China's Manufacturing Industry Begins To Go Deep Into The Mainland

"China price" refers to the price paid by retailers for the products made by the world factory. It used to be an unparalleled benchmark, but now it has changed.

Statistics compiled by statisticians in mainland China, Hongkong and the United States show that, after at least 5 years of deflation, the prices of Chinese exports have started to climb over the past 18 months.

"The era of deflation from China to the world is coming to an end," said Li Jing, chairman of China Securities Department of J.P. Morgan in Hongkong. "Manufacturers are raising their average selling price. They believe they can pass on any future cost increases.

Over the past 5 years, the profit margins of many manufacturers have been severely squeezed, but pricing power has returned to the hands of many business sectors due to industry integration, environmental protection and safety record of small manufacturers and natural wastage.

The price of raw materials will continue to rise. This year, Chuang Ke, one of the largest electric tool manufacturers in the world, passed the cost increase to retailers, the first time in more than 10 years.

The company also said it was evaluating its expansion plan in the mainland of China.

"The price of raw materials will continue to rise," said Joseph Gary, chief executive officer of Chuang Ke industrial appliances department. "In the early 90s of last century, the industry passed the price rising stage smoothly.

The situation was also very difficult at that time.

Headquartered in Hongkong, Chuang Ke owns some brands such as Hoover, Vax and so on.

Jonathan Anderson, an economist at UBS, quoted Hongkong's data as "they are closest to China's factory gates".

These data show that the prices of Chinese products increase by about 3% a year.

Ge Yihao, editor of the China Economic Quarterly, points out that the data in Hongkong well describe the situation in the Pearl River Delta and southern Guangdong, but it does not necessarily reflect the status quo of China as a whole.

"Ultimately, the destination price is the most relevant factor," he said.

An index compiled by the Bureau of labor statistics shows that the price of Chinese exports has risen 1.5% since February of this year.

However, what is really surprising is that China's export price has not accelerated faster. If we want to slow down China's export boom, this must happen.

China's exports increased 27% from January to September to US $878 billion.

As Jim Leonard, a trader at East West Basics in Boston, a trade purchasing company, said, "there is a lot of evil behind the quantity."

Inland provinces absorb more industrial shifts. We can find one of the answers to this mystery in southern Jiangxi.

The area is famous for its Hakka cultural hometown. The name of the guest family is derived from their migration history.

But the county government is hosting a new generation of emigrants - factory owners from Hongkong, Taiwan and beyond. They are looking for cheaper production bases for businesses far away from China's coastal manufacturing centers.

The area is not far from where Mao Zedong and his peasants, the poorly dressed peasant uprising army, began their long march.

"We regard the enterprises that invest in industrial parks as" God, "Zhong Xuhui, deputy county magistrate of Longnan County, said in an interview with the financial times.

"Every big company, we send a government official to serve them and prepare them for administrative documents.

Companies in industrial parks do not waste time and energy in dealing with documents. "

This hospitality is far beyond the Hakka hometown and other new inland manufacturing centers.

It has promoted the steady spread of China's export industry from traditional cluster areas such as Hongkong, the inland area of the Pearl River Delta or the Yangtze River Delta around Shanghai to the poorer and less costly inland provinces.

And this industry pfer is playing a role in slowing down the upward pressure of "China's price".

The overall inflation level is alarming. For example, the price of labour, land and electricity in the Pearl River Delta and the Yangtze River Delta has been rising at a rate of two digits.

The prices of major raw materials such as copper and petroleum based plastic products increased exponentially.

Today, China's overall inflation level has alarmed the Chinese government.

China's inflation rate reached 6.5% in August.

In addition to these pressures, the RMB has appreciated by 7% against the US dollar since China allowed the RMB to float from a fixed exchange rate of 8.3 yuan to 1 US dollars three years ago.

Anderson pointed out that to a large extent, the recent phenomenon in the export field is only theoretical.

In the field of exports, factories are merely importing parts of imported products, often denominated in US dollars.

However, this did not prevent exporters from using this excuse, especially when the RMB exchange rate exceeded Hong Kong dollars last year (Hong Kong dollar is currently pegged to the US dollar and the exchange rate is HK $7.8 to US $1).

Leonard, who supplies household products for US retailers, says: "why not?"

"If you don't ask, you are crazy."

Yu Zhonghua, a factory owner of the hat and socks in Yiwu, said: "the rising cost of labor and raw materials has a great impact on my factory."

"We lost our socks because we couldn't find enough workers.

Three or four years ago, after a month's salary of 900 yuan ($120), it was easy to find socks workers.

Now, even if we pay one thousand four or five, they think this job is too tiring and too little pay.

Other small socks factories are also facing the same situation.

"Yiwu China Commodity Index" came out, but Yiwu's price increase was only 1.42%.

In October last year, Yiwu set up its own index to monitor the impact of rising costs on local producers.

Zhejiang Gongshang University professor Su Weihua said: "since its creation, the Yiwu index has not risen significantly."

Su Weihua is also the founder of "Yiwu China Commodity Index".

"In Yiwu, competition is fierce, so traders usually do not raise their prices.

It is very difficult to measure the extent of the factory's ability to digest the cost rise - the situation of different products is also different.

However, they are taking various measures to replace materials, upgrading technology and manufacturing processes, and make more efforts in building brands. "

In terms of the value chain division between the coastal and the mainland, the price of China has not changed much as compared to the potential cost pressures. This situation reflects to some extent the profits of the exporters in China in the first few years of 1990s and twenty-first Century, which are mostly owned by Hongkong, Taiwan and other overseas investors.

Wang Zhihao, an economist with Standard Chartered Bank in Shanghai, recently visited several manufacturing clients in Shenzhen, a city near Hongkong.

He pointed out that the net profit margin of furniture has dropped from a "abnormal high" of 30% a few years ago to a more reasonable 10%.

Other manufacturers are rushing to Longnan county and other counties and cities in southern Jiangxi - Longnan is 400 kilometers away from Hongkong, and it takes 5 hours to take the expressway.

Every Monday, Hongkong managers who work in factories in these areas rush to come home and spend the weekend with their families on Saturday.

As a Taiwanese funded enterprise, Huajian international shoe city limited employs 11 thousand people in Ganzhou, accounting for 40% of its employees.

Ganzhou is a city 125 kilometres north of Longnan, where Huajian provides footwear products to Jesse Pani, an American retailer and a nine year old shoe brand.

An aerial photograph of the 170 thousand square meter factory is displayed in the hall, showing the whole picture of the factory.

This is the chairman of Huajian's snapshot when he flew to Ganzhou's humble airport.

The company is expanding a 100 thousand square metre project.

The success of the factory is due to the fact that Huajian can make orders between sister factories in Ganzhou and cities like Shenzhen and Dongguan.

"Labor costs are lower here," said Li Weihua, a manager at Huajian plant.

Water and electricity are also cheaper.

However, the pportation cost is higher and there are no suppliers nearby, which reduces our efficiency. "

More importantly, 80% of the workers in Ganzhou Huajian factory were recruited from southern Jiangxi, and the workers in the Pearl River Delta were not skilled.

Orders with higher profit margins are either tight or require better skilled labor. These orders are completed in Shenzhen and Dongguan, and some of the less valued orders are completed in Ganzhou.

Top Form, a Hongkong based bra and underwear manufacturer, has set up a similar labour force distribution ratio between its Shenzhen and South China Sea factories (also in the Pearl River Delta) and Longnan factories.

Women's underwear, which sells to France and other European markets, tends to be processed in Shenzhen and exported from Hongkong by air freight.

Top Form's Longnan factory concentrates on exporting to the Americas market, with a large number of simple and simple orders, which are pported by container through Yantian.

"We manufacture all the most complex and expensive styles in Shenzhen," said Larry Ho, plant manager of Top Form Longnan. "This is the factory with the highest technology.

We can make some very profitable margins there. "

He added: "it is difficult to find skilled workers here (Long Nan).

This has affected our efficiency. "

It takes three months to train a worker in Longnan, and a very skilled worker can be picked up from the talent pool in the Pearl River Delta.

The monthly salary level of Top Form 3 Chinese factories can summarize their respective capabilities: Shenzhen 1600 yuan, South China Sea 1200~1300 yuan, Longnan 1000 yuan.

"90% of Chinese enterprises prefer to move to the mainland rather than move to offshore areas," said Wang Zhihao of Standard Chartered Bank.

Bruce rokwitz of Li Feng group agrees. "Manufacturing" is moving away from the coastal areas.

Product production was there yesterday, today is here.

You can't regard China as a country.

We regard it as a multi country procurement area. "

Li Feng Group is a trading purchasing company with 16 offices in mainland China.

However, even for Longnan and other relatively short destinations, changes are also taking place.

"At first, we did not choose the type of companies to come here," Zhong Xuhui, deputy county magistrate of Longnan County, said with his strong Hakka accent. "But now we do not want companies that need a lot of labor, consume too much electricity or occupy large tracts of land.

We now welcome capital intensive and high-tech companies. "

When Top Form enters Longnan, there will be hundreds of people waiting in line to find jobs outside the factory gate.

Today it is considered appropriate to aggregate 30 or 40 workers.

As Huo said, "we can not stick to one place forever.

It's Jiangxi now.

But Jiangxi may not be competitive in 5 years.

Maybe our next factory will go deeper into the interior. "