Price Hike Depends on Foreigners

The Chinese government advised the export-oriented enterprises to increase the price of their exporting products properly. But the enterprises didn’t respond actively to this advice because the price hike should depend on the foreign demand.

In October, the global economy is still under depression and the foreign demand is recovering quite slowly. But the raw materials that China needs, like crude oil and iron ores, happen to see their prices increase at an “amazing” speed. The export-oriented enterprises in China have to struggle to fight against these two kinds of trouble simultaneously.

Therefore, Lu Jianhua, assistant to the Minister of Commerce of China, advises the export-oriented enterprises to increase the prices of their products when he was present in the 106th Chinese Export Commodities Fair on October 16.

However, during the Fair, most exhibitors did not increase the prices lest the foreign purchaser felt “offended” and refused to buy their products.

“The number of purchasers giving out their orders is smaller than expected. The other toy enterprises didn’t mention the price hike to the foreigners. Neither did we,” said Mr. Gu Wu, general manager of a Shenzhen-based toy manufacturer on October 25, when the second session of the Fair was coming to an end.

Consecutive Increase of PPI

The second session of the Fair was closed on October 27, in which the toys, potteries, planting accessories, residential adornments, gifts and presents were displayed.

Mr. Gu said that the cost of labor force for the toy enterprises in Guangdong increased by 15% from the beginning of this year. The prices of some metal raw materials also increased. In the first eight months of this year, his enterprise never escaped the losses.

This year, the price of international crude oil, supported by the sufficient fluidity, saw a fast rebound. The oil price has increased from 35 US dollars per barrel at the year’s beginning to the 80 US dollars per barrel in middle October. Compared with the most depressed period in the financial crisis, the oil price increased by 150%.

The fast increase of oil price motivated the increase of the other raw materials’ prices. The affect was also reflected in the increasing monthly product price index (PPI).

According to the data, in September the PPI in China still saw a year-on-year decrease. But it increased compared with August. It was also the 7th straight month in which the PPI saw a month-on-month increase. Li Xiaochao, spokesman for the National Bureau of Statistics, thought that the inflation may happen in the future. The Chinese State Council (Cabinet) also listed the maintenance of economic growth rate, adjustment to economic structure and management over the inflation expectation as the primary tasks in the future macroeconomic adjustment.

Now the economists in China are mostly worried about the imported inflation risk, which will bring about great cost stress over the export-oriented enterprises whose raw materials also come from the overseas.

Big Stress for Price Hike

Mr. Gu said that he previously laid hope on the recovery of the market and then transferred his company’s cost stress to the foreign purchasers in the Fair by increasing the prices. However, his wish was hard to be true. Mr. Gu was not the only one complained about this. Actually, most exhibitors in the Fair said that it was quite hard to increase the prices under current situations.

Li Yaoguo, vice general manager of a Dongguan-based company specialized in exporting the planting accessories, said that the number of customers increased by 20% as the Christmas approaches. Many foreign purchasers directly buy goods from the plants in order to save the cost. They usually have high requirements for the quality and environmental protection, but they are not willing to accept the price hike either. Therefore, it is difficult to increase the price at this time.

Long Guoqiang, deputy head of the Foreign Trade Department of the State Council’s Development Research Center, said that the Chinese export is undergoing phased recovery. The approach of the Christmas and the foreign purchasers’ enlarging their inventories are the two driving factors. But the outlook for the export can not be said to be optimistic. Under this circumstance, it is quite hard for the enterprises to increase the prices of their products, except for some new products with innovative technology.

In addition, the policies of increasing the export tax rebate issued by the Chinese government became another excuse for the foreign purchasers to reject the request of increasing prices from the Chinese suppliers.

Liu Gui, general manager of the Overseas Development Department of Guangdong Galanz Group, said that although the number of purchasing orders increased, the price was not satisfactory for it has been decreased obviously. The government increased the export tax rebate for the home appliances to 17%, but the added profits were all taken by the foreign purchasers.

Foshan Coby Electronics Co., Ltd was one of the few enterprises who dared to put forward the request of increasing prices in the Fair. The company’s customer manager Song Fei told the journalists that they increased the price of their displays exported to the USA by 10% or 40 US dollars. Their products are still cheaper for the foreign purchasers in spite of the price hike. Under the influence of the financial crisis, the advantages of their products in the cost performance can attract more customers.