Flipped through the news paper last night, realizing that Chinese manufacturers who faced the brunt of the collapse in export demand in late 2008 are slashing costs and cutting prices just to stay afloat. The trade surplus fell to US$12.9b in Sep'09 from US$15.7b in Aug'09. Exports grew 6.3% while imports were up by 8.3% from Aug'09 to Sep'09. The major driving forces behind the sharp improvement in imports are, no surprise, commodities. A record 65mil tonnes of iron ore were imported in Sep'09, 30% higher than Aug'09. Copper registered a 23% increase in Sept'09 too.
Very clear, Chinese manufacturers are unable to pass the higher material costs to their customers, especially the US and EU consumers. It also indicates a very strong internal demands for raw materials. It seems Beijing's 4 trillion yuan stimulus package has helped to revive the economy through heavy spending on public works, especially the national railway systems. Given such a huge geographical coverage, China needs more iron ore than coal. As long as China continues its massive public expenditure and Chinese manufacturers continue to absorb the higher material costs, Mr. Ben Bernanke, the US Fed's chairman, will find no reason to raise interest rate. But how long the Chinese manufacturers can keep the price down?
In the Pearl River Region, Guangdong province, thousands of electronic companies are relocating their business to other provinces to reduce costs or shut down. Thousands of plastic factories close their production plants. The industries are consolidating and emerging. Manufacturers realize that price competition alone would kill the business. Eventually, the higher raw material costs will pass on to consumers, especially the US and EU.
........................................................
DISCLAIMER - By VO Editor