China Prices Rising

[The Outback Oracle]

I wonder if there are many Itulip readers in the import business from China?
We are a small importer in Australia. In the last three weeks the prices being quoted to us in USD out of China have increased between 5% and 20%. The reasons for the increase are threefold

A reduction in the export subsidy from the Chinese Government
The increasing value of the RMB against the USD
Increasing labour and raw material costs

The margins in factories in China is very slim. They have no room for absorbing costs in the future, so we can expect the pressure of rising prices from China to continue.
Further these increases will be to every company in every country in the world. I have checked with contacts I have in several countries and so far the experience is the same as mine. Our $A currency increase against the USD partially offsets the increases. However for the long term our Australian CAD and external debt situation is even worse than the US, and the currency value is largely based on relatively high interest rates. So it looks to me that inflation is starting to come at us from all directions.
My main question is.. are other people in the importing business experiencing the same thing?
If it is universal....stand back..the s..t is about to hit the fan!

[jk]

i'm not in the importing business, but i have a question for you: are you starting to look to source your products from vietnam, indonesia, etc instead of china?

[The Outback Oracle]

JK...not yet. We keep an eye on them but as yet there is not the structure to make the products we want. We are in the Camping business so our range of products is very diverse and we use probably about 25 different factories in China. Again we are a bit small (way too small in fact) to reoganise whole tent and furniture factories. Further we would still have to get most of the components from China so the saving may not be large by the time we paid all the extra freight charges.
We will really have to wait for our factories to shift their own production to the alternate countries.
Another factor is the reliability. The Chinese drive us nuts on the quality control side. However attempts by other importers to diversify the sourcing to say indonesia has been pretty disastrous and they have ended up back in China.

[zoog]

we would still have to get most of the components from China so the saving may not be large by the time we paid all the extra freight charges. ... The Chinese drive us nuts on the quality control side. However attempts by other importers to diversify the sourcing to say indonesia has been pretty disastrous and they have ended up back in China.

Very interesting. Can't remember where I read a statement suggesting that as Chinese-made products become more expensive, Americans (or Australians in this case) would either buy more American-made (Australian-made) products or do without. Well, if the base components are still coming from China, it sounds like the retail savings would be negligible. With American factory wages about 20 times those in China, the Chinese-made products would have to be considerably more expensive for American-made alternatives to even be competitive. Ergo, most people will just do without.

[DemonD]

zoog, I wouldn't be surprised if that indeed happens. Here is one man's educated guess: other foreign companies will follow the lead of hyundai, toyota, bmw, and other car companies and build manufacturing bases right here in the USA.

If china as a country is indeed ending their subsidies, then what is happening to you (outback) will happen to everyone, and we finally might get a true inflation that not even the CPI can hide. However, there is a possibility that your company that is exporting from China may have lost a "most favored" status with the communists. You say the company has lost subsidies, is that true for all exporting companies? Or maybe someone in upper management who is the liaison with the government forgot to grease some elbows, or may have actually pissed somebody off?

Either way we are into some interesting times. Hopefully camping gear won't increase where I live (los angeles) as I'm going to need some camping gear in the next couple of weeks to withstand some of the most severe weather one can camp in.

[The Outback Oracle]

As I said we deal with about 25 companies. They all tell us the same thing (and that includes all those that are owned by ex army Colonels!!!!!!).

Sorry this little discussion is not of the intellectual nor economic discipline normal for this site...i was just wondering if there were others in the US having the same experience as we are.
But you are right...the longer term prognosis for inflation changes a lot when China becomes a source of inflation.

[DemonD]

hey mate, thanks for the heads up. I don't personally come into any kind of contact at all with Chinese importers, but I'm hella glad I bought my "made in china" j crew cargo shorts the other day before my dollar was worth less and I'd have to give up more for them.

Your follow up post also makes it more clear. Yes, 25 companies many with ties directly to the Party in China, that would appear to be a clear signal it is a system wide change and not just someone being hung out to dry. The original post made it seem like it was just one company.

[jk]

Sorry this little discussion is not of the intellectual nor economic discipline normal for this site...i was just wondering if there were others in the US having the same experience as we are.
i think we all appreciate hearing some facts on the ground. thank you.

[PeterM]

Thanks for this 'from the ground' observation,
there certainly appears to be inflation pressure building up in China.
Recently several MSM reports came out on food price increases there.

Looking at ex-China products sold in the shops here in Australia, and previous inflation dampening effect of cheap imports, any increase in import prices might seriously effect inflation in Australia.
Might become a double whammy with tightening credit effects.

[c1ue]

The pig epidemic is a factor in the rising food prices; so is the US ethanol play which has caused havoc in corn.

I am pondering if (in double/triple think terms) if the ethanol play really was a way to show that China was still vulnerable due to food export?

I can't find any recent data, but what I see dating up to 1980 shows China as being the second largest importer of food behind the Soviet Union.

If this has changed, it is a major shift.

[zoog]

I am pondering if (in double/triple think terms) if the ethanol play really was a way to show that China was still vulnerable due to food export?

July 26, 2004 - For more than two decades, China has usually been the world’s second or third largest corn exporter. In 2002-03, it accounted for 19 percent of world corn exports. For more than 20 years, traders and analysts have speculated that China would soon become a significant corn importer. ... In recent years, China has been a net exporter of 300 to 600 million bushels of corn annually. link (http://www.extension.iastate.edu/agdm/articles/wisner/WisOct04.htm)

01/06/2006 - Chinese sweetener maker Xiwang Sugar has bought 50,000 metric tons of US corn, in the country's first major import of US-grown corn for at least 22 years. link (http://www.ap-foodtechnology.com/news/ng.asp?n=68113-hina-us-orn)

1 metric ton = 39.37 bushels of corn, so an import of just under 2 million bushels, compared to typically exporting several hundred million in a given year.

I'd say the ethanol / corn issue is not having a major impact on China thus far, but could eventually if they are moving from a net exporter to a net importer.

Portland, OR is the largest wheat exporting port in the US by volume (third largest in the world, in fact) and most of it goes to Asia. However, this season's exports to China are not all that large compared to other countries such as the Philippines and Japan. (I am not sure how these numbers compare to historical norms.)

Outstanding white wheat export sales for the 2007-2008 marketing year were to the following countries in 1,000 MT: Philippines 318.1, Yemen 240.0, Japan 100.9, Indonesia 75.0, South Korea 69.0, Sri Lanka 62.0, Guatemala 24.5, El Salvador 21.0, Taiwan 18.3, Thailand 14.6, Ecuador 13.0, Malaysia 10.0, Bangladesh 9.4, Singapore 8.0, North Korea 7.1, China 7.0, Vietnam 4.9, Mexico 4.5, Canada 1.7, Hong Kong 1.0, and total unknown 203.5.I can't find any recent data, but what I see dating up to 1980 shows China as being the second largest importer of food behind the Soviet Union.

I am perplexed by this statement. Did you mean to say exporter?

According to data pulled from the FAO (http://historylink101.com/lessons/farm-city/per_capita.htm) (Food and Agriculture Organization of the United Nations), China's per-capita food production from 1961 to 2000 has been outstanding. Wheat 369.55%, Rice 177.32%, Vegetables 404.62%, Fruit 1060.82%. Compare to USA: Wheat 125.48%, Rice 240.23%, Vegetables 47.10% Fruit 127.61%.

[Spartacus]

All of those decisions were made a decade ago, right?

If the stuff I read about the Chinese rail systems is true, then China will now or soon have a huge advantage (fuel and transportation costs) for any economic activity that calls for cheaply moving lots of components around to lots of different factories.

The US, Canada & Mexico rely much more heavily on more expensive trucking

zoog, I wouldn't be surprised if that indeed happens. Here is one man's educated guess: other foreign companies will follow the lead of hyundai, toyota, bmw, and other car companies and build manufacturing bases right here in the USA.

[The Outback Oracle]

I have done a cut and paste of part of an email from one of my Chinese employees today. She is reporting on price increases for our major product line. She has access to the factory costs and is reasonably careful about what she says

4)Other cost increase in the past 5 years – actually the most increase is after 2004 .
a. Labour : up 130% (cost of living increased more than 100% in the past 3 years)
Still be hard up so far.

Go figure!!!!!!!!

[touchring]

I have done a cut and paste of part of an email from one of my Chinese employees today. She is reporting on price increases for our major product line. She has access to the factory costs and is reasonably careful about what she says

4)Other cost increase in the past 5 years – actually the most increase is after 2004 .
a. Labour : up 130% (cost of living increased more than 100% in the past 3 years)
Still be hard up so far.

Go figure!!!!!!!!


After my week long trip, i concluded that the cost of living actually increased more in Singapore (in Hong Kong as well) than in China.

China subsidizes a lot of stuff - taxi fare, bus ticket, utilities, practically everything that is provided by a state owned organization is subsidized.

Despite the fact the chinese government is laden with cash, and can well afford the subsidies, this can't continue forever, especially with recent reports of people killed for queue jumping at diesel pumps.

[DemonD]

4)Other cost increase in the past 5 years – actually the most increase is after 2004 .
a. Labour : up 130% (cost of living increased more than 100% in the past 3 years)
Still be hard up so far.

Go figure!!!!!!!!

I guess china has that inflation thing licked too eh? anyone who would "invest" in the yuan IMO is out of their mind. This is one of the things that makes me a bit squirrelly about the Gavekal guys.

[touchring]

I guess china has that inflation thing licked too eh? anyone who would "invest" in the yuan IMO is out of their mind. This is one of the things that makes me a bit squirrelly about the Gavekal guys.


From a financial point of view, the Yuan is anytime better than the US dollar - almost all investors, dr. dooms, bulls, shorts can see that. But if you're from Canadia or Australia, the investing in the Yuan is risky and it can go both ways.

[c1ue]

I am perplexed by this statement. Did you mean to say exporter?

Nope, I said importer and I meant it.

http://www.iiasa.ac.at/Research/LUC/ChinaFood/data/food/food_15.htm

While China does export food as a result of their mercantile policies, net overall they import food - and the amount of import has been pretty consistently growing.

This is despite China plowing ridiculous amounts of subsidies (fertilizer, fuel and money), effort, and environmental devastation into the goal of being self sufficient.

Note that even for scenarios where China's production is growing significantly, that the demand scenarios are almost certainly optimistic as China increases their average wealth and continues its ongoing trend of eating more grain per person.

Lastly China is still growing slightly - the 100M+ growth rate still predicates a significant increase in food supplies needed just to keep everyone fed.

[c1ue]

From a financial point of view, the Yuan is anytime better than the US dollar - almost all investors, dr. dooms, bulls, shorts can see that.

Yep, sounds like an MSS line to me.

The yuan will never be a good investment vehicle so long as the Chinese government a) controls the exchange rate and b) does not allow it to be fully convertible.

As I've said before - China and the Yuan is the roach motel for money...Money checks in, it doesn't check out.

And I don't see the Yuan fully floating nor being fully convertible barring a regime change - it would mean the government ceding too much control to both international 'hot' money and internal wealth classes.

Unless you live (and plan to forever live) in China, investing in Yuan and yuan based securities is not a wise strategy.

[touchring]

Unless you live (and plan to forever live) in China, investing in Yuan and yuan based securities is not a wise strategy.


Makes sense, the chinese themselves have always been trying ways to get the money out. So i guess Jim meant something else when he said "buy the RMB".

http://www.forbes.com/markets/feeds/afx/2007/11/15/afx4346625.html

BEIJING (XFN-ASIA) - Commercial banks in the southern Chinese city of Shenzhen have been ordered to limit cash withdrawals in a bid to cut off sources of unauthorized investment in Hong Kong stocks, the official China Securities Journal reported.

[DemonD]

Makes sense, the chinese themselves have always been trying ways to get the money out. So i guess Jim meant something else when he said "buy the RMB".

http://www.forbes.com/markets/feeds/afx/2007/11/15/afx4346625.html

Um, the yuan is a unit of the renminbi. If you are buying renminbi you are buying yuan (along with jiao and fen which would be akin to dimes and pennies). So your statement doesn't make any sense imo.

[trex]

Outback. Small world. I'm in the camping business in the USA and also manufacture in China although in just one factory. I'm just back from an on site visit and pricing review. Price pressures in China are a fact. Local headline - CPI is currently reported at 6.5% with interest rates under 2% [Ed Note: Anyone think that might be supporting the stock market??].

Labor costs are climbing for both professionals and factory workers and this is putting pressure both our component and finished product costs.

Like you, we aren't moving anywhere soon as the infrastructure for our product isn't developed enough in other likely locations. Our product is electronic and requires some stringent manufacturing controls to insure consistent quality.

One on-the-ground observation is that while there is a lot of junk still made in China, there is a growing manufacturing base which does precision work. For example, the tooling industry in the China makes excellent quality tools for plastics molding and they do it in 1/3 the time and less than 1/2 the cost of the USA. The tools come with a 1,000,000 part guarantee i.e. its hard steel, no BS, serious tooling.

On this trip, I rode around in two Cherry cars (made in China brand) and they were great. No squeaks or rattles. Good performance and surprising roomy for my American frame and fat. All the modern conveniences. I have no way of knowing the product life expectancy but the Chinese owners were very happy with them.

We toured several new factory locations during this visit. There is lots of great space coming on line.

One other observation is that there is lots of room for labor productivity improvement in China. China has had so much cheap labor for so long that they use it with abandon. For example, most small Chinese factories don't have loading docks. They just use tons of people to load and unload trucks. If labor costs increase much more, small amounts of capital iinvestments could reduce the amount of labor required to make and handle products.

From what I can see from my limited visits on the ground in the Shenzhen area, China's manufacturing base is maturing. While there is labor cost pressure, there is also tons of capacity coming on line and opportunities for labor savings to hold the line on total cost increases.

[touchring]

On this trip, I rode around in two Cherry cars (made in China brand) and they were great. No squeaks or rattles. Good performance and surprising roomy for my American frame and fat. All the modern conveniences. I have no way of knowing the product life expectancy but the Chinese owners were very happy with them.


I sat in one in a showroom when it came to Singapore early this year. It's a mini budget car with fancy interior, but i don't think it will do well in a crash. :eek:

I did some research then, the company only made cars recently, started production in 2000, and obtained its license to sell its cars in china only in 2001.

If you think about it, its incredible how such a new player can make such good looking cars.

http://en.wikipedia.org/wiki/Chery_Automobile

2000 (http://en.wikipedia.org/wiki/2000): ~2,000
2001 (http://en.wikipedia.org/wiki/2001): ~28,000
2002 (http://en.wikipedia.org/wiki/2002): ~50,000
2003 (http://en.wikipedia.org/wiki/2003): ~90,000 (8th in China)
2004 (http://en.wikipedia.org/wiki/2004): ~86,000 (10th in China)
2005 (http://en.wikipedia.org/wiki/2005): ~188,000 (5th in China)
2006 (http://en.wikipedia.org/wiki/2006): ~305,000 (3rd in China)
2007 (http://en.wikipedia.org/wiki/2007): ~392,000+ (Estimated)

[c1ue]

If you think about it, its incredible how such a new player can make such good looking cars.

Not so surprising - combine large amounts of capital, government subsidies, and hiring people away from existing manufacturers. Oh and cheap labor.

It is being done in the semiconductor fab industry, it can be done with cars.

[touchring]

I see where you are coming from, the semi-con fab industry, you're barking up the wrong tree. Outside the US, South Korea, Taiawn and Japan leads in the semiconductor manifacturing industries.
http://en.wikipedia.org/wiki/Worldwide_Top_20_Semiconductor_Sales_Leaders

China's no where near, it can't even compete with Singapore, a small producer. Semicon, especially the foundries, is a cut throat industry. I know that Singaopre gives free land, tax exemption, low interest loans, and even free money, for anyone willing to setup a semicon plant. Recently they won a mega solar energy plant deal out of hundreds of alternative locations, i can imagine that the Singapore government, would have offered to fund the entire operation, 10 years tax free, the other party only needs to setup the plant and bring in their accountants to count and repatriate their profits!
http://www.allheadlinenews.com/articles/7008974962


Not so surprising - combine large amounts of capital, government subsidies, and hiring people away from existing manufacturers. Oh and cheap labor.

It is being done in the semiconductor fab industry, it can be done with cars.

[FRED]

I see where you are coming from, the semi-con fab industry, you're barking up the wrong tree. Outside the US, South Korea, Taiawn and Japan leads in the semiconductor manifacturing industries.
http://en.wikipedia.org/wiki/Worldwide_Top_20_Semiconductor_Sales_Leaders

China's no where near, it can't even compete with Singapore, a small producer. The semicond is a cut throat industry. I know that Singaopre gives free land, tax exemption, low interest loans, and even free money, for anyone willing to setup a semicon plant. Recently they won a mega solar energy plant deal out of hundreds of alternative locations, i can imagine that the Singapore government, would have offered to fund the entire operation, 10 years tax free, the other party only needs to setup the plant and bring in their accountants to count and repatriate their profits!
http://www.allheadlinenews.com/articles/7008974962

We just received the attached from friends. It explains how Taiwan is developing into a world class inventor of optical and other high end electronics.

[c1ue]

China's no where near, it can't even compete with Singapore, a small producer. Semicon, especially the foundries, is a cut throat industry.

foundries are only a portion of the industry.

Singapore has greater focus on its home-grown subsidized semicon co, that's why that company still exists. But that company is run by highly incompetent business people; there is technical ability but not the combination of business and technical vision needed.

China has not increased its subsidy yet because there is more bang for buck at this stage in China's evolution to focus on energy and things like cars. The foundry industry also helps by basically keeping prices low for incoming semi products.

Korea is successful because it has successfully ramped from a heavily subsidized memory manufacturer into cell phones and consumer electronics. Samsung has a strong technical and business vision.

Taiwan in turn has one strong semi manufacturer: TSMC. The rest are second raters riding TSMC's stern wave.

But the day of the foundry is ending; with 5-7 year process lifetimes vs. 2-3 year lifetimes, the business advantage of semi manufacturing outsourcing is almost gone.

The costs at the leading edge are such that the customers are themselves consolidating into giants. It is only a short time before the largest of these 'pure play' design houses will see the benefit of buying their own fab or leasing a fab from someone like Samsung.

The existing IDMs (integrated device manufacturers a la Intel and Samsung) in turn will increasingly aggregate competitive benefit by simply being the only ones who can afford the latest and greatest manufacturing - hence will produce products with strong pricing advantages.

Only if an 'Apple-esque' niche can be formed in multiple market segments will the existing status quo survive, and I have bet money against that.

[touchring]

Thks for the industry insight c1ue. That's the price to pay when politicians run businesses, you can't boot them out easily if they are incompetent in business.

[c1ue]

Just my always politically incorrect personal opinion.

Believe or not at your own peril! :eek:

[mimbulus]

Hi all

I'm a newbie who's been lurking and learning for a while now so first off thanks for the 'content'.

With a view to sharing info I have a friend in China who sent me the following which might be of general interest....

"life in china: evidence of building everywhere - building sites abound, china is one vast building site, but apartments are selling for under half their asking price in guangzhou, and most of the thousands of apartments in the new satellite towns outside suzhou are empty. there are signs of hasty planning and building: shoddy workmanship, and empty tourist malls where obviously it seemed a good idea, but in fact there weren't enough punters to sustain things. i get the impression of a huge bubble - things are developing so fast that government needs to prepare for the influx of workers and investors (of which there really are many) but they have to make wild guesses about numbers, also, they have to show people that they are modern, forward-looking and prepared for 'the big boys'. so this bubble sits there glinting in the suzhou sun: will pop when the investors fail to show in the numbers predicted, and bring the economy down with it (there must be so much idle investment here at the moment) or will everything be ok and we're currently just waiting in the lag between planning and realisation? even from the perspective of nice coffee shops you get an indication of the problem: there are some very nicely done up traditional areas of suzhou, and they have some lovely chi-chi coffee shops - but they're always empty, and the prices of the coffee is astronomical - only the richest chinese can afford it, otherwise it's up to the expats and tourists. at the moment, they seem to be empty pretty much all the time, so how do they survive? who pumps in the money to keep them going?"

and as a small aside

"is stargate atlantis worth watching? they have, inevitably, the dvd here for 7rmb a pop. property rights shmoperty rights."

Any questions you'd like me to ask my friend on the ground?

Regards
Jo

[touchring]

I also had the initial impression of a huge bubble, but the reality is a bit more complex then that. Some of it is bubble, some of it is real.

Premium real estate in large cities like Shanghai, Shenzhen, Guangzhou, especially those near the city center are for real, getting good rentals and well occupied.

Apartments and commercial buildings built in the middle of nowhere, in small cities, or rural areas are bubbles.

[The Outback Oracle]

Update

As I posted in another thread we have had a 70% increase in the USD price of cast iron cookware out of China in the past 6 months.
This morning we had a small change in the price of steel tent poles....up 40% !!!!!! This is in just 2 months.
Reasons cited

Reduction in the Customs rebate (aka export subsidy) from 13% to 0
Rising value of RMB

rising input costs

I guess it is a good thing they are reducing export subsidies to make a more level playing field but it does not alter the fact that there is a wave of inflation on its way out of China.
Cheers

[touchring]

Update

As I posted in another thread we have had a 70% increase in the USD price of cast iron cookware out of China in the past 6 months.
This morning we had a small change in the price of steel tent poles....up 40% !!!!!! This is in just 2 months.


Commodity price inflation is filtering down the system. No wonder the feds only cut 25 bp. Not a good sign.

[The Outback Oracle]

Chinese Banks current advice to manufacturers is to work on YUAN/ USD rate at 6.8 by June 30.

[The Outback Oracle]

One more small matter - I posted somewhere recently but not here anyway

We now have quite a few Chinese manufacturers asking us for payment in either Yen, Euro, or Aussie dollars. If they think the latter is going to save them they are not thinking properly! (I'm Aussie) They would also accept Yuan of course but it seems this is not too easy for us. In any case they do not want USD.

Cheers

[jk]

One more small matter - I posted somewhere recently but not here anyway

We now have quite a few Chinese manufacturers asking us for payment in either Yen, Euro, or Aussie dollars. If they think the latter is going to save them they are not thinking properly! (I'm Aussie) They would also accept Yuan of course but it seems this is not too easy for us. In any case they do not want USD.

Cheers
i'm curious about this. after all, the chinese companies presumably put whatever foreign currency they get into their bank accounts, converted to yuan for their domestic use. it can't matter much to them what they get paid in, unless there are delays in transmission - e.g you pay me in dollars today, but by the time i get credited next week they're not worth as much. thus i suspect there was central "guidance" instructing them to ask for other currencies. did these requests appear synchronously, or in dribs and drabs?

[touchring]

I think what Oracle meant is quotations or pricing.


i'm curious about this. after all, the chinese companies presumably put whatever foreign currency they get into their bank accounts, converted to yuan for their domestic use. it can't matter much to them what they get paid in, unless there are delays in transmission - e.g you pay me in dollars today, but by the time i get credited next week they're not worth as much. thus i suspect there was central "guidance" instructing them to ask for other currencies. did these requests appear synchronously, or in dribs and drabs?

[The Outback Oracle]

I think what Oracle meant is quotations or pricing.

Touch you're correct and I was pondering that particular question as I was writing the post. I think their first problem is pricing. They quote the price to us in USD. By the time we confirm the order, get it produced and shipped, and then we send the money it is likely going to be 3 months. Their margins are so fine the profit can disappear with the decline in the dollar in that time. We told them we would accdept the quote in Yuan if they wanted. It's just hard for us to pay in Yuan. We would just have to pay the equivalent in wahtever currency on the day.
The second issue is what currency they want to store moeny in. Note that it is really only companies with offices in HK who can do this. They have the flexibility to handle and save in any currency. So they prefer to quote in Euros or Yen or whatever and then bank that currency. Perhaps the atttraction of aussie is they may be wanting to come here and buy up whatever we haven't yet sold off - the choices are starting to get limited!

Cheers

[c1ue]

Folks,

I think this is a case of thinking too hard.

Having payments in other currencies confers several positive benefits:

1) With common knowledge of the RMB increasing peg vs. other currencies, getting payment in other currencies is better as RMB received only goes up over time

2) Purchasing power of RMB is crap; getting payment in other currencies can potentially allow purchases of ex-China stuff without going through government banks and fees.

3) Stability - as mentioned above

[The Outback Oracle]

A small update! The USD FOB prices of PVC products we import from China just increased between 12 and 15% over 3 months ago!
Every time we place an order for anything it seems the price is increased by about 5%

[touchring]

A small update! The USD FOB prices of PVC products we import from China just increased between 12 and 15% over 3 months ago!
Every time we place an order for anything it seems the price is increased by about 5%


I wonder how this is affected by the falling chinese property and stock market?

[The Outback Oracle]

I wonder how this is affected by the falling chinese property and stock market?

G'day Touch

In my opinion (and I won't be so conceited as to claim to have a humble oipinion) the two things have almost nothing to do with each other. What we are experiencing is built in. It is the end of a pipeline that takes a year or two to filter through. I think that is what is wrong (other than plain stupidity) with the decisions of the policy makers. They just don't see the pipeline. Everyone watches too much TV these days. Instant results! In economies, someone kicked over a rock a year or two ago somewhere. We didn't notice. Now it's an avalanche that cannot be stopped.
Now I've done the soap-box thing....labour cost in China, while a problem for them because their margins are so small, is not (yet!!!!) a real issue in the costs of things for us. I keep wondering what bunch of morons ever thought that the price of commodities increasing by 200, 300, 400 percent would not eventually come full circle?
I guess it includes just about everyone in the world with influence on the great events of our time...except me and thee!...and itulip members!

In case anyone wonders and by way of apology, I chose this pic of Harrison Ford, not because I identify with his heroic movie exploits, but because it looks a bit like me when I used to come home looking filthy and dishevelled and covered in red dirt after a day on the dozer!

Now, the effect of the Real Estate and sock market crash in China is a whole other story.......I'll desist on the basis that at the moment I'm a bit like Rick...damn I wish he would come back!!!!!
Hey Fred...how about telling the dozey b.....d we miss him!!!

[c1ue]

Outback,

The USD price increase is not surprising - what has the net effect been on you since the A$ is also increasing vs. the US$?

I just pushed through a price increase on a new customer - 16% on their second order - for a US-based product line.

Bank CD interest rates in Russia are over 10% for 2 year terms; over 8% for 6 month terms.

[The Outback Oracle]

Dang!!! If it is not one thing it's another! Now we are having trouble getting our Aluminium goods made. Our factory can't get from the Aluminium factory because the Aluminium factory can't get enough power for processing.
We have struck the power shortage problem quite a bit in China. In our case it is generally solved by a fair sized generator out the back for use in power outages. Aluminium requires a bit more power than the average back-yard generator puts out.
Infrastructure spending is enormous in China and surely has a long way to go. Mind you I suppose if the US and Europe need a whole lot less goods, it might ease the short term power problem!

[The Outback Oracle]

In my mailbox today was this wee tidbit.....interesting!!!!
I'm not sure how the published statistics are reflecting this...maybe all the importers are preparing for the future?

General

Some interesting news/statistics coming out of the media in Hong Kong in recent days:

Exports from China to the USA down close to 35% on same time last year.

Exports from China to Europe down close to 10% on same time last year.

Chinese inflation is running at somewhere between 7% - 9%

The Chinese Yuan was revalue again by the central Government.

Trade to Australia is down but no statistics are available at this time. The introduction of new lines and greater capacity has come at what will be a difficult time for shipping lines.

[FRED]

In my mailbox today was this wee tidbit.....interesting!!!!
I'm not sure how the published statistics are reflecting this...maybe all the importers are preparing for the future?

General

Some interesting news/statistics coming out of the media in Hong Kong in recent days:

Exports from China to the USA down close to 35% on same time last year.

Exports from China to Europe down close to 10% on same time last year.

Chinese inflation is running at somewhere between 7% - 9%

The Chinese Yuan was revalue again by the central Government.

Trade to Australia is down but no statistics are available at this time. The introduction of new lines and greater capacity has come at what will be a difficult time for shipping lines.


We looked at the data and China imports to the US are certainly trending down but are not yet year-over-year negative.

http://www.itulip.com/images/USImportsChina062408.gif

[Brooks Gracie]

Economic success seems to correlate well with declines/increases in population. China's 1 child policy had much to do with its economic growth. The U.S. and Australia have had rapid population increases over the past 15 years, and our economies are in the most trouble. Japan has had negative growth in population, and it too has boomed in terms of GDP growth per capita.

Why is this not self-evident to people? The solution seems to me to be to restrict immigration to the U.S. This policy is about the only one I agree with the Republicans rather than the Democrats. Immigration restrictions would go a long way to relieving the wealth disparity that the U.S. is now suffering from, plus it would put pressure for wage increases to the average Joe, which could re-establish a middle class in the U.S., which is absolutely necessary for economic growth. The wealthy save and invest, rather than buy products. The average Joe must go into enormous serfdom just to pay for his or her tuition, or to buy a house.

[The Outback Oracle]

I have been in Southern China here a few days. It is difficult to get too much of a picture yet but the following may be indicators. I record what I have been told without making projections about it.

We visited one of our supplying factories in Shunde City, now a district of Foshan City. There are some quite luxurious townhouses that I had noted on a previous trip. Price around 7-8000 Yuan per sq M. The price is currently about Y3800 per sq m.
One of the factory workers bought an apartment for Y3900 /m2 about 4 weeks ago. Now the price is Y2900/m2. In perspective this bloke earns about Y2000 per month, so he has just lost more than 5 years pay in one month.
This factory does not sell much to US and has not slowed down. Orders from Europe are holding aT THIS STAGE BUT BUYERS BEING VERY CAUTIOUS ABOUT FUTURE ORDERS.
iN gUANGDONG PROVINCE ABOUT 60,000 FACTORIES HAVE CLOSED IN the past 9 months or so. Last week one factory in Donguan shut down with 6000 workes laid off.

At the same time wages have been rising substantially. The Govt has just brought in new regulations and factories now have to pay various insurance for the workers and superannuation. So costs are rising. For countries like Australia with falling currrencies this will be a major problem.

At the canton trade fair we went to see one of our smaller suppliers. Walmart just cancelled an order for 30,000 cooksets. Value probably only about $6.00 each. The order was being produced, one container ready to ship, one being made and the third all materials assembled for manufacture. I guess it may break this small guy....but who gives a stuff if you are Walmart...that's what small guys are for!!!
Some FOB prices are falling. The govt is reinstating some export rebates. However typical Govt it depends on who has the Govt ear...for example...indoor furniture gets a rebate but outdoor furniture does not! Plastics etc that depend on oil are seeing some price adjustment. Stainless steel goods down a bit because of Nickel Price. However other items such as steel have not yet moved much.
Reports (unconfirmed) the Govt now financially encouraging people to stay in the country side where there is food produced, rather than migrate to the cities. Because of job losses tghis sounds sensible enough for the meantime.

Report from a Sales Trader in Hong Kong last night....
Real gut wrenching fear in the markets
Credit not being extended to shipping companies so there is considerable fear this will result in food shortages. Some sections of the banks advising their employees to stock up on food.
This particular trader's boss is confidentially advising his staff to buy gold, food and shotguns!

To all those who promoted the decoupling theory....bunkum! However i do believe the Asians will come out of this better than we Westerners because of their savings. The paradox of thrift certainly in operation in that savings causing some decline in consumption and industry, However, in the longer run they will be better off than those of us in deep debt.

Personal note to Wayne Swan, Ken Henry, Peter bloody Costalot (not my original), various Economists, Real Estate morons and promoters...and all the other morons who have run Australia for the last 50 years...terrific! You took a wealthy self-sufficient country and turned it into a dependent shambles. Aus dollar down to USD 0.62 on Friday.

We are moving up to Xiamen today so we will get a bit more feedback from the locals.

[Sidewinder]

T.O.O.
thanks for your insights and feedback regarding business in China. Our company sources a few materials there. During the past year we have been developing domestic (US) and Canadian relationships because of my now cautious view of future trade and finance with China. I have you and the many others to thank for that. :)

I have friends planning a trade mission/trip to China this spring. Cannot help but think this is not a good idea. Don't know if this comes up in conversations but if so would like to know how negative are the folks you meet regarding American business people? Any thoughts or insight appreciated.

[The Outback Oracle]

Price falls of about 30% OR MORE ARE COMMON ACROSS Southern China.
Factory bankrupties are common across Southern China and my employees here tell me Central and Norhtern China the same.
Near Xiamen a factory owner went "missing" this week so his 4000 workers are suddenly without jobs or pay. The factory people we were with think this phenomenon will be fairly common in 2009. There are some demonstrations in front of Local Govt offices in some places.
OUr supplier near Xiamen says his factory wages costs are increased 31% per worker since January. So despite some material price decreases we are not getting much lowering of FOB prices. This will vary according to the item.

We are now back in Southern China. Our factory here says business is terrible. Orders from the US are very small. Quite a few of his US customers having trouble providing the necessaty letters of Credit.Europe has also now virtually ceased ordering with him. He expects 2009 to be a disaster.

Re US businessmen...I have never heard anything negative said.

[touchring]

[quote=The Outback Oracle;56808]However other items such as steel have not yet moved much./quote]


Maybe the steel makers have stopped production!

Singapore-listed FerroChina says faces $658 mln claims

Wed Oct 29, 2008 1:55am EDT

SINGAPORE, Oct 29 (Reuters) - Singapore-listed steelmaker FerroChina (FERR.SI: Quote (http://www.reuters.com/stocks/quote?symbol=FERR.SI), Profile (http://www.reuters.com/stocks/companyProfile?symbol=FERR.SI), Research (http://www.reuters.com/stocks/researchReports?symbol=FERR.SI), Stock Buzz (http://reuters.socialpicks.com/stock/r/FERR)) said on Wednesday it is facing 4.5 billion yuan ($658 million) worth of claims from lenders and suppliers, and warned a majority of creditors are seeking to freeze its assets.
The company said in a statement it is in talks with major creditors to restructure its debt.


http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSSIN19893120081029

[zoog]

Price falls of about 30% OR MORE ARE COMMON ACROSS Southern China.
Factory bankrupties are common across Southern China and my employees here tell me Central and Norhtern China the same.
Near Xiamen a factory owner went "missing" this week so his 4000 workers are suddenly without jobs or pay. The factory people we were with think this phenomenon will be fairly common in 2009. There are some demonstrations in front of Local Govt offices in some places.
OUr supplier near Xiamen says his factory wages costs are increased 31% per worker since January. So despite some material price decreases we are not getting much lowering of FOB prices. This will vary according to the item.

We are now back in Southern China. Our factory here says business is terrible. Orders from the US are very small. Quite a few of his US customers having trouble providing the necessaty letters of Credit.Europe has also now virtually ceased ordering with him. He expects 2009 to be a disaster.

Re US businessmen...I have never heard anything negative said.

Wow, thanks for the report. I wonder what steps the Chinese government will take to (try to?) prevent this from becoming even more widespread. They don't really like the whole social unrest thing too well...

[touchring]

Wow, thanks for the report. I wonder what steps the Chinese government will take to (try to?) prevent this from becoming even more widespread. They don't really like the whole social unrest thing too well...


The Chinese government raised wages by 30% to kill off low end producers.

[The Outback Oracle]

The Chinese government raised wages by 30% to kill off low end producers.

Re Real Estate, the Govt has removed whatever taxes and duties there were on purchasing an apartment. Interest rates also coming down.
My contact here in Jiangmen told me last night that inflation. last month here, had reached 15%. I cannot vouch for this but he is pretty smart.

The Govt is intent on turning Guandong province high tech. I fail to see what this would do for unemployment in this region. It might help the pollution problem.

[phirang]

Re Real Estate, the Govt has removed whatever taxes and duties there were on purchasing an apartment. Interest rates also coming down.
My contact here in Jiangmen told me last night that inflation. last month here, had reached 15%. I cannot vouch for this but he is pretty smart.

The Govt is intent on turning Guandong province high tech. I fail to see what this would do for unemployment in this region. It might help the pollution problem.

Surplus labor will be used to build railroads: they have a huge project pipeline in railroads.

Still, China will have a hell of a time freeing up credit to offset the collapse of the US consumer...

[Sidewinder]

Price falls of about 30% OR MORE ARE COMMON ACROSS Southern China.
Factory bankrupties are common across Southern China and my employees here tell me Central and Norhtern China the same.
Near Xiamen a factory owner went "missing" this week so his 4000 workers are suddenly without jobs or pay. The factory people we were with think this phenomenon will be fairly common in 2009. There are some demonstrations in front of Local Govt offices in some places.
OUr supplier near Xiamen says his factory wages costs are increased 31% per worker since January. So despite some material price decreases we are not getting much lowering of FOB prices. This will vary according to the item.

We are now back in Southern China. Our factory here says business is terrible. Orders from the US are very small. Quite a few of his US customers having trouble providing the necessaty letters of Credit.Europe has also now virtually ceased ordering with him. He expects 2009 to be a disaster.

Re US businessmen...I have never heard anything negative said.

Thanks for the feedback!

Hope your business holds up!

SW

[touchring]

Re Real Estate, the Govt has removed whatever taxes and duties there were on purchasing an apartment. Interest rates also coming down.
My contact here in Jiangmen told me last night that inflation. last month here, had reached 15%. I cannot vouch for this but he is pretty smart.

The Govt is intent on turning Guandong province high tech. I fail to see what this would do for unemployment in this region. It might help the pollution problem.


The fact is that they are not bothered about unemployment from factories closing down, in fact, i think they want the toy factories to close down to free up labor and resources for hi-tech industries.

The Western belief is that the Chinese government is concerned about social unrest, actually, i think the central government can't be bothered, and will continue their macroeconomic changes to move hi-tech and compete with America and Japan head on.

I foresee that when the economic crisis totally blows over by 2013, America and Japan will discover a China that exports planes, cars, and CPUs.

[The Outback Oracle]

Re the Canton Fair which is THE big Trade Fair in China.
Reports indicate that attendance at Phase 1 and 2 were down 30%. I have not seen these reports so it is difficult to comment. It depends on what thyey are measuring. This year there were 3 phases whereas previously there were only 2........HOWEVER
I have just returned home from Phase 3. There was virtually nooone there. I am in the outdoor recreatrion business. Normally, in previous years, when we go on to a stand we have to wait maybe 20 or 30 minutes to see the person we want to see. Oftentimes we would have top go away and come back later. The aisle ways would be full of people and you have trouble getting through the crowds to try to get to the next exhibitor you want to see.
This year we casually strolled around. There was noone to bump into! When we went onto a stand, we strolled on, met the person we wanted to see, sat down, had a drink, a chat about the weather, the economy, China, anything you liked for half an hour or so. Then business for half an hour or so...all without a single interruption. It was the same on every stand. Remember this is on the BUSIEST day of the 5 days of the third phase!!!
Further, it was just not that Americans and Europeans that were missing. There were no Middle East people or Africans there either.
We had a bit of business over in the clothing area, so we went over there. Now, I mean, pretty well everywhere in the world wears clothes right! Again the place was pretty much vacant...lots of exhibitors...no customers. In one main corridor which is about 100M long by 10M wide, which would normally have hundreds of people (2,3,4) milling about, I counted 35 people!
On our second afternoon, we were to have dinner with one of our suppliers and we arrived back at the stand at about 5. We said "if you are busy we are inj no hurry". She replied "No, it is OK. I was just having a sleep" Chinese sleeping on a stand when it is slack is not that unusual but it is unusual for this lady from the view that she is always busy and also very dedicated.

[touchring]

Thanks. How about new energy products? wind power, solar, etc?




Re the Canton Fair which is THE big Trade Fair in China.
Reports indicate that attendance at Phase 1 and 2 were down 30%. I have not seen these reports so it is difficult to comment. It depends on what thyey are measuring. This year there were 3 phases whereas previously there were only 2........HOWEVER
I have just returned home from Phase 3. There was virtually nooone there. I am in the outdoor recreatrion business. Normally, in previous years, when we go on to a stand we have to wait maybe 20 or 30 minutes to see the person we want to see. Oftentimes we would have top go away and come back later. The aisle ways would be full of people and you have trouble getting through the crowds to try to get to the next exhibitor you want to see.
This year we casually strolled around. There was noone to bump into! When we went onto a stand, we strolled on, met the person we wanted to see, sat down, had a drink, a chat about the weather, the economy, China, anything you liked for half an hour or so. Then business for half an hour or so...all without a single interruption. It was the same on every stand. Remember this is on the BUSIEST day of the 5 days of the third phase!!!
Further, it was just not that Americans and Europeans that were missing. There were no Middle East people or Africans there either.
We had a bit of business over in the clothing area, so we went over there. Now, I mean, pretty well everywhere in the world wears clothes right! Again the place was pretty much vacant...lots of exhibitors...no customers. In one main corridor which is about 100M long by 10M wide, which would normally have hundreds of people (2,3,4) milling about, I counted 35 people!
On our second afternoon, we were to have dinner with one of our suppliers and we arrived back at the stand at about 5. We said "if you are busy we are inj no hurry". She replied "No, it is OK. I was just having a sleep" Chinese sleeping on a stand when it is slack is not that unusual but it is unusual for this lady from the view that she is always busy and also very dedicated.

[The Outback Oracle]

T.O.O.
thanks for your insights and feedback regarding business in China. Our company sources a few materials there. During the past year we have been developing domestic (US) and Canadian relationships because of my now cautious view of future trade and finance with China. I have you and the many others to thank for that. :)

I have friends planning a trade mission/trip to China this spring. Cannot help but think this is not a good idea. Don't know if this comes up in conversations but if so would like to know how negative are the folks you meet regarding American business people? Any thoughts or insight appreciated.

It's a difficult business doing business there. You have to drink lots of Moutai and it is not an easy thing to do:)

[The Outback Oracle]

Thanks. How about new energy products? wind power, solar, etc?

Touch...I don't know...maybe at the first phase which i did not go to.

[touchring]

Touch...I don't know...maybe at the first phase which i did not go to.


Thanks outback, i was thinking of EJ's "new bubble".

The credit crunch has hit shipping companies and those letter of credit/shipment stuff? (sorry, i do IT :D), and this has affected the ability to ship or import, am i right.

[The Outback Oracle]

Thanks outback, i was thinking of EJ's "new bubble".

The credit crunch has hit shipping companies and those letter of credit/shipment stuff? (sorry, i do IT :D), and this has affected the ability to ship or import, am i right.

Well, as reported here somewhere, a Sales trader in HK was telling me that some of the blokes in HK have been told to stock up on food! "Food gold and guns"...not too sure about the order!.
Certainly, there are all sorts of problems and man of the shipping companies screwed...new ships coming into service in about 6 months time!
So yes there are all sorts of complications. I'm tired from trying to think it through. It's like living with a bloody sociopath...all fog and web that you can't get out of!

[The Outback Oracle]

Some of our FOB prices are starting to decline. On one product, where steel and brass are the components, we received a 10% decrease in price this week. We have told the suppklier the price reduction is not sufficient so we will see what comes back. Other price decreases are of a somewhat lesser magnitude so far.