Interesting China article

A lot of interesting reading this weekend

I pulled this innocent article about China out of Yahoo News and it was quite interesting.

Some interesting points:
* Meat prices have risen 50 percent in the past year, and eggs and other products are not far behind,

* After a run that has seen sizzling growth top 10 percent for four years, analysts say China's supercharged economy is facing strains that could break out into an upsurge of inflation.So far the worst damage has been confined to food prices, which jumped 15.4 percent in July over the same month a year ago and drove overall inflation to a decade-high 5.6 percent. But wages are rising too, as are the costs of oil and electric power.

* If the trend goes unchecked, the impact could be felt abroad as consumers who depend on China as the world's low-cost factory have to pay more for appliances, shoes and other goods.

* Pressure is growing in energy, where Beijing is holding down retail prices by blocking state-owned gasoline and power companies from passing on higher costs. Chinese oil refiners are losing $5 per barrel of oil that they process into gasoline or diesel.

* Wages rose 21 percent in the first quarter of the year over the same period of 2006, according to the government, as companies competed for labor. Even that rise might not reflect the extent of pressure faced by employers, because those data cover only government companies, not the booming private sector.

* Premier Wen Jiabao has ordered urgent measures to boost food production, promising farmers free vaccinations and other aid to raise more pigs. Local authorities have been ordered to subsidize the grocery bills of poor families.

* Until now, intense price competition in a Chinese market filled with low-cost goods has prevented makers of most goods from passing on rising costs to consumers. But economists say struggling companies might finally be forced to stand their ground and rise prices.

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Interesting to see this inflation scenario literally exploding across the country. I always find the story of China interesting because it is poised to be a world superpower on demographics alone. However, I read even 2 years ago that China is starting to become 'expensive' for manufacturers, and now companies are looking for the next cheapest place, i.e. Vietnam. Which is quite amazing. I remember all the NAFTA talk in the 90s and how companies were moving to Mexico en masse for low cost labor - $2.50 or so in US wages. Within a decade much of those factory towns are now ghost towns, as that capital moved to Asia.

Can we imagine a time in 15 years when China is too expensive? It could happen. Especially with the need to add more layers of safety, what with toothpaste, dog food, lead in toys, etc etc etc.

In a related story wages in India for the top labor in outsourcing firms is also seeing heavy (20%+ annual) inflation. While its easy to find a "body", to fill an entry level customer service position, the more experienced/better workers are in high demand and there is only so much supply of them, even in a country of such great size. Now granted as each year passes, more and more qualified employees are churned out but it's an interesting thing to view from an economic standpoint.