Skip to comments.Western profits wilt on China's surging wages
Posted on 08/18/2010 5:23:56 PM PDT by Palter
Rising wage and production costs in China are eating into the profits of Western companies and may soonset off an exodus of multinational companies to cheaper locations.
A report by Credit Suisse said the vast majority of US and European companies in China are expecting a "margin hit" over the next 12 months and fear they will not be able to pass on the costs to consumers, with the biggest worrries in electronics, clothing, and retail.
The bank said Footlocker, Liz Claiborne, and Office Depot would tip into outright loss in a worst-case scenario, defined as a 20pc rise in costs without any pass-through to customers.
Earnings per share would fall 72pc for Jones Apparel, 50pc for Maidenform Brands and Dollar Tree, 42pc for Macy's, 39pc for Target, and 20pc for Polo Ralph Lauren. Reliance on Chinese plants is suddenly proving double-edged. "We conclude that labour and transportation cost pressures are a major concern for executives that may be under-appreciated by investors," it said.
The US industrial giant General Electric raised eyebrows in May with plans to shift production of its hybrid water heater from China back to Kentucky next year after securing lower wages from US workers. The company cited the narrowing pay gap, lower transport costs, and shorter delivery times.
(Excerpt) Read more at telegraph.co.uk ...
I wonder how much of their IP they’re going to leave behind.
GE’s already walking a razor thin line. Any increase in labor or borrowing costs are going to kill their margins.
Good thing Obama’ has guaranteed their debt through 2012. A lot of bad things could happen between then and now.
And what do you base this statement on? In my experience, that's not anywhere close to reality.
Didn't all the advanced countries start with domestic demand?
What's to keep the Chi-coms from using the technology and know how to market their own brands? Perhaps domestically at first then internationally. Isn't that how Deng's version of Lenin's New Economic Plan (NEP) is suppose to work? Lure the useful idiots in and screw them?
Removing the peg of the rmb to the USD is necessary and the issue for China is how to allow the currency to revaluate without upsetting the applecart. Capitalism has succeed wildly where communism failed, by creating jobs for tens of millions of rural Chinese. They are afraid to allow wages to rise too quickly and risk killing the golden goose, but rebalancing is vital to protect their surplus of US debt.
The Chinese are a very patient and cautious people who as a culture think much longer-term than we do. US public companies worry about the next quarter, China worries about the next fifty years.
Considering, when they signed up for the deal, it become state property. Thems the rules when investing in communism.
Good points....cannot believe how stupid people get over Communist China. It is still a one-party communist state which has central gov’t control over almost everything. The ChiComs, in reality, own everything in China
“still a one-party communist state which has central govt control over almost everything. The ChiComs, in reality, own everything in China”
The same can be said of the U.S at this point. If you disagree, try not paying real estate taxes to Uncle Sam for a year.