By Stella Qiu and Kevin Yao
BEIJING (Reuters) – A metal coating plant in China’s industrial hub has been hit by a 30% rise in basic materials like steel, aluminum, thinners and paints since the Chinese New Year in February. .
The company had no choice but to pass on most of those costs to its customers, including buyers in the United States, said King Lau, one of the managers of the Dongguan plant, located in the industrial hub of Kam Pin, in the province of Canton.
“Our customers understand, because this is happening in many different types of industries, including household appliances, mobile phones, vehicles,” Lau said, referring to price increases from Chinese exporters.
Investors are increasingly concerned that the economic stimulus measures launched to combat the effects of the pandemic will put a strain on global inflation and force central banks to tighten monetary policy, which could slow the recovery.
With their profit margins already squeezed, Chinese factories are transferring higher raw material and component costs to foreign customers, which will only reinforce the inflationary cycle.
Prices for Chinese goods imported by the United States rose 2.1% for the year ending April, the biggest 12-month advance since March 2012.
In a sign that higher prices are trickling down to retailers, US consumer prices rose in April at their fastest pace in nearly 12 years.
“With supply chain bottlenecks in many industries and global demand steadily recovering, (Chinese) producers have a greater ability to pass on high raw material costs to their overseas customers,” said Frederic Neumann, Co-Director of Asia Consulting at HSBC.
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PROTECT MARGINS IN A MARKET THAT DOMINATES
At DHgate, a Chinese e-commerce site that helps small manufacturers sell products abroad, prices for apparel and footwear are up 30% from the previous year, while transportation products such as scooters and bicycles have an upward variation of up to 15%, the platform told Reuters.
The increase was due to “drastic” increases in raw material and semiconductor prices, as well as more expensive international logistics, Beijing-based DHgate said.
The inclination of Chinese factories to reflect higher costs to protect their margins contrasts with the reluctance of Japanese manufacturers to increase sales prices, despite the risk they face of losing market share.
“Chinese exporters enjoy increasing pricing power in world markets,” the Neumann firm said.
Wang Zengda, manager of Trinx Bikes in Guangzhou, said that for many of his factory’s orders, lead times are more than a year and customers are open to the idea of renegotiating contracts as the values of aluminum and steel, used in bicycle frames, continues to grow.
Rising producer prices have caught the attention of the Chinese monetary authorities and the State Council – the cabinet – on Wednesday called for effective measures to tackle considerably higher raw material costs.
But the cabinet did not explain what the government would do to deal with the rising costs.
John Johnson, executive director in China of the CRU consultancy, said that if the Chinese authorities wanted to alleviate the inflationary impact on raw materials there were some tools they could use, such as freeing up some reserves of basic inputs, setting price controls or the implementation of sanctions for hoarding.
“Higher Chinese (producer prices) will, of course, fuel import prices and lead to higher CPI for the United States and other major economies, but that will not be a major concern in the Chinese government’s economic policy,” Johnson expressed.
(Reporting by Stella Qiu and Kevin Yao. Additional reporting by Pekón, Min Zhang, Tom Daly and Mai Nguyen. Edited in Spanish by Marion Giraldo)