[Home] [Subscribe] [Sponsors] [Advertise] [Contact Us]
 

China Competitiveness Slipping as Costs and Currency Rise

Rising costs for wages and raw materials, as well as the steady appreciation of the yuan against the dollar, have prompted some companies in China to consider shifting part of their production to lower-cost locations. The trend has been most noticeable among low-profit margin industries and has thus been welcomed by Chinese authorities seeking to move domestic manufacturers up the value chain.

Production costs in China are on the rise for a number of reasons:

•      increasing prices for energy and other inputs driven by rapid economic growth

•      the July 2007 reduction of tax rebates on various exports

•      the ongoing appreciation of the yuan, which has risen 12.4 percent since it was revalued in July 2005 and is up 4.1 percent in the last three months alone

•      rising domestic wages, which are expected to increase further as a result of a new labor law that took effect earlier this year

•      stricter product safety requirements mandated by U.S. law or required by U.S. buyers

In most cases, however, the benefits of sourcing production in China still outweigh any negative effects from these factors. In addition, it appears that Chinese manufacturers are not yet passing on their higher costs to their U.S. customers. As a result, Chinese suppliers have so far been able to maintain their competitive position in the U.S. market.

Source: strtrade.com

Industry_080414g.html