Made in China - Crain's Manchester Business

Rss |

Homepage |

E-mail this article |

Stuart Illingworth, managing director of Widdop, Bingham & Co.

12:00 am, March 31, 2008
Made in China

Inflation fear as importers pass on 10-15 per cent price increases

By Michael Fahy

Manchester-based importers who source in China are about to pass on price rises of between 10 and 15 per cent. They say that currency fluctuations, Chinese wage inflation, raw material cost increases and higher freight charges mean that stable or falling prices of manufactured goods are now a thing of the past.

Stuart Illingworth, managing director of Widdop, Bingham & Co, the Oldham-based giftware importer, said many sectors from electronics to clothing are being hit and he believes the pain will soon be felt on the high street.

“The Western consumer has had the benefit of falling consumer product prices which has offset rises in council tax and fuel bills, so that has kept inflation down over the last 10 years,” he said. “What is happening now is that the fundamentals have changed.”

The Chinese currency, the renminbi, was 8.14 to the US dollar in 2005 but is expected to strengthen to as much as 6.5 to the dollar by this summer. So far this has been offset by the weakness of the US currency but now Chinese exporters are asking to be paid in euro or sterling instead.

“Four of the factories that we do business with in China won't take dollars now,” said Illingworth. “Without the cushion of a soft dollar, the only option is to charge more.” Illingworth estimates that prices in China are 250 per cent higher than they were 18 months ago, despite official claims that inflation is 9 per cent per annum.

Meanwhile, new labour laws came into force in January which have restricted Chinese workers' hours and led to an increase in labour unit costs.

Widdop, Bingham & Co last week began to raise prices on 10-15 per cent of the items in its range, which mainly comprises clocks, ornaments and fancy goods. Illingworth said the increases, also of between 10 and 15 per cent, will be introduced on a rotating three month basis as new stock arrives.

Simon Showman, managing director of Oldham-based homeware and electricals business Ultimate Products, said that importers face a three-fold rise in inflationary pressure.

His firm, which underwent a £25m buy-out in 2005 when LDC took a 46 per cent stake, turned over £53.5m in the 15 months to July 2006 and imports around $100m worth-of goods from China each year. It also has 40 full-time staff permanently based in the country.

He said the strengthening of the renminbi has had an impact, as had the “massive” rise in the cost of raw materials.

However, the key factor seemed to be the rapid rise in labour costs. “New labour laws have actually caused a lot of factories to close down,” he said. Importers have also been hard hit by a rise in freight costs.

In 2006, it cost £2,000 to ship a 40ft container from China to the UK but it now costs £3,000. This is making life particularly hard for importers of bulky, low value goods such as toys and furniture.

Showman argued that freight costs had actually begun to fall again, but said the other inflationary pressures meant his firm has seen costs rise over the past 12 months by between 10 and 30 per cent.

“Unfortunately, we do have to pass these costs on even though retailers don't want to pay the increase. It has a massive impact on our margins and we've had to cut costs here as a result. The only benefit is that we're growing rapidly by supplying to more customers in Europe and the US.”

Increasing costs

Although China is now more expensive, it is still the only game in town for many importers.

Illingworth said: “China is still cheap, but there is also a lack of potential to move production elsewhere. People talk about India but they are like chalk and cheese.

“China is an autocratic place where if they decide to do something it gets done. India is a democracy and it is much more difficult to make things happen quickly. People talk about Vietnam, but it only has 75-80 million people.”

SEE OPINION PAGE 8

COMMENTS? mfahy@crain.com