China’s manufacturing slowdown. Why it’s GOOD news for us buyers.
As Americans, when we hear that US manufacturing is slowing down, we get sad. But as buyers, when we hear China’s manufacturing sees sizable slowdown in June, we should rejoice.
Don’t rejoice for patriotic reasons because this slow down is not causing jobs to leave China and come back to the US or EU.
For one, jobs aren’t leaving China. Secondly, if they were to leave, they would be going to other 3rd world nations, not to the USA I am afraid to say.
The Chinese economy has been a juggernaut for so long that everybody has just assumed it would last forever. But it came at a cost- inflation.
Inflation leads to increased costs of production and a more expensive price tag on exports. Luckily, inflation is on the top of the agenda in Beijing for 2011, big time.
Check yo-self before you wreck yo-self
I am hearing over and over from my Chinese friends who own factories that line workers and especially mid level managers are asking for paychecks that are based on a perception that inflation will increase dramatically and that the economy will keep expanding so there will be more and more jobs at higher and higher wages for everybody.
As an American looking back at how fast things changed almost overnight with the Global Financial Crisis (GFC), I say to my Chinese brethren…the good times don’t last, you may not have felt the full squeeze of the GFC, but things can change REAL fast. Even in China.
Many job searchers today in China base their salary expectations on how the CPI (consumer price index) has been moving in past months in a (false, I predict) assumption that it will continue to rise in future years at the current pace. The CPI is not linear (I pray!). Their bravado in asking for a higher and higher salaries has been bolstered by news in the 2010 press and early 2011 that exports in particular, and the economy in general, are expanding. A sense of “all is well in China, despite what is happening in the rest of the world” prevailed last year.
A dose of reality in 2011
But such euphoria is ending in China this year, right now, this very month.
Just pick up any Chinese paper these days and the news is all about how the government is making effort to get inflation under control and how the overheated economy is cooling down to a more manageable pace by Chinese standards of slow. A slow China growth rate would be insane growth if found in a Western nation.
Why is this good for buyers?
Chinese suppliers have been liberal in their estimate of how much they need to mark up to cover the risk of price increases (labor, raw materials, exchange rate..) between the time you place an order and the time they get paid. As a result, the cost the foreign buyer is charged by the seller is higher than need be because of the instability and sense that costs are rising.
News of a slowdown is just what the doctor ordered. Stability is the name of the game for international trade.
Wishing you successful China Sourcing!
Mike Bellamy
Author, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book/)
(Shameless Plug: I got a baby on the way, she’ll need new shoes, if you like my blog you will love my book!)
