Despite the Chinese Government’s past success at restraining inflation, accelerating food, fuel, raw material and labour costs have resulted in a widely held belief that average inflation rates of 4 to 5 percent are here to stay in China, at least over the over the next decade.
Ireland’s importers are right to exercise caution when sourcing from China. However, China still has much working in its favour:
- China is politically stable, and such stability is good for business
- Low cost countries surrounding China are also weathering an inflation contagion, with inflation rates in Vietnam, India and Pakistan increasing at a much faster rate.
June 2011 Inflation Rates:
(Sources: Respective country central banks)
3. Production costs in China are still low, despite rising costs.
4. Skills levels are generally high. While China’s factories could be said to be still at an early stage in their execution of innovative manufacturing techniques, their production processes are still well ahead of similar production operations in surrounding low cost countries.
5. The striking effects of the ‘Clustering’ in China’s three economic powerhouses [Pearl River Delta (from Hong Kong to Guangzhou), Yangtze River Delta (Hangzhou, Suzhou, Nanjing and Shanghai) and the area around Beijing and Tianjin] which have resulted in the construction of excellent infrastructure, a concentrated material supply chain, and an experienced and skilled labour force. There is no evidence of such a clustering blend being prevalent in other surrounding low-cost countries.
6. Productivity and industry familiarity. While the costs of labour and logistics, as well as labour availability, are driving up factory output costs along China’s coastal rim, cities in central and China, such as Wuhan, Chengdu, Chongqing, Zhengzhou and Hefei, and their surrounding provinces, are much more cost competitive with respect to the manufacture of products in which the value-added and process complexity is low. Meanwhile, the coastal manufacturing hubs, with their knowledge of particular manufacturing industry sectors, are becoming more focused on complex, skill intensive factory production. In surrounding low cost countries such instances of high productivity levels and industry knowledge are limited.
The biggest issue for Ireland’s importers relates to fluctuating oil prices and their impact on the cost of shipping products sourced from China to Ireland, which is a worldwide occurrence.
Director for China, Irish Exporters Association
Accurate Ireland – China Business Advisers – Products & Services Sourcing | Business Development Consultancy
Tel: +353 1271 1830 / +86 15257194468