CHINA: Inflation ahead ?

The cost of doing business in China is going up.

FT: ” Chinese labour protests that have forced shutdowns at foreign factories have spread beyond south China’s industrial heartland, posing a dangerous new challenge for Beijing.”

Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency ( Renmimbi) to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

The shift was illustrated last Sunday, when Foxconn Technology, one of the world’s largest contract electronics manufacturers and the maker of products that include iPhones, said that it was planning to double the salaries of many of its 800,000 workers in China, beginning in October. The new monthly average would be 2,000 renminbi — about $300, at current exchange rates.

Honda is following the same path after a strike. So in between strikes and protests maybe China is becoming the new engine for Inflation…