The era of cheap China goods is over according to Li & Fung, a Hong Kong-based logistics company. This has broad implications on many fronts. In terms of monetary policy, China has moved from an exporter of deflation to an exporter of inflation. The tailwind of disinflation in Chinese import prices is likely gone for good. I hope Ben B. is paying attention here. Higher import prices from China could push up U.S inflation. And yes even for the folk at the Fed who apparently don’t eat or drive. Higher inflation in China also has implications for competing economies in Asia. Higher Chinese wage inflation makes places like Vietnam, Indonesia, and Bangladesh more attractive destinations for labor-intensive manufacturing.
Li & Fung warns of end of cheap China goods
Li & Fung, a Hong Kong-based consumer goods sourcing and logistics company, warned that “a new era in sourcing with higher prices” has begun, as manufacturers pass on the rising costs of both raw materials and Chinese labour to customers…
William Fung, the company’s group managing director, said heightened competition for labour in China, which has resulted in wage increases of about 20 per cent this year, heralded the end of China-led deflation for the world economy…
The higher labour costs in China have prompted Li & Fung to move labour-intensive work on products such as garments to countries with lower wages, such as Bangladesh, Vietnam and Indonesia.
Jeremy Jones, CFA
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