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Analysts: Rising Chinese Inflation May Lead to Higher Export Prices


China continues to be the world's fastest growing economy, growing by over 11 percent last year. But rising inflation, now at over eight percent, is causing concern that the prices of China's consumer goods exports may be about to rise, adding to inflationary pressure in the major industrial countries. VOA's Barry Wood has more.

The United States is China's biggest export market. And the United States imports more goods from China than anywhere but Canada, its northern neighbor.

A large percentage of China's exports are manufactured goods from Guangdong province adjacent to Hong Kong. Allan Wong, the chairman of Vtech Holdings, the world's biggest maker of cordless telephones, employs ten thousand workers in Guangdong making phones for export. He says higher taxes in China have boosted costs and export prices are going up.

Alexandra Harney, the author of a new book on southern China, says big price rises are coming and will be seen soon in Wal-Mart stores in North America. She says there are several reasons behind the price rises, including the 18 percent rise of the Chinese currency against the dollar since 2005. "We will see the rising Renminbi and of course the rising cost of raw materials, not the least of which is oil, affecting the price of Chinese-made goods. And with that you also have rising wages," she said.

Harney, who lives in Hong Kong, says labor shortages are pushing up wages in southern China. She spoke at a forum sponsored by Washington's Global Business Dialogue.

John Frisbie, who heads the US-China Business Council, agrees that prices of Chinese goods are rising. "There's no doubt that prices are rising in China. It is labor costs, tax rates, energy costs, land costs, you name it," he said.

But other experts say that intense competition makes it difficult for Chinese exporters to raise prices. Steve Dunaway is an economist at the International Monetary Fund.

"The competitive pressures are such that their capacity to pass on those types of price increases may not be that great. So, it would be hard, at least for me to see, that there would be a significant inflationary response that would come from rising pressures in China right now," he said.

Dunaway's colleague at the Fund, David Burton, the head of the IMF's Asia Pacific Division, believes that Chinese exporters for now can absorb inflationary pressure because worker productivity has increased rapidly in recent years. "They can absorb quite a bit of wage growth and cost increase without raising prices. I think there is quite a capacity to do that," he said.

China, says Alexandra Harney, has become the workshop of the world. Because of its huge population and fast developing infrastructure, the manufacturing currently being done in China can't easily be transferred to other countries, like for example, Vietnam. Erik Autor, the head of America's National Retail Federation, isn't so sure. He believes other nations could rise to challenge China's export dominance.

"I think China will continue to be a very important player in the global economy. I think it will continue to be a major manufacturing site. But, other places are going to start competing effectively with China as prices rise," he said.

Autor sees Vietnam as an up and coming manufacturing exporter. But he says its wages are rising and it does not enjoy China's competitive advantage of a pool of migrant labor from the countryside.

American retailers thus far have not had to significantly raise the prices of their goods imported from China. But they say unless fuel and food prices decline from their recent record highs, the situation could change quickly in the next few months.

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