It looks like my predictions that the China craze may soon be coming to an end, first expressed in mid-2006 when I asked if low cost country sourcing to China was really innovative, are coming true. Consider this recent Slate article that points out how we’re now in the last days of cheap chinese and how we are about to start paying more (and, in some cases, a lot more) for clothes, electronics, toys and just about everything else.
Thanks to irrepressible inflation, soaring prices for raw materials, oil costs over 100 a barrel, and China’s Generation Y, the era of cheap Chinese goods is coming to an end. Some Chinese factories are now asking their American customers for price increases of as much as 20% to 30% – and getting it.
No longer is China desperate for foreign investment. No longer is there excess capacities in every industry. No longer are there millions of unemployed Chinese extremely desperate for city employment (as now there are millions of employed Chinese desperate for better wages). No longer is the Chinese renminbi extremely undervalued. And, most importantly, no longer are government officials turning a blind eye to every labor and environmental violation being committed in the country.
Unions are on the move. In January, Beijing introduced a new labor law that significantly strengthened the influence of the union in management decisions and the All-China Federation of Trade Unions, the country’s state-backed labor organization, has launched an aggressive recruiting campaign.
China’s Generation Y (born after the one-child policy came into effect) are increasingly aware of their rights to a legal wage, health insurance, and a certain number of days off every month – and they want them. As the article points out “already, southern China’s Guangdong province, known as ‘the workshop of the world’, is short 2 million workers, the equivalent of 14 percent of America’s entire manufacturing workforce”.
Does this mean that importers who currently rely on China are going to move away? Not likely. There are no other countries waiting in the wings to be the new China, just like China was waiting in the wings to be the new Mexico years back. Vietnam? It only has 85 Million people and only a fraction of its population is suitable for factory work – plus it’s inflation is faster than the rest of Asia. India? It can’t get its act together, it’s transportation system is a mess, it’s not set up for volume, and with an educated populace in many of its cities that speaks reasonable English, it’s going after the higher paying jobs in the information economy. Kenya? Madagascar? A ways off, at the least.
In other words, China is here to stay – but many of the “advantages” it had, especially where costs are concerned, are now gone. Get used to it … and in addition to paying a lot more at the pump, get used to paying a lot more in the stores as well.