Why the days of cheap Chinese products are numbered. How to survive the change.

Why your products from China will soon go up in price! Explained.

( think pdf link if you need it is.. http://promocrunch.com/china1.pdf )

Why your products from China will soon go up in price! Explained. As part of our service to the distributor we offer advice and explanations on what to expect and what will affect your world. We try and keep it simple and short.

 The days of cheap China are nearing and end. Here’s why. US $ vs. Yuan (pronounced Dung........like the old joke...what’s Brown and sounds like a bell...Dung!)
Until recently the US and Chinese currency was pegged by the Chinese. PEGGED? This means the Chinese made the value of the Yuan the same as the dollar even though the dollar was going down in value at the same time the Yuan was going up.



This "pegging" pissed off the USA as it made Chinese products cheaper (artificially) and its cheapness encouraged us Gwylo (Chinese term for honky white guys...I cannot make this stuff up) to buy Chinese vs. American/Canadian/Domestic. (Think of Wal Mart...isn’t the cost of clothes cheaper now than 10 years ago?)


Finally the US convinced the Chinese to "depeg" which they 9Chinese) did, sort of. The Chinese did this because they had to (not because the US asked) because China’s economy is so HOT they have rampant inflation???

Inflation? This means that everything in China now costs more for the average Chinese person. Real estate has tripled each year in Beijing, Shanghai and throughout the country for the last 5 years (tripled in value EACH YEAR!). Wages are up 20% each year. Food and fuel prices have doubled. So? So...how does this affect my widget price you ask?

Simple. The cost to be a worker in China is up....so wages are now on a very steady increase......higher wages mean higher prices....but wait...it gets worse...



Crazy huh?...nope...this year for the first time in history there were more people retiring in China than entering the work force. How can that be, isn’t there like 3 trillion of them...?

About 35 years ago China started a 1 child per couple policy. This drastically reduced the growth/speed of the Chinese population. Think of it as we do the Baby Boomers here.....lots of them approaching retirement, less people entering the workforce to support social programs like Medicare, social security etc. (that’s a whole other problem)

What this means to the cost of goods is that with fewer workers and lots of work, the average worker is asking for more money and benefits and getting it. This means those costs (like labor etc) have to be passed on to us through higher prices.

Here’s an example of what I mean...on a recent trip to China I saw thousands of people getting off the train on a Monday morning...there was also about 20 guys with briefcases milling around. When people got off the train the briefcase guys went up to them and asked where they worked, what they do and how much they make.

The person getting off the train would sometimes answer.....and then the 2 of them would leave, hop in a cab and take off.....I wondered what was going on......my Chinese friend informed me that the briefcase guys were job brokers who would essentially lure already employed workers off to new employers right there and then....giving them an immediate wage and benefits increase of about 15-20

 The worker would more often than not just not show up at the old job or even tell them they had left.
So....what can you do? In the big picture (Geo politics) not much. This is beyond our control. What you can do and why I write stuff like this is to let you know to keep your pencil sharp and your powder dry, work with people and companies who understand China (shameless plug for www.usbcustomflash.com and www.promocrunch.com ) and always, always ask questions. After all, there is no such thing as a dumb question, just uninformed (dumb) people.

Thanks

John Graham mailto:johngraham@promocrunch.comLess people in the work force.