Made in China: Prices Going Up

For the past few weeks, a Labor revolt has been occurring in China … with hardly a peep about it in the TV media. First, there were the string of suicides at the Foxconn plant in Shenzhen which employs nearly 500,000 workers alone and manufactures almost all of Apple and Dell electronics and a big chunk of HP, Cisco, Nokias. Since the suicides, wages have been increased at the Foxconn plant by a minimum of 33% and another 70% in October is on tap. Even more ground breaking are labor strikes at Honda and Toyota  plants among others. The developments are coming at a furious pace fuelled by the fact that China has over 500M cellphones. The net result is that for key sectors like electronics, prices will be going up as higher production costs get passed along to Apple etc. See the details at the BBC, Caixin Online [remarkably outspoken Chinese business magazine], and NYTimes.

The second factor that could cause Chinese prices to go up  is the revaluation of the Yuan upward. The IMF and not just the US is pressing China to make this move. The news reports emanating from China wax and wane on this item. Caixin Online first says the Chinese government is committed to a Yuan reform policy on May 25th . Then today, June 17th, Caixin Online reports China said it will stick to the principle of independent decision-making regardless of U.S. pressure. the NYTimes reports that continued high growth plus inflation could increase internal pressure to revalue the yuan. Business Week sees a yuan revaluation as inevitable. And given G20 plus IMF pressure for such an appreciation. China can cite the wage increases noted above as equivalent to a currency raise and with its huge exports to US and Europe plus huge debt holdings, it may be able to hold off any serious revaluation. Nonetheless, China may have to do something if  merely symbolic and onetime only. So expect to see Chinese prices going up due to currency revaluation.

The net result is that cheap and Chinese goods will have reached a minimum this Summer
. And prices in the Fall and holiday season will either go up or margins will go down for retailers plus US vendors. In contrast outsourced jobs will just be shifted to new manufacturing centers in Southeast Asia and other low labor cost sites throughout the world. Thus the call for more domestic jobs, jobs, jobs will continue to founder. The recovery is looking more like Japan’s 10++ year economic blight.