Expect higher China prices in months ahe

An Expert's View about Business Culture in China

Last updated: 22 Aug 2011

China is steadily moving away from being the world's lowest-cost source of various products. More than 70 percent of the 232 respondents to a Global Sources survey increased export prices in 2010 in response to the rising cost of major raw materials and components.

 

While the majority of adjustments were minimal, one-third of companies said they adjusted quotes up to 10 percent and 15 percent boosted prices 11 to 20 percent. Consumer products were the most affected, as 34 percent of surveyed suppliers in the line implemented 6 to 10 percent price hikes during the period. Seventeen percent raised quotes 11 to 20 percent.


Manufacturers of various electronic products, in contrast, were able to absorb most of the additional costs. Sixty-five percent of respondents said price adjustments were capped at 5 percent.

 

In terms of geographic location, the majority of respondents based in the traditional hubs of Guangdong and Fujian provinces, and the Yangtze River Delta region increased prices up to 5 percent. Most of the surveyed manufacturers in China's emerging production centers, however, raised quotes up to 10 percent.


These adjustments are likely to continue through 2011 should material and component costs keep increasing in the months ahead. Twenty-eight percent of respondents based in the Yangtze River Delta region and Fujian said raising export quotes is their primary measure against higher material spending. One-third of surveyed suppliers in emerging manufacturing hubs will hike prices as well.

 

Only Guangdong companies said they will concentrate on improving production efficiency first. One-third of suppliers based in the province chose this as the main step to deal with rising material costs. Increasing prices was a far second, an option chosen by 19 percent of respondents.


Despite reports of manufacturers transferring some or all production facilities to inland provinces and nearby countries with lower operating costs, this option scored low among respondents. Regardless of where they are located, only 3 percent of surveyed suppliers will relocate factories in response to rising material and components outlay.

 

 

Strong yuan not mitigating impact of rising costs


One of the supposed benefits of the yuan's appreciation to China's export manufacturing industry is that imports of key materials and components could become less expensive. But this advantage is not enjoyed by the majority of suppliers.

 

Two-thirds of respondents said up to 10 percent of their major materials and components are imported. Only 12 percent, however, purchase directly from the overseas suppliers. The bulk of key materials are still sourced locally, whether from domestic providers or authorized agents and distributors.


In terms of industries, suppliers of various electronic products use more imported components. While 52 percent said up to 10 percent of their requirement comes from overseas suppliers, one-third claimed 11 to 30 percent is imported.

 

Read the full report at Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.


Posted: 21 February 2011, last updated 22 August 2011

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