I’m buried in a long project at the moment, but when I peak out from beneath the words I can’t help but notice that – quite suddenly – more than a few people are worried about the effect that Chinese inflation will have on US consumer prices – and demand, and the future of China-based sourcing. I don’t plan on providing a deeply nuanced opinion at the moment, but based upon a few recent conversations, I feel comfortable hypothesizing three trends over the – oh, I don’t know – coming months (and US recession).
First, big manufacturers – the ones with deep and complicated supply chains based in China – will stay put. Even with costs climbing 20% over the last year, say, it’s still more expensive to move the world’s largest laptop factory (in Shanghai’s Songjiang District) to Laos than to keep it there.
Second, smaller manufacturers in industries that don’t require deep, complicated supply chains, and which lack serious prospects in China’s domestic market, will go elsewhere or – like several South Korean companies in Shandong – will go home.
And third, China-based manufacturers accustomed to massive profit margins are going to become accustomed to less massive – but still healthy – ones. I recently spoke a sourcing agent for an American retailer who told me that nobody in his industry – consumer goods – has the guts to force price hikes into the recessionary US economy. “Don’t quote me by name on this,” he told me. “But everybody’s still making money.”
This comment came to mind last week when I happened upon this US$19.99 Chinese manufactured DVD player at a Ralph’s Supermarket in Palm Springs, California.
Quite honestly, I have no idea how anybody made money on US$19.99 DVD players (complete with licensed technology, no less!) before the recent currency shifts and inflation. But that’s beside the point. They’re still here, and I imagine that they’ll be here even after another (lord help me) 20% dip in the value of the dollar against the yuan.
[Update: China Law Blog points out that the future of low-cost manufacturing in China will be helped along by the large number of inland provinces - like Anhui - that have yet to be fully invested. Agreed.]