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To: RealMuLan who wrote (20214)	10/19/2004 7:33:35 AM
From: russwinter	Read Replies (2) \| Respond to of 110194

This is big, the Train Wreck. Commodity prices sting Chinese exporters By Alexandra Harney in Guangzhou Published: October 18 2004 20:42 Rising world commodity prices are narrowing Chinese exporters' already-slim profit margins and forcing them to charge more for their goods. Chinese manufacturers at the country's largest trade exhibition, the Canton Fair, said this week that sharp increases in the prices of oil, steel, copper and plastic were making it necessary for them to raise prices to foreign buyers. But they have not been able to pass on the entire increase in material prices to their customers, cutting into their profitability. “It's killing me,” said Sunny Chan, director of Guangzhou-based lighting manufacturer Tak Fu Hong Trading, of the oil price rise. “The steel price has doubled in the last eight months. Plastic has doubled. It has doubled not just [risen] 10 per cent. It's terrible.” Chinese manufacturers, particularly those that supply big international retailers, have never enjoyed very high profit margins. But the recent rise in the price of oil which soared past $55 a barrel on Monday and other commodities has narrowed them even further. These increases come on top of higher costs of labour, power and water amid widespread shortages in China's booming economy. The jump in commodity prices is affecting manufacturers of everything from CD-Roms and electrical sockets to toilet seats and microwave ovens. Shelling Lee, general manager in the overseas marketing department of Galanz, the world's leading microwave maker in the southern Chinese city of Foshan, said that while prices of plastic had risen 90 per cent over the past year, the group had only raised prices of its products 10-20 per cent over the same period. “It's very crazy,” she said. Huang Qiaozhao of Zhaolong Sanitary Ware Assemble, a toilet seat maker, said his company's material costs had increased 40 per cent. “The pressures on us increase every year, and there's nothing we can do,” he said. That Chinese exporters have been able to raise prices at all represents an important shift. Traditionally, the balance of power between Chinese manufacturers and international buyers has favoured the buyers, who have been able to drive down prices for goods by ordering in bulk. So far, however, the exporters' price increases are still only a statistical blip. Global commodity prices have jumped 43 per cent over the past 12 months, but the prices of Chinese exports have gone up less than 2 per cent over the same period, according to Dong Tao, chief regional economist at Credit Suisse First Boston. In China, economists believe that the 5.3 per cent consumer price inflation recorded in the third quarter has been mostly driven by rising food and energy prices. The producer's price index the price that retailers pay manufacturers for their goods is rising by more than 10 per cent year-on-year. Mr Dong said he believed the deterioration in exporters' profitability would increase pressure on Beijing to revalue the renminbi.