Raw material costs are going up, especially for wood and wood finishes.
Wages are going up. IIRC, Minimum wage is RMB 800 / month in Dongguan, but no one will work for less than 1200.
The RenMinBi is going up (appreciating.)
Real estate is flat.
Meanwhile business has supposedly slowed a lot as the US enters recession, though factories were still working hard to make shipments before CNY. Supposedly Target was canceling furniture orders if they were delayed even by a week past the shipping window. How long can prices increase while demand falls? Maybe longer than you'd think:
Migrant workers supposedly can now earn as much by farming as by working in the coastal factories. (Is that due to increased food prices?) Therefore, the cost of labor is bound to keep rising as factories compete to get workers back after Chinese New Year.
As factories go bankrupt, the remaining factories may increase their prices to add profitability, something that is often missing in China.
Migrant workers supposedly can now earn as much by farming as by working in the coastal factories. (Is that due to increased food prices?) Therefore, the cost of labor is bound to keep rising as factories compete to get workers back after Chinese New Year.
As factories go bankrupt, the remaining factories may increase their prices to add profitability, something that is often missing in China.
For you currency speculators, Chinese banks now offer 4.14% interest on a 12-month CD, but note they limit personal conversions into RenMinBi to US$ 50,000 annually.
Vietnam:
South Vietnam is now full of Taiwanese, Korean, Japanese, and western factories located in smart industrial parks ringing Ho Chi Minh City. This means land speculation has begun. We're looking at some land there as it looks like DongGuan Part II is beginning to develop around the Singapore Industrial Park in Binh Duong province. Land is still cheap, and best of all, once you have bought land, you can borrow against it at local banks, which makes development much easier.
Chinese factories are also investing in Vietnam. One manufacturer in southern China has only been in existence for 8 years, but already is planning to move production overseas to Vietnam! Its also interesting to see how many factories in Vietnam now export to Korea and Taiwan. How soon will shipments be made back to Shenzhen? Globalization does not only affect Americans!
Chinese factories are also investing in Vietnam. One manufacturer in southern China has only been in existence for 8 years, but already is planning to move production overseas to Vietnam! Its also interesting to see how many factories in Vietnam now export to Korea and Taiwan. How soon will shipments be made back to Shenzhen? Globalization does not only affect Americans!
The Taiwanese factories who invested in Vietnam in years past are full of Schadenfreude at China's problems, and expecting a lot of orders to come their way, but they also are having labor problems. Mostly they rely on migrant labor from North Vietnam, but because there are new industrial parks opening up north, these workers may not come back after the Lunar New year. (As with Guangdong, the locals mostly refuse work as factory labor, at least at prevailing wages.) They also face frequent strikes and labor unrest. The government of Vietnam tolerates these strikes, so they have become very common and workers will strike for absurd reasons like complaining that the rice in the lunch box isn't white enough. (The resolution of this complaint ended up revolving around wages, not better polished rice interestingly enough.)
Buyers are flocking to Vietnam, who they think will be their savior from China's rising prices. I have some doubts about this actually happening. First of all, it looks like Vietnam will "suffer" from rising labor costs as demand flows there. Secondly, Vietnam does not have the full industrial infrastructure, and thus many key parts have to be imported, increasing costs. Finally, factories have a keen eye on the China prices and will probably only undercut them by a few percentage points at best.
The opinion of a factory manager in Vietnam is that the costs are about the same as China despite cheaper labor. (Though they invested thinking they would have lower costs.)
The opinion of our European and American customers is that Vietnam has cheap labor so our costs should be super low. Something has to give there. I have to note that a German customer loved our pricing and assumed it was from Vietnam, even though that particular item is actually made right here in Taiwan.
Then again, at least in Vietnam people quote prices that are slightly more stable. In China we get quotes now valid for 30 days, often priced in RMB, and subject to vast increases - up to 20% at a time. Vietnam has the advantage that its currency right now is not relentlessly appreciating like the RMB.
The opinion of a factory manager in Vietnam is that the costs are about the same as China despite cheaper labor. (Though they invested thinking they would have lower costs.)
The opinion of our European and American customers is that Vietnam has cheap labor so our costs should be super low. Something has to give there. I have to note that a German customer loved our pricing and assumed it was from Vietnam, even though that particular item is actually made right here in Taiwan.
Then again, at least in Vietnam people quote prices that are slightly more stable. In China we get quotes now valid for 30 days, often priced in RMB, and subject to vast increases - up to 20% at a time. Vietnam has the advantage that its currency right now is not relentlessly appreciating like the RMB.
