Recently many clients expressed their concerns to me that their Chinese factories wanted to increase price, they tried to figure out what happened and what might happen in the near future with made-in-china products price.

The price rise is inevitable

There are many factors contributing to the recent large scale price rise: historical high inflation rate, increasing production cost, Yuan appreciation against USD, tax rebate rate cut.

Workers wage increased by 200% in the last three years

We have an associate door mat manufacturing factory in coastal city Taizhou, their workers wage has increased from 1500RMB to 3800RMB/month within 3 years, many factories in Yangtze river delta and Pearl river delta areas are facing the same problem - shortage of workers. They have to increase salary to recruit work force, the salary increase is one of the major factors that affect production costs.

Apart from that, the price of land, equipment, facility are keeping increasing, the production cost increase will eat out the profit margin if they don’t shift the price increase to the buyers.

Yuan keeps appreciating

In 2010, Yuan to USD conversion rate rise from 6.80:1 to 6:55:1, that means Yuan has appreciated 3.8% in the last year. If the price remains the same, then the suppliers will earn 3.8% less profit. That is huge, especially for many low-margin industries, such as textile products, rubber and plastics products, many suppliers earn only 10% profit, the strong Yuan is eating out their profit.

Tax rebate rate cut

It is a trend that the government will cut down the tax rebate rate, actually Chinese government have been doing this, especially in 2010, tax rebate rate of as many as 406 products has been significantly cut or canceled, companies in those industry are facing life or death challenge. This is an uncertain issue the suppliers shall worry.

The inflation rate is at historical high at the moment, the government is trying whatever they can to lower the inflation rate, the inflation is actually the sequelae of financial crisis and large scale stimulus program.

As discussed above, we anticipate the made-in-china products will experience more price rise in the future, but we don’t think it will significantly affect the competitiveness of made-in-china products, we will address this issue in part 2.



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Comments

3 Responses to " The impact of made-in-china products price rise Part 1: Did your Chinese supplier raise price? "

  1. Ryma on  MAY   30rd , 2011 7:37 AM

    hello, am planning to come to china, for shopping especially, i saw many sites that sell wholesale , very cute clothes in china, the korean girl style, like shiffon mini dresses, floral dresses, T-shirts with bows, and cute accessories, do you know what place in china sell these kind of things? and where is the cheapest destination for shopping? is it hong kong, or shanghai or another place?? please help me, i don't know where is the best place to go for the perfect shopping. and i don't need brand clothes, i just need simple cheap clothes, made in china, like clothes sold in this site for example http://www.wholesale-dress.net/women-s-dresses-c2102

  2. Steven on  APR   21th , 2011 23:26 PM

    The majority of suppliers have increased the price, due to the cost increase. But, yes, some suppliers maintain the price, temporarily, I suppose, due to their own pricing strategy.

    However, when RMB keep appreciating, production cost keep increasing, they will raise their price eventually.

  3. China Sourcing on  APR   13th , 2011 8:5 AM

    It is difficult when the cost of supplies increase and by default, may also increase the overall cost of the products being made. However, in many industries, there are organizations which are trying to keep the prices similar to what they have been in order to maintain good business practices and keep their competitive edge amidst the temporary market fluctuations.

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