
Rapid increases in factor prices are bad news. The vast majority of China’s exporters compete on price, with no edge on technology or brand to distinguish them. Improvements in labor productivity–which the World Bank estimates is growing at more than 8% a year–offset some of the impact of rising costs, but not all of it.
Among those feeling the pinch is Hong Kong’s Li & Fung, which has grown rapidly mainly by sourcing Chinese goods for Wal-Mart and other western retailers. The company’s core operating profit fell 22% in the first six months of 2012 compared with the same period last year as lower margins took their toll. Its shares fell 20% Friday.
July’s terrible export data, taken together with decelerating growth in industrial output, and a sharp fall in new loans, makes it virtually certain that China will do more to stimulate growth. Yuan appreciation will stay on hold, and Beijing also has scope to cut interest rates and increase public spending.
There is enough policy firepower to support growth in China’s gross domestic product above the government’s 7.5% target this year. Turning around deteriorating export competitiveness will be a tougher challenge.
Source: Market Watch
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I hope China falls flat on her face…. Hail to the USA…..May God Bless the USA