growth of at least seven percent to avoid the beginnings of civil unrest.

 

In any case, what we saw last year was ethnic tension in the west of China, and labor disputes and unrest in the south. This continues today.

 

To compound China’s troubles, there was tremendous inflation in 2007 and 2008. Food prices went up; in some provinces, the price of rice has doubled, the price of pork has tripled. While some commodity prices have come down recently, they are still more expensive to the average consumer than they were a few years ago.

 

In short, there are great numbers of very upset people whose salaries are not keeping up with inflation.

 

We have been receiving calls daily from factories, claiming they have no money to buy raw materials; that their credit lines have been either reduced or frozen. Much of this has to do with the fact that they were financing their companies with property or stocks, which have fallen dramatically, reducing the equity on which proprietors have depended to secure lines of credit.

 

A year ago, I would visit a plant owner, and he didn’t even want to talk about his factory, his product, his production. Rather, he wanted to talk about how much he was making on his apartment complex and in the stock market.

Now, he is in a lot of trouble.

And as we all know, the US customers of all these Chinese manufacturers are having credit problems, too. US customers are trying to extend their terms. Most of our own customers now work on open account –– 30, 60, 90 days.

 

Even the big, sophisticated factories are under pressure. Sophisticated factories use Hong Kong credit. Unfortunately, the source of this credit is international banks –– and they are experiencing the same

]

credit crisis we’re seeing in the US and Europe.

The challenge is daunting. We’re going back to our customers daily, asking them to open lines of credit. Many customers don’t want to tie up their credit lines with WIP. In all cases, we always have to broker a solution. If we don’t ship the goods, everybody’s in bigger trouble.

SOME RELEVANT ECONOMIC FACTS:

n

From 2006 to 2007, the minimum wage increase averaged 19 percent; from 2007 to 2008 it was 21 percent. In 2009, there won’t be such an increase, as many factories were simply playing catch-up.

 

n

Utilities and gas increased 12-14 percent. China, of course, started with a low base. But now, it has essentially caught up with the rest of the world.

 

n

The consumer price index is 6, 6. 2, 6. 4 percent. Officially, according to the Chinese government, the inflation rate is listed at seven or eight percent. Most likely, those figures do not truly reflect the reality. On the ground, for the average person, inflation has been more like 12 to 15 percent in the past year.

 

n

The local currency has appreciated 16-17 percent in past two years.

 

LABOR MIGRATIONS, IMPACT

What is the net/net labor situation, and how does this affect you as an importer?

 

Even with the reduction of factories in southern China, labor shortages may still exist. Workers are moving back home to the north of China, where labor costs are cheaper (see map, “Worker Migration in China”).

 

Today, most workers in southern China live in dormitories