Chinese goods to pinch you more now!

Those low-priced Chinese toys may soon cause a hole in your pocket. Because labour cost and export costs in China are shooting up which, in turn, will affect prices of imported items from China.

This is set to hit the US and other countries hard. China is experiencing its worst inflation rates in the recent past and Chinese toys, electronics, plastics and other goods are getting dearer day by day.

Experts point out that rising factory wages, shipping costs and exchange rates are all adding to the price tags of Chinese products.

The rising cost of doing business in China was a hot topic at a round table held last week by the World Trade Center and the local chapter of the American Electronics Association.

About 15 high-level executives from local manufacturing firms listened as experts described China’s rising costs, tighter lending policies and declining export subsidies

Prices on some raw materials have increased 20 per cent over the past year. Because of a new labour law, labour costs are going up 5 to 10 per cent, depending on the industry. Beijing is also phasing out its export subsidy, which means that exporters will get 5 per cent less money from the government.

China is experiencing its worst bout of inflation in 12 years. Chinese consumer prices last month were 7.7 per cent higher than a year before, despite generous government subsidies that keep the price of fuel relatively inexpensive for consumers.

Food costs jumped more than 22 per cent. The Chinese government is responding by pushing companies to raise salaries — a contrast to the Federal Reserve policy of guarding against so-called wage inflation.

A recent study by the Booz Allen Hamilton consulting firm found that wages in China rose 9.1 per cent for white-collar managers and 7.6 per cent for blue-collar workers over the past year.

Chinas advantage in labour costs is diminishing at the same time that the cost of transportation is increasing.

Local companies are complaining that the rising salaries in China are making it harder to find and retain qualified workers. Loyalty to companies is not high in China, so workers often jump to other firms where they are offered

The good news is the rising prices in China could inspire some US manufacturers to keep their production lines at home.

Even before the recent rise in prices, some manufacturers were having second thoughts about China.

In addition, rising costs in China as well as more efficient manufacturing techniques in the United States erased much of the price gap between the two countries.

Beyond the rising cost of oil, one reason that Chinese goods are getting more expensive is that Beijing – after years of criticism from the United States – is finally allowing its currency to strengthen against the dollar.

The yuan grew 7 per cent against the dollar last year and has risen more than 4.5 per cent so far this year. By the end of the year, the yuan will have risen a total of 8 per cent.

Beijing has a pragmatic reason for wanting higher wages and a stronger currency. History shows that if prices shoot up without salaries keeping pace, it can lead to social unrest.

Allowing the value of the yuan to rise further would give Chinese citizens greater power to buy consumer goods while keeping up their strong savings rate.

A rising yuan means further jumps in the price of Chinese-produced goods. It also means a shrinking market for US securities, which the Chinese have been buying to keep their exchange rate artificially low.