Chinese enterprises raise prices without fear of losing customers 

Zhejiang Zhendong Leisure Products' business is booming. The company produces about 1 million folding chairs a year from its factory in eastern China, many of which end up in gardens and patios in the US and throughout Europe.

The sudden increase in demand since the pandemic took place has caused orders to stretch from now until April next year. The company also "aggressively" increased prices by 10%. The company's international sales manager, Sonia Lu, explained that the price increase did not affect demand, as buyers placed more orders for fear of further price increases.

Consumers looking to purchase garden sun loungers could face steeper price increases. Shaoxing Gaobu Tourism Products Co. – producing beach and garden umbrellas sold through retailers such as Walmart and Carrefour, raising the price by about 20% and not worrying about “losing customers”.

Salesperson Lyric Lian said: "Whether our customers go to any seller, they still have to deal with the fact that prices are going up."

The price of goods imported from China into the US increased significantly last year.

Shares of product price hikes at China's trade exporters fair are raising concerns that global inflation will not be just "transient". According to maritime industry research and consulting firm Drewy, exporters have increased their prices as they have to pay record high shipping fees - nearly 300% higher than a year ago, mainly because importers have to pay more. than.

For years, China's factories acted as a "brake" to curb global inflation as they lowered costs to retain foreign customers. They make that move amid sluggish demand growth and competition from rivals like Vietnam. However, the boom in China's exports since the pandemic has changed all that, helping manufacturers confidently "set prices" with foreign customers.

In addition, when global demand recovers from the pandemic, higher prices will not discourage customers. China's exports are forecast to grow 21% this year, the biggest increase in more than a decade.

Hong Kong's Export Price Index - an effective indicator of China's export prices as the city's port usually receives and handles goods from the mainland, increased by about 5.6% year-on-year in July. Meanwhile, the import price index of the US Bureau of Labor Statistics shows that the prices of Chinese goods such as electrical appliances, home appliances and footwear increased by about 3-5%.

Profit margins of Chinese companies increased sharply despite the pressure of PPI inflation.

While asking prices from Chinese factories are changing, that may not be the factor that turns global inflation expectations around. This is because, for consumers in the developed world, Chinese-made goods represent only a small part of their daily expenditures.

In the United States, housing, transportation, and healthcare account for two-thirds of the goods used to estimate consumer price inflation. The Bank of Canada says imports from China make up about 5% of its similar list. Meanwhile, through what has happened in the trade war, importers and retailers often bear the price difference, not consumers.

However, the possibility of a stronger price increase is also possible. The global craze for raw materials is causing factory gate price inflation in China to rise to its fastest pace in 26 years. Beijing also said factories could incur a 20% increase in electricity costs due to the energy crisis.

Chen Zijian, sales manager at Guangzhou GL Supply Chain Co., a company that manufactures garden supplies that export to the US and Western Europe, said he raised prices 10% this year and could increase more. "The price of electricity is going up, and we have to raise the price of the product as well," said Chen.

Stanley Chao is the founder of All In Cousulting - a company that cooperates with American businesses to source from China. According to him, the size of the company is the deciding factor. Some Chinese companies in sectors such as electronics, toys and textiles are increasing prices by 20-30% compared to the same period last year.

"Small factories with low margins are passing costs on to customers. Larger suppliers can hold out," said Chao.

Official data shows that most Chinese manufacturers can bear the higher costs without incurring losses, as their average profit margin for August was 6.6%, higher than the previous level. 5.5% before the pandemic. That's because most production costs such as wages, rent, equipment maintenance, and loan interest are not directly related to production costs.

The price increase will depend on the company's estimates of future demand. Meanwhile, as the economy recovers from the pandemic, there are signs that demand for Chinese goods is waning.

Global trade volume peaked in March, according to the World Trade Monitor report. In addition, the growth of China's export activities is also slowing down and has made exporters "lower confidence". According to Drewy, ocean freight rates have also fallen in recent weeks.

Refer to Bloomberg