Wanted: 2 million cheap laborers
A recent report reveals that China’s Guangdong province, where Wal-Mart China’s headquarters is located, is short 2 million laborers. This shortage, combined with inflation pressures and the increasing demands of an underpaid workforce, is wreaking havoc on the future of Wal-Mart’s ‘always low prices’. Accordingly, “some Chinese factories are now asking their American customers for price increases of as much as 20 percent to 30 percent” which will largely be passed onto consumers.
As we’ve already seen Wal-Mart forced to accept higher prices from China’s largest sock manufacturer, it would appear Wal-Mart’s once revered bargaining power is diminishing. Yet given Wal-Mart’s dedication to helping consumers ‘save money and live better’, do you think Wal-Mart will cut into to some of its 11 billion dollars of profit to benefit their core paycheck to paycheck consumers?
The Last Days of Cheap Chinese [Slate]
For years, American importers and Chinese factory managers have been having the same conversation. The importers would demand lower prices for products destined for American shelves. Factory managers would counter with a long list of reasons why they needed to charge more. Most of the time, the American importers would prevail, and Wal-Mart shoppers would rejoice.
Not anymore. The era of cheap Chinese consumer goods may finally be ending, thanks to irrepressible inflation. Now when the Chinese present their lists, some American importers are conceding higher prices, meaning that American shoppers, for the first time in years, are starting to pick up the tab for rising costs in China. Some Chinese factories are now asking their American customers for price increases of as much as 20 percent to 30 percent.
A store manager at a young women’s clothing store in Boston tells me the prices of some camisoles are rising. An executive in the athletic shoe industry says that Chinese factories and buyers are now negotiating about spring 2009 shoe lines, and that is where consumers will really start to see the impact of Chinese inflation. A manager of several discount stores confides his company has started raising prices of certain goods while putting others on sale. This is only the beginning: We’ll be paying higher prices for Chinese goods for years to come.
Consumers of Chinese exports (read: you and I) have for the past two decades benefited from an extraordinary confluence of factors. China’s desire to attract foreign investment, rural workers’ hunger for higher wages than they could earn on the farm, and excess capacity in nearly every industry helped limit price increases for Chinese exports. The renminbi was undervalued, wages were low, raw materials were cheap, and government officials turned a blind eye to factories’ labor and environmental violations.
But now a perfect storm has hit China’s manufacturers. So far this year, the renminbi has been appreciating at a 16 percent annualized rate. And prices for raw materials, which account for 60 percent to 70 percent of manufacturers’ costs, are soaring. Hundred-dollar-a-barrel oil has raised transport costs and the price of oil-related materials such as plastics. Although some economists expect raw material prices to weaken in the second half of this year, in the long term, the emergence of millions of new car drivers, home buyers, and office workers in India and China will keep the price of steel, plastic, and other raw materials high.
At the same time, China is rolling out wage increases around the country and tightening its labor laws. Wages are rising at double-digit rates in coastal China. In January, Beijing introduced a new labor law that significantly strengthened the influence of the union in management decisions. The All-China Federation of Trade Unions, the country’s state-backed labor organization, has launched an aggressive recruiting campaign. Beijing hopes that better protection for workers through the union and the new labor law will placate its increasingly restive manufacturing workforce. But a tidal shift in the country’s demographics—a dwindling supply of young workers as a result of the “one child” policy in effect since 1979—will counteract Beijing’s efforts.
China’s Generation Y, the children 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. Their demands for better treatment will continue to drive up the cost of manufacturing in China. 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.
The problem for American retailers and consumers hooked on $3 T-shirts and $30 DVD players is that there is no other China waiting in the wings to make cheap goods reliably for American shoppers. American importers are now arriving by the planeload in Vietnam, hoping to take advantage of the country’s lower wages. But Vietnam, hard as it tries, has only 85 million people—the size of one Chinese province. And only a fraction of its population is suitable for factory work. Moreover, prices are rising faster in Vietnam than anywhere else in Asia. Add in the rising incidence of strikes and labor disputes, and Vietnam looks increasingly like a short-term alternative.
India, the other country often mentioned as a China surrogate, has not yet managed to get its act together to take advantage of China’s rising export prices. Importers say India is good at certain things—embroidery, for instance—but not at the volume production that the world depends on for cheap goods. India’s road and port infrastructure, while improving, is nowhere near as efficient as China’s.
So importers are looking back to countries they once rejected in favor of China—Indonesia, Mexico, and Malaysia. And they are looking ahead to countries not yet integrated into the global consumer-goods supply chain, such as Brazil and Kenya. Every country, however, offers its own special risks: strong labor unions in one, political instability in another. None offers the one-stop shop appeal of China, where factories make everything under the sun. For the time being, then, we will all still be buying a lot of “Made in China” products—and paying ever more for them.
Posted by Michael Mignano on Wednesday, April 09, 2008
COMMENTS
“Wal-Mart forced to accept higher prices from China’s largest sock manufacturer...”
It’s a long over-due experience for Wal-Mart to have the “shoe on the other foot.” (pun intended)
Watching Wal-Mart in Minnesota and in China Too!
Wednesday, April 09 at 05:14 PM
Funny, but we said long ago, that Chinese workers would eventually get higher wages and their people would get ‘better off’!! But, according to ‘protectionists’ ONLY Americans deserve to make ‘higher wages’!! What they don’t see, is that once those workers make ‘higher wages’ they will start to buy from America!! That’s what happened with Japan!!
RDS in
Thursday, April 10 at 11:00 AM
RDS: You need to get an update on the Japanese economy-
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ddrb,
“You need to get an update on the Japanese economy”
It sure is a lot better than it was back in the 1950’s, when we started importing from them on a bigger scale!!
RDS in
Friday, April 11 at 11:36 PM
In broad strokes, the parallels are alarming. After a long boom, the Japanese economy in the 1990s, as America’s today, was jolted by a sharp plunge in the real estate marke
Could the American Economy Find Itself in a Lost Decade? In Tokyo, the government bankers and policy makers were slow to recognize the scope of the problem. Bad loans piled up. The financial troubles rippled through the economy as consumer spending and job growth fell.
The Japanese slump proved extraordinarily long-lived, ending only a few years ago, a stretch of stagnation known as Japan’s lost decade. It was a humbling and lasting setback for a nation once feared and admired as a model of economic dynamism.
The shadow of Japan hangs over the American economy these days. The United States is sliding into a housing-driven downturn, economists say, just as it also appears to be losing some of its global edge from the productivity-enhancing gains driven by the technology investments of recent decades. For Japan, experts point out, the housing bubble burst just as the rise of China as an export power hurt Japanese manufacturers.
A lengthy slowdown, they say, could alter the economic psychology of America, echoing the Japanese pattern, as the nation enters a period of diminished confidence that restrains consumer spending and business investment.
“I think there are a lot more similarities than people are willing to admit,” said Clyde V. Prestowitz, president of the Economic Strategy Institute, a Washington-based policy research organization that has long promoted American industry.
“The American economy is very fragile now,” said Mr. Prestowitz, who was a trade negotiator with Japan in the Reagan administration.
But the extreme Japanese experience, most analysts agree, stands less as a prediction of America’s fate than as a cautionary example. A Japan-style quagmire, they say, is an outcome that can be avoided in the United States with sound economic policy.
Japan’s central bank and finance ministry, economists say, waited far too long — years — before taking steps to revive Japan’s economy in the 1990s.
The Federal Reserve, while slow to see the credit crisis spilling into the broader economy last year, has acted much more decisively in recent weeks. The Fed has twice cut short-term interest rates sharply, lowering its benchmark rate to 3 percent, reflecting both the central bank’s anxiety and its determination to try to lift the economy despite serious concerns about the risk of higher inflation.
Ben S. Bernanke, the Fed chairman, is a former professor at Princeton University and a student of Japan’s policy missteps. And while a number of experts fault Mr. Bernanke for what they see as the Fed’s poor communications with both Main Street and Wall Street, the central bank’s recent moves suggest that he has taken those lessons to heart.
His past comments, however, indicate that Mr. Bernanke thinks that low interest rates alone are not enough to revive an ailing economy. In a 2003 speech in Tokyo, for example, he offered a prescription for Japan’s malaise: a more aggressive monetary policy and “explicit, though temporary, cooperation between the monetary and fiscal authorities” to stimulate the economy.
Washington understands that message. Congress — America’s fiscal authority — moved unexpectedly rapidly to approve a $168 billion stimulus plan that includes household tax rebates, temporary tax cuts and incentives for business investment.
“The United States is moving faster than the Japanese did,” said Charles Yuji Horioka, a professor of economics at Osaka University. “So far, so good. But American policy makers have to be ready to take further steps as needed.”
The American economy, many economists predict, will deteriorate further before things turn around. The government’s report last week that employment fell in January, the first decline in more than four years, was the latest sign of trouble. The depth and duration of the downturn, economists say, will largely depend on how much more bad news is coming from banks and other financial institutions. NYT
ddrb in
Saturday, April 12 at 08:37 AM
In Japan, housing prices in the major metropolitan regions nearly tripled from 1985 to 1991, then proceeded to lose two-thirds of their value over the next 14 years. Today, prices have risen slightly, according to Japanese government statistics. Still, Japanese house prices last year were only slightly higher than the level before the boom, more than two decades ago.
In Japan, government officials not only tolerated the housing price bubble, economists say, they actively encouraged it. Fearful that a strengthening yen was hurting Japanese exporters, the Ministry of Finance urged banks to lend to real estate developers so that a building boom and increased consumer spending would lift the economy.
Japan’s post-bubble recession should have lasted from 1992 to 1994, according to Adam S. Posen, a senior fellow at the Peterson Institute for International Economics in Washington. But Japanese officials were too conservative and too protective of failing banks, he said, and thus prone to policy steps that were counterproductive, like the decision in 1997 to raise Japan’s sales tax to 5 percent, from 3 percent.
“What kept Japan down was repeated macroeconomic policy mistakes,” Mr. Posen observed.
Japan’s close-knit business and government culture, economists say, slowed its response to the crisis and prolonged the slump. The industrial groups, or keiretsu, had tight links with banks, so when a bank got in trouble it was often quietly bailed out temporarily with loans or investments from other members of the corporate group. Japanese bank regulators, economists note, tended to be friendly and permissive.
Eventually, Japan experts say, banking regulation and disclosure rules were tightened up.
In Japan, the slump lasted longer than expected not just because of policy mistakes, notes Kenneth S. Rogoff, a professor of economics at Harvard University, but also because of some underlying global economic shifts. Starting in the 1990s, he said, Japan’s exporters began facing stiffer competition from other nations in Asia, particularly China.
“It certainly appears that the U.S. productivity miracle is over,” Mr. Rogoff said. --------NYT
ddrb in
Saturday, April 12 at 08:44 AM
ddrb,
So, what’s your point? That the Japanese got as ‘foolish’ as Americans have? You are ASKING for trouble, when you get a NO DOWN loan or borrow against the equity of your home!!
That still doesn’t go to my point, how Japan went from a low wage country in the 1950’s to a high wage country by the 1980’s!! China, India and South Korea will do the same thing over time!! And, just like Japan, those countries will trade More and More with America in the future!!
RDS in
Sunday, April 13 at 01:37 AM
RDS: The point IS it’s an UPDATE on how things have been for the PAST 25 years or so-BEFORE -OUR subprime meltdown-Japan had THEIRS-AND-it started when all those Chinese started manufacturing and exporting goods on a large scale about 20 or so years ago....right around the time WalMart started buying heavily from China.Wake up Rip. D .S .!
ddrb in
Monday, April 14 at 08:40 AM
ddrb,
It must be nice having ‘selective memory’, as you seem to bypass the fact that during the last 20 years we have had years of the “Best” economy in the 90’s, where wages rose dramatically, housing prices skyrocketed and homeowership was pushed to the extent that sub-prime mortgages were created, add the fact that people borrowed heavily against their home equity and you have the ingredients for a meltdown!! It had very ‘little’ to do with importing from China!! In fact, it might have been a lot worse, if we hadn’t had ‘lower cost’ products from China to keep inflation under control!! Then put ‘high’ oil prices into the mix and it isn’t hard to see why we are where we are at, how much oil do we get from China?
Putting on blinders and focusing on one point, while ignoring everything else, makes it easy to blame that one something, I guess!! How do you explain the Carter years meltdown, how much were we importing from China back then?
RDS in
Monday, April 14 at 11:58 AM
“Putting on blinders and focusing on one point, while ignoring everything else, makes it easy to blame that one something, I guess!! “ RDS_______________________________________________If anybody ougtta know about tunnel vision its you,RDS! You’ve got your head so far up your backside it’s cut off your air supply-and you can only see out of one eye,with a very narrow opening. Perhaps a congenital defect-rectum occulis constrictus?
ddrb in
Monday, April 14 at 01:46 PM
ddrb,
What is it that they say, when someone exposes your ignorance, ‘If you can’t provide a reasonable answer, start calling names’?
Guess you are claiming that none of what I said ever happened, right?
RDS in
Tuesday, April 15 at 12:15 AM
“If you can’t provide a reasonable answer, start calling names’? “________________________________________________RDS,that’s the pot calling the kettle black ! First off,I’m not ignorant,and I didn’t call you a name. I merely used an example ,that YOU used recently against one of the other bloggers,Ken I think. (You said he had his head up his hiney.) Were you attempting to defend YOUR ignorance...again?
ddrb in
Tuesday, April 15 at 08:41 AM
ddrb,
“and I didn’t call you a name”
What do you call, ‘Wake up Rip. D .S .!’, if it’s not a name?
RDS in
Tuesday, April 15 at 11:17 AM
RDS:BOO HOO,poor little thing.
ddrb in
Tuesday, April 15 at 11:23 AM
ddrb,
You still didn’t answer what RDS had to say about your “selctive memory”.
C’mon...surely you have something better in your treasure trove (other than name-calling).
bbrd in
Wednesday, April 16 at 09:18 AM
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