2010 Waits For China'S Price Variables

With increasing cost pressures, Chinese manufacturers are starting to raise prices, and Americans who are accustomed to cheap Chinese goods may face.

Changes in Wallace's life

The Wallace family lives in Monroe, Louisiana.

The official website of the more than 50 thousand people has announced that their biggest tourist attraction is that visitors can enjoy a cup of coffee and a croissant at sunrise, that is to say, there is nothing here.

But for local residents, WAL-MART has everything.

Mrs. Wallace often went to the supermarket with WAL-MART, Family Dollar Store and Brooke Hill (Brookshire 's).

Monroe has more family dollar stores than WAL-MART.

"If you don't have WAL-MART, you don't need it at all."

Like many people living in small towns in the United States, she put this phrase on the lips.

The WAL-MART Super Center on Louisville Avenue, Monroe is one of the 79 super centers of Luis Anna S.

There are about 142 thousand products in the WAL-MART Super Center, and there are about 500000 products on WAL-MART website that allow customers to choose at will and distribute them to customers free of charge to their nearest super centers for free.

Whether it's a small town or a big city, WAL-MART keeps making "made in China" - most of which do not even have the name of the production plant. The product has only one bar code, which represents "I belong to WAL-MART" - to the US family. This is not because they changed the slogan from "everyday parity" to "save money and live better".

Like its sensitive customers, this supermarket knows where to buy the cheapest things.

WAL-MART has direct orders with more than 5000 factories in more than 2000 suppliers worldwide, including about 4000 factories in China.

Even after the financial crisis, the floating range of the figure is less than 20%.

Trading companies like WAL-MART have been buying goods in China for many years.

So, the day of the Wallace family began with the coffee machine made in China, and it ended in the quilt cover made in China. It was filled with more things from China: clothes, shoes, hair dryer, MP3, decorative jewelry, photo frames, telephone, greeting cards...

But now their lives may be faced with variables - the cheapest goods may no longer be Made in China.

Step by step

In June 19, 2010, under the pressure of heavy appreciation, China announced that it would enhance the elasticity of RMB exchange rate, which is the re exchange rate reform of RMB after China's floating exchange rate system in July 21, 2005.

This exchange rate reform worries people that the renminbi will probably appreciate slightly, and the export of some low profit labor intensive industries in China will face a sharp decline or even collapse.

Among them, clothing and footwear exports will probably be the most seriously affected industries.

In 2009, China's share of the clothing and footwear market in the United States was 46%.

According to the estimation of CICC's research department, the industry with higher export dependence and higher domestic cost, such as textile and garment manufacturing, has a domestic rate of over 80%, which is obviously higher than that of other industries.

If the appreciation of RMB is 5%, the export cost of US dollar will rise by 4%.

"In Dongguan, the order of enterprises can be achieved in 8 and September. Many small businesses are not too brave to take orders."

Wen Haibin, manager of the world shoe industry (Asia) headquarters base in Dongguan, still remembers when the Dongguan shoe factory closed down when the financial crisis came. "The most worrying thing for manufacturers now is to have emergencies. Once they appear, they will lose all their profits in the first half of the year."

At 7:30 on June 2nd, in the Dongguan Huabao shoe shop production workshop, some workers in different colors were still doing the last process on the production line.

At this time, most of the workers had left the workshop, and the usual busy floors were quiet.

As one of the top workshops of the world's top women shoes, Huabao shoes will give their workers a holiday every Wednesday night, which makes the 7 - day work cycle look less long.

Wang Jianfei, the Guizhou people, as the leader of the three workshop of the shoe factory, is leading several workers to "replenish the goods". "When the production line is damaged, people need replenishment."

Wang Jianfei has been in the factory for 4 years, and his workshop is probably the largest number of factories in the factory.

"To build a pair of boots, according to about 10 yuan per piece fee, 30 people's team average, each person can get more than 2000 yuan per month."

Wang Jianfei said that skilled workers can get more.

In these workers, it is easy to hear accents from Hunan and Hubei. Hunan Gao Jiang Lei has been competent.

"Before and after the Spring Festival, there are 50-90 yuan reward for introducing a factory worker to a fellow worker."

For them, the better news is that in May, the notice on adjusting the minimum wage standard for workers and staff in Guangdong province came into effect, and the minimum wage of workers was raised to 920 yuan per month.

But for Zhang Huarong, President of Huabao shoe company Huajian group, this is no small pressure.

According to the average wage of 1800 yuan per worker per worker, the cost of labor will increase by about 17%. Taking 300 factories as an example, enterprises should pay 90 thousand yuan a month and 1 million 80 thousand yuan a year.

The annual export volume of Huabao shoe factory is about 91 million 260 thousand dollars.

"The factory's electricity, material costs, maintenance of machinery costs, factory rents are all essential."

Zhang Huarong said there are countless bills, such as pportation, telephone, office, communication, development, interest, travel and business taxes.

All this will be counted in the order.

A pair of ordinary women's shoes exported to Warburg footwear industry has been converted into US dollars. In the past 2006-2008 years, raw materials have risen from $10.05 to $10.85, and labor costs have risen from $2.23 to $3.3, and the cost of water and electricity has risen from 0.18 US dollars to US $0.23. Although the comprehensive cost of office consumables has dropped by 0.32 US dollars, the export price has risen from 15 US dollars to 16.2 dollars, and the gross profit of a pair of shoes has dropped from 1.1 dollars to 1.1 dollars.

Since 2005, the continued appreciation of the renminbi has reduced gross profit by 0.29 US dollars, and the state has reduced the export tax rebate for footwear products by 0.3 US dollars. Finally, the pre tax profit of enterprises has dropped from US $1.2 in 2006 to US $0.21 in the first half of 2008.

"Slightly smaller business profits may be less than 5%."

Zhang Huarong, who has made shoes for 14 years, is very clear about the present situation of Chinese foundry shoe factories.

His Warburg footwear industry accounted for nearly 95% of the total, and the highest profit was less than 10%.

So is the socks industry.

Ningbo Tonghui international trade company is mainly engaged in the export trade of socks. In recent years, although the cost has increased, the price of socks has changed little. In 2000, 50% of the profits can be achieved, and now it can be kept at 5%.

At the moment, Gui Mingjun, the general manager, is most impressed by the rise in labor costs: "now the main force of the workers is 90. They have different labor concepts with the older generation. For example, our factory now offers free accommodation, and the hostel has high-power air conditioners, with a monthly salary of more than 4000 yuan, but it still doesn't attract people."

Even so, large orders are still the guarantee for factories to maintain stable profits for enterprises.

"Americans can spend seven or eight pairs of women in a year, and Europeans can spend five or six pairs, but there are no more than two pairs in China."

Zhang Huarong said.

Brown footwear is one of the largest footwear retailers in the United States. It has many brands such as Naturalizer. Its wholly owned subsidiary, Li Wei trade, is next door to Warburg shoe factory and is also one of Warburg's partners.

Among the top 50 internationally renowned brands in the world, 15 women's shoes are handed over to Warburg shoe factory.

In fact, although the recent minimum wage adjustment has put some pressure on Zhang Huarong, China's manufacturing industry has only 3% of its salary.

The US Bureau of Labor Statistics (BLS) found that manufacturing wages in Norway were 2.8 times that of the US in 2007.

In 10 countries in Canada, Australia and 12 Western European countries surveyed, manufacturing wages are higher than those in the United States, which are much higher than those in China.

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In Zhang Huarong's shoe factory, labor and R & D costs account for only 15% of the total cost, and the largest part of the cost is 55% of material costs and various taxes and charges of 20-25%.

From the point of view of logistics, export products only need to pport products to the port, and the chamber of Commerce will do the rest.

However, the domestic product takes the pportation route of Railways and highways. Taking Guangzhou to Beijing as an example, if the toll is charged at 0.5 yuan per kilometre, the cost of the expressway will be at least over 1000 yuan.

According to the figures released by the world bank, the logistics cost of the United States accounts for about 9% of the total GDP, while China's logistics cost accounts for 25% of the total GDP, accounting for 30-40% of the total cost.

In addition, the expenses generated by the construction channel are far greater than those for the export oriented enterprises.

For manufacturers who are still sticking to export sales, there are government export tax rebates to ensure that they still have room for profit after lowering prices.

The adjustment of export tax rebate policy in 2007 has brought a lot of pressure to Huabao shoe industry.

"The tax rebate from 13% to 11% is equal to the lack of subsidies for enterprises to earn foreign exchange through exports."

Zhang Huarong said.

In June this year, China adjusted the export tax rebate rate for industries such as steel, nonferrous metals and chemical products, and the textile industry did not make any adjustments.

The current rate of shoe material in China is about 15%. "Many shoe factories rely on this survival."

Qi Yaochang, chairman of Dongguan Yisheng footwear industry, said that when there is a certain profit margin, they are more willing to export their products abroad, though they have to bear some additional risks.

Increasingly demanding international buyers

Over the years, factories that are trying to ensure their profit margins have been supplying goods to WAL-MART.

Vendors or traders can only enter WAL-MART's product monitoring system by paying a certain fee, but most factory owners are unwilling to do so.

For them, selling products is the most important thing.

"Sometimes the factory may not even know the partners, not to mention where the products will go."

Zou Hongjie, regional sales director of Guangzhou Maple Trading Co., Ltd.

Since March, WAL-MART has launched a new round of price fixing promotional activities (Rollback) in the United States.

According to Citigroup analyst Deborah Wayans Wei Ge statistics, the initial launch of more than 10000 promotional products price reduction of 20.5%.

The orange logo on sale is increasing continuously, and by June, the total number of products participating in the promotional activities has reached more than 50 thousand.

The $8.88 memory sponge pillow dropped to $6, which was enough to buy a super value package at McDonald's, and a 268 inch 22 inch flat LCD TV down to $198.

In addition to Rollback, there are seasonal clothing and footwear. The printed T-shirt has been reduced to 1 dollars, and the python flat bottom shoes have been reduced to 6 dollars.

The long term undervaluation of the renminbi has enabled traders such as WAL-MART to have a strong bargaining power with us dollar pricing.

"Moreover, taxes and fees abroad are not as numerous as those in China."

Dongguan is currently the vice president of leather footwear association, silver Sheng footwear industry chairman Qi Yaochang said.

Therefore, although the prices of these commodities are low enough, the profit margins purchased by foreign traders from China are still very high.

Take a pair of shoes with a profit margin of 30 dollars as an example: R & D and traders can earn 10 dollars, terminal channels earn 5 dollars, and workers and raw materials can only split the remaining $5.

"The conditions put forward by traders are becoming more and more stringent. When negotiating with trade partners, the price is 10 Fen or even a penny, for example, the ex factory price from $4.3 to $4.4 is pretty good, and rarely mentioned 5 yuan at a time."

Qi Yaochang said his shoe factory would negotiate with traders as far as possible without losing money, so as to maintain a good relationship.

"Now there has been a phenomenon that middle traders take the initiative to find factories. This has never happened before."

Wen Haibin, manager of the world shoe industry (Asia) headquarters, said that there are now 3 companies that have bought seven or eight million yuan annually to find factories. They used to be factories looking for traders.

But their price is still very low, and the factory still can not grasp the pricing power.

These are about half the earth, and the goods on WAL-MART shelves in Monroe do not make Mrs. Wallace wonder.

As a customer, Mrs. Wallace did not know how many people she paid, and how many people could divide them.

When she thought of the products she used in China, there would be a lot of workers in her mind producing clothes one by one on the production line.

And what happened before or after is not very clear, nor is it so concerned.

No other store can buy frozen seafood, tire pressure gauge, baseball glove, foot slippers, a full suite of bedroom furniture, three bedroom tents and telephone for 10 people, just like WAL-MART, even at half past three in the middle of the night.

"I think what WAL-MART sells is of good quality and much cheaper than many other stores."

Francis Rodriguez, who lives in Manhattan, says.

She created and maintained an information website called Extacy Empire. When she was still living in Bronx, she even took a 1.5 hour bus ride to White Poon J's WAL-MART shopping with her family. "But the money saved is absolutely worth the trouble."

With the adjustment of the RMB exchange rate and the increase of China's labor costs, Mrs. Wallace and Francis will probably buy more products from countries such as Mexico and Vietnam, especially clothing shoes and hats.

Farewell ceremony at low price

Some Chinese manufacturers have had to raise prices.

"Two months ago, the price has been gradually adjusted, and the price will not survive if the price is not adjusted. If the order quantity is only a few thousand, even the old customers will raise the price. The minimum rate is 5% now."

Zhong Haosen, assistant general manager of Guangdong textiles import and export Limited by Share Ltd, said.

The earliest export of jeans in China was made by the company. At the Canton Fair in May, the old customers still had some bargaining room in Zhong Haosen, but all the new customers would raise their prices.

The cost of developing new customers is about 30% higher than that of old customers, and business risk is higher than that of old customers who know their roots. Therefore, he has not given any bargaining power to new customers.

Orders that could not be accepted to raise their prices began to look for alternatives to "made in China", which flow to Southeast Asia and central and South America.

A Chinese in Malaysia has lobbied Gui Mingjun for many times to move the factory from Ningbo to Malaysia.

"I have compared the cost of Malaysia to a lot, and if there is no profit in China one day, I have to move."

Gui Mingjun said.

In Houjie Town, Dongguan, it seems very easy to meet someone who is related to manufacturing. They may be a shoemaker in a factory, maybe the boss of a shoe box packing plant, and more likely to be a wholesale merchant in the shoe material market.

Because in less than 30 minutes' drive, we can find more than 10 professional shoe materials market in this town: Ho Po shoe material market, far rind material market, Hetian leather market and Hongyun shoe material square. Even if you can't name, passers-by can easily tell you the direction of these specialized markets.

But if they go to Southeast Asia, they will need to rebuild the supply system.

To change the current export dependence state, their other choice is to turn to the domestic market.

In the middle of 80s, the "new growth theory" put forward by a group of economists represented by Romer.P and Lucas (Lucas.R) provided a possible development mode for some capital intensive enterprises.

Zhang Huarong had suffered losses in the domestic market in the past, but several hundred years ago, hundreds of millions of dollars were invested in several private brands, but the market reaction was not good.

He attributed the lack of experience in the domestic market to the export enterprises and the unfamiliarity of channels and distribution.

Now in Huabao shoe factory, workers can only find a Warburg private brand shoe shop in the factory area and produce it on another production line in the factory area.

But Zhang Huarong is trying to change the passive state of export enterprises.

In addition to paying attention to the distribution platform on the Internet, the three or four line brand of foreign investment is considered by Zhang Ronghua to be the best way to learn the market operation.

"The domestic market is still the most important part of the future development." Zhang Ronghua is unwilling to give up the "Dongguan model". He has invested in a project near the Houjie shoe material market, which is gathered upstream. He hopes to move the shop of "former shop and factory" to Dongguan.

Although it is known that "the effect may take 10 years or even longer to see", Zhang Ronghua still optimistic about the prospects of the enterprise. "Traditional manufacturing is always the most powerful sunrise industry."

He said.

"My company has been doing brand pformation recently, and has made a brand sale in Hongkong. This is definitely a trend. The cost of investment in the early stage is also necessary, but there is one point, so many export enterprises are turning to domestic sales. How many of them can succeed? Now I see that many factories are also reforming to help some enterprises that have already made brands in China, but this is still a minority. Everyone is thinking about finding a way out and trying to pfer to Vietnam and Mexico. I don't think we will see any success in the short term."

Hongkong footwear industry association president Fang Zhigang said.

More capital intensive enterprises are starting to pform from low value-added to high value-added.

Qi Yaochang, chairman of Yin Sheng shoe industry, said that he was more willing to take out orders from the perspective of efficiency. He only needed production and did not need to bother to sell. Emotionally speaking, he even hoped to make his own brand bigger. He began to practice in the shopping malls all over the country, understand the needs of franchisees, and even went to France and Italy with designers to learn from designers and industry associations there.

The demographic dividend from China has made the world economy a few years of low inflation.

And for Americans who are accustomed to cheap Chinese goods, their lives may also change.