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Chinese Inflation, Wage Rates Will Curb Competition
Published on: 2011-05-03
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China’s rising wages and inflation soon will make its exports too expensive to compete with low- cost manufacturers, according to a group representing U.S. companies with operations in the world’s second-largest economy.

“China’s competitiveness in terms of wage rates will evaporate,” Christian Murck, president of the American Chamber of Commerce in Beijing, said today in an interview at Bloomberg’s Washington office. Factories are “being squeezed very, very severely by rising wages.”

Murck said the Chinese yuan is likely to continue its steady appreciation against the dollar because Chinese policymakers want to curb inflation and limit their accumulation of U.S. Treasury bonds. A rising currency also makes exports more expensive.

China’s yuan strengthened to 6.49 per dollar on April 29, the first time it exceeded 6.50 since 1993. Consumer prices in Asia’s biggest economy rose 5.4 percent from a year earlier in March, exceeding the government’s 4 percent goal for this year.

Murck’s group, representing U.S. companies with operations in China such as Intel Corp. (INTC), Wal-Mart Stores Inc. (WMT) and Boeing Co. (BA), is in Washington this week discussing ways the administration of President Barack Obama can confront a growing range of commercial challenges in China. At the top of the list are mounting competitive threats from state-backed operations.

“These state-owned enterprises are something the U.S. government needs to look at,” said James McGregor, senior counselor at APCO Worldwide. The American Chamber of Commerce in Beijing will host a conference in Washington tomorrow on the topic with Undersecretary of State Robert Hormats and former U.S. Trade Representative Susan Schwab.

‘National Champions’

Chinese efforts to develop “national champions” in high- technology industries reflects an awareness that its supply of low-cost labor from provinces is drying up as its population ages, McGregor said.

As a result, the Chinese government is using aid combined with restrictions on trade and investment to favor the development of the champions. China is requiring foreign makers of electric cars, nuclear power, high-speed rail and green energy to transfer their technology to Chinese joint-venture partners if they want to sell there, McGregor said.

“They are using the power of their market,” he said.

Wage increases in China and the appreciation of the yuan have reduced the profitability of small industrial companies in the southern province of Guangdong, the National Bureau of Statistics in Beijing said March 15.

The profit margin for small-scale industrial companies fell to 3.9 percent last year, a drop of 0.2 percentage points from a year earlier, the statistics bureau said on its website.

Labor shortages in manufacturing hubs on China’s east coast are persisting and spreading to central and western regions as economic growth spurs demand for workers and population growth in rural areas slows, Yin Weimin, Minister of Human Resources and Social Security, said in Beijing March 8.

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