I get a strong suspicion that too many people are too overweight in Chinese stocks now. The reason for this is that after posting the China Tax and China Labour Law changes on a number of sites, there has been absolutely no response at all on most. High profile names ignore the posts, nobody commenting at all, either pro or against.

It therefore suggests to me that lots of people are presently very overweight in China stocks, they have got caught with the market weakness, and are now holding at a loss - waiting to sell any rise.

If, and its only an "if", the market weakness continues, and more and more of these people are trapped into China plays - you can foresee, imv, a lot of weakness coming into that sector, as more and more give up and bail out.

Quite remarkable that so many got duped into buying "China" as a safety against US/EU credit fears and recessions - only to now find its not as safe as they thought, and China stocks are also falling.

My own suspicions were that the China stock dream would go into breakdown and start its fall once the 2008 Summer Olympics had passed and the government can afford the luxury of upsetting lots more people and not caring about "face" during the Olympics that the world will be watching.

Is there another boom left in them before the Olympics comes and goes ? Will the boom not happen as its sold into ? Will they all meakly fade now and continue to do so ? Will they just keep on booming and not fall back again ?

Please discuss !!

China inflation now getting out of control....... ?? Get those Olympics out of the way and there should be some really nasty shocks coming, that will bite and bite perhaps......


http://www.chinadaily.com.cn/china/2008-03/10/content_6523382.htm

China's producer prices up 6.6%, highest in 3 years

(Agencies/chinadaily.com.cn)

Updated: 2008-03-10 14:15


China's producer prices, a key inflation indicator, rose 6.6 percent year-on-year in February, the fastest rate in more than three years, suggesting consumers face more sharp price, according to data reported Monday.

Beijing is trying to rein in inflation that rose to 7.1 percent in January, the highest level in 11 years. Economists expect February's inflation rate, due to be announced Tuesday, to rise as high as 8.5 percent after snowstorms disrupted transportation and wrecked crops, causing temporary shortages of food and raw materials.

A Bank of China report said February's CPI could be as high as 8.3%. And a National Development and Reform Commission official said the consumer price index would be higher than that in January, but "be lower than a two-digit figure."

Producer prices, which measure the cost of goods as they leave the factory, rose 6.6 percent in February over the year-earlier period, the National Statistics Bureau reported. It was the highest level since December 2004.

The six-month-old spike in consumer prices has been driven by food costs and blamed on shortages of pork and other items. But Monday's data suggested pressure for across-the-board price rises is mounting as factories and households compete for resources amid a boom that saw China's economy grow by 11.4 percent last year.

February's producer price rise was driven by a 37.5 percent jump in the cost of basic oil products and a 29.6 percent rise for some steel products, the statistics bureau reported. Prices of food-related raw materials rose by 11 percent.

China is trying to boost food production to ease shortages and has been nudging up interest rates, hoping to cool growth without causing the economy to tip into an abrupt slowdown.

State-set prices of gasoline, electric power and some other consumer necessities were frozen in September. In January, food producers were ordered to get official approval for any price increases.

Fertilizer prices also have been frozen to protect farmers.

But steel mills, factories and other producers must pay market prices for coal, iron ore and other raw materials.

Economists have warned that leaving price controls in place too long could add to inflation pressures by discouraging farmers and others from raising production, which would ease shortages and lower prices.

China suffered power shortages in February when the country's worst snowstorms in decades caught utility companies without adequate coal stockpiles after they cut purchases due to controls that barred them from passing on the rising cost to consumers.

Steel mills and factories cut back production, and the government was forced to organize emergency shipments of thousands of trainloads of coal to power plants.

http://www.iht.com/articles/2008/03/10/business/10chiecon.php


Chinese trade surplus down sharply in February

ReutersPublished: March 10, 2008

BEIJING: China reported a big drop in its trade surplus on Monday as imports surged and exports sagged, but economists were wary of reading too much into the data because of distortions from the timing of the Lunar New Year.

Of more immediate significance, they said, was that the price of goods leaving factories rose 6.6 percent in the 12 months to February, the fastest rate in more than three years and pointing to a leap in consumer prices when figures are issued on Tuesday.

Premier Wen Jiabao, in his annual report to Parliament last week, declared the fight against inflation to be his top economic priority despite clouds over the outlook for global growth.

The trade surplus for February shrank to just $8.56 billion from $19.5 billion in January and $23.8 billion a year earlier, the customs administration said.

Economists, who had expected a surplus of $21.9 billion, explained away the forecasting error by pointing to the vagaries of the calendar: factories shut down at different times each year depending on the timing of the Chinese New Year.

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Fierce winter weather also disrupted production and shipment schedules this year, further clouding the picture.

"Taking January and February together certainly makes much more sense than taking the February figures on their own. So that would imply export growth has slowed a little bit and import growth has picked up a little bit, which is the trend we expect for the year as a whole," said Paul Cavey, an economist at Macquarie Securities in Hong Kong.

What that means is that China's politically contentious surplus is finally growing more slowly and may even have peaked.

Imports rose a striking 35.1 percent in February, lifted by record-high crude oil prices and a growing bill for commodities and raw materials.

Exports, by contrast, increased just 6.5 percent from a year earlier.

Zhu Jianfang, chief economist at Citic Securities in Beijing, suspected that weakening U.S. demand due to the still-spreading credit crisis was to blame.

Exports were still likely to grow by more than 15 percent in 2008 despite government policies to push up the value of the yuan and to penalize export industries that use large amounts of energy and cause pollution, Zhu said.

But he added: "Imports will grow much faster than exports this year as China needs to import more to increase domestic supply and fight inflation."

February's producer price report, released by the National Bureau of Statistics, suggested the battle against inflation would be a long one.

The 6.6 percent increase was up from 6.1 percent in the 12 months to January and a touch above economists' forecasts of 6.5 percent. It was the highest rate since December 2004.

Wholesale food prices rose 11 percent in February from a year earlier.

Soaring food bills have been the culprit for the spike in consumer prices, already at an 11-year high, but many economists are worried that inflation will ripple through the economy because China's monetary policy settings are too loose.

"This will contribute to a rise in consumer inflation. The pass-through from agricultural prices to processed food prices will continue. Inflationary expectations are also on the rise, and expectations can change consumer behavior," said Jun Ma, chief China economist at Deutsche Bank in Hong Kong.

Economists polled by Reuters expect Tuesday's consumer price index data to show an annual increase of 8 percent, up from 7.1 percent in January, as the impact of snowstorms that disrupted transport and energy passes through the supply chain and pushes up food prices in particular.

http://sg.news.yahoo.com/ap/20080311/tbs-as-fin-eco-china-inflation-6th-ld-wr-618743b.html

China's inflation jumps to nearly 12-year high, raising risk of unrest before Olympics

By JOE McDONALD,AP Business Writer AP - Wednesday,

March 12

BEIJING - China's inflation surged to a nearly 12-year high in February, the government said Tuesday, squeezing exporters and adding to the threat of unrest ahead of the Beijing Olympics.


The 8.7 percent rise in the consumer price index over February 2007 was driven by a 23.3 percent jump in food costs, the National Bureau of Statistics reported. Price rises for some individual goods were even more dramatic: Pork was up 63.4 percent and vegetables 46 percent.

Communist leaders worry about a possible backlash in a society where the poor majority spend up to half their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests.

"I think there's a high risk of popular demonstrations," said Robert Broadfoot, managing director of Political and Economic Risk Consultancy Ltd. in Hong Kong.

Premier Wen Jiabao said last week taming inflation was Beijing's top priority and set a target of 4.8 percent this year_ a goal that analysts said looked unrealistic after Tuesday's announcement.

Deutsche Bank raised its forecast for full-year inflation from 6.4 percent to 7.2 percent. Morgan Stanley raised its forecast by two full percentage points to 6.5 percent.

"Stronger expectations of higher inflation could lead to stockpiling and panic buying, which may lead to an inflation spiral," Deutsche Bank economist Jun Ma said in a report to clients.

Non-food inflation stayed low in February, with prices up 1.6 percent from the year-earlier month.

But wholesale data reported earlier show pressure for across-the-board price rises is growing. The cost of basic oil products jumped 37.5 percent in February while that of steel products was up 29.6 percent. Food-related raw materials rose 11 percent.

Such increases are squeezing exporters that have been hammered by a steady rise in China's currency, the yuan, over the past 2 1/2 years that has made their goods less attractive abroad.

Some factories in the export-driven southeast have closed, wiping out thousands of jobs. Others are struggling to stay competitive with foreign rivals by switching to new products.

Rising prices for iron ore and other materials will squeeze company profits, raising doubts about their growth prospects, said Jing Ulrich, JP Morgan's chairwoman for China equities.

"The beneficiaries of higher inflation remain the resource suppliers _ many of which are outside China," Ulrich said in a report.

Prices began to climb in mid-2007 due mostly to shortages of pork, China's staple meat, and grain.

Authorities froze prices of gasoline, electricity and other basic goods in September and said inflation should fall once the autumn grain crops were harvested. But instead of easing, the inflation rate has risen steadily in recent months.

The government responded by ordering food processors in January to get official approval for any price hikes. Fertilizer prices were frozen to protect farmers and curbs imposed on grain exports to increase supplies in domestic markets.

February inflation was China's highest since May 1996, when prices rose by 8.9 percent, according to Goldman Sachs. It was up sharply from January's percent 7.1 percent rate.

Economists say inflation should stay high possibly as late as May before it begins to ebb.

Beijing has raised interest rates repeatedly and is trying to boost food production to ease inflation pressure amid a boom that saw economic growth rise to 11.4 percent last year.

Those efforts were hampered when the worst snowstorms to hit China in five decades blanketed the south in January and early February. The snows wrecked crops, killed farm animals and paralyzed shipping. Prices of meat and vegetables soared in snow-hit areas.

Rapid growth in the total pool of money available for credit also added to pressure for prices to rise, Goldman economists Yu Song and Hong Liang said.

Inflation should stay high "even after the temporary weather-related impact dissipates," they said in a report.

Song and Liang said they expect Beijing to respond by raising interest rates, curbing bank lending and allowing the yuan to rise faster. That could help to cool inflation by narrowing China's swollen trade surplus and reducing the amount of cash flooding into the economy.

___

After the disgusting and disgraceful behaviour of the Chinese government now killing Tibetans overtly, and not just covertly now, I must say well done to Richard Gere.

The whole world should boycott the Chinese Olympics. Its the only way to get these arrogant power crazy people to understand the world does not accept their behaviour in Tibet, or their sponership and protection of the Burmese junta.


http://www.reuters.com/article/sportsNews/idUSN1444309320080315

Olympics boycott if China mishandles Tibet: Gere

Fri Mar 14, 2008 9:52pm EDT

powered by SphereBy Paul Eckert, Asia Correspondent

WASHINGTON (Reuters) - China should suffer a boycott of its cherished Beijing Olympics if it mishandles protests in restive Tibet, Hollywood actor and Tibetan activist Richard Gere said on Friday.

Gere, a close follower of the Dalai Lama and chairman of the International Campaign for Tibet, stressed that neither the exiled Tibetan spiritual leader nor the ICT advocates a boycott of the Summer Olympics.

But he said it was his personal opinion that it would be "unconscionable" to attend the Beijing Games if China failed to deal peacefully with unrest in the Himalayan region -- protests that have turned to riots and already claimed several lives.

"I've not been pro-boycott, but I think if this is not handled correctly, yes we should boycott. Everyone should boycott," Gere told Reuters in a telephone interview.

Gere, a Buddhist for some 25 years, said he was grieving for "my bothers and sisters" in Tibet but "sad for both sides" in a dispute has that simmered and occasionally exploded since China annexed Tibet in 1950.

"As educated, as sensitive as the Chinese are, why they've misread the Tibetan situation from the very beginning is beyond me," he said.

"It's just so foolish and short-sighted. Everything that they want is destroyed in moments like this," said Gere, referring to the Chinese quest for international respect and recognition they seek in hosting the Olympics.

Gere's Tibetan contacts have all described the uprising as spontaneous, he said, adding that he did not believe the marches were linked to the Olympics. Continued...................

http://www.forbes.com/home/columnists/global/2008/0324/030.html

Companies, People, Ideas

China's Inflation

Carl Delfeld 03.24.08, 12:00 AM ET

In addition to recent blizzards, a different kind of storm is brewing in China: inflation. The key component of the Chinese economic growth story has been its ability to keep prices low and top-line sales growth high. It has never been about profit margins. Thus the ability of China to serve as a giant global manufacturing platform was a boon for leaders in Beijing as well as for export markets like America, which viewed lowcost Chinese imports as a way to keep a lid on inflation.

But the deflationary impact of China on world markets is now turning into an inflationary red flag with important implications for global investors. Wages have started rising rapidly, energy prices remain high and food demand is exploding. Fresh evidence emerged in February as Chinas National Bureau of Statistics said that inflation jumped to an 11-year high of 7.1%. Rising inflation is forcing Chinese manufacturers to try to defend their slim operating margins by raising prices for exported components, which, in turn, will compress multinational margins, since it is difficult in a weak economy to pass on higher input prices (such as energy, components and raw materials) to consumers in markets like Japan, the U.S. and Europe.

Just take a look at recent reports by Japan Inc.s big exporters. Canon, the worlds biggest digital camera maker, warned that earnings this year will fall short of market expectations. Sonys 5% operating margin goal was also recently revised downward. So what does all this mean for investors in the Asia-Pacific region?

First, avoid the large exporters of consumer products such as the already mentioned Sony and Canon, which are being squeezed by lower global demand and higher input and component prices. A stronger yen has not helped either.

For your Japan allocation, take a look at the Tokyo Stock Exchanges second section for smaller listed Japanese companies that are more domestically oriented and are trading at very attractive valuations. Rather than try to pick some specific companies, why not use the shotgun approach with the WisdomTree Japan SmallCap Dividend (DFJ) exchange-traded fund. The fund holds roughly 500 stocks, and assets are widely diversified. Industrial and consumer cyclicals are the top sector weights at 28% and 25%, respectively.

Second, lean toward countries that are net exporters of commodities rather than net importers like China. A good choice would be the iShares MSCI Brazil (EWZ) exchange-traded fund. Brazil recently passed China as the top-weighted country in the MSCI Emerging Markets index.

In addition, Chinas inflationary trend will create substantial opportunities for other emerging market countries to gain a competitive edge and pick up the slack. The recent disappointing IPO of Vietnams largest brewery, Sabeco, could provide investors with a great opportunity when the company begins trading on the Ho Chi Minh Stock Exchange. Vietnams hot market has cooled considerably this year, and it will be interesting to see how the market values Sabecos shares. Critics point to a too-high minimum price as the primary reason the IPO was undersubscribed.

In India, take a look at some export-oriented companies that have already weathered the impact of a strong rupee. I agree with India specialist Atyant Capitals suggestion of Gokaldas Exports ($5.38, 532630), which has revenues of $250 million and a market cap of $185 million. Wage inflation in China, coupled with an appreciating currency and reduction in export subsidies, will give companies like Gokaldas Exports significant pricing power. Blackstone recently purchased a controlling 50% stake in the company, then upped it to 68%. Investors should also target quasi-monopoly companies that can perform well in an inflationary environment because of both pricing power and a product or service whose demand is inelastic. Indonesias Telekomunikasi Indonesia PT ($1.03, TLKM) and the Philippines PLDT ($69.67, TEL) are two excellent choices.

Lastly, instead of focusing on the downside of rising energy and commodity prices, consider the flip side of higher demand for cleaner alternatives such as geothermal energy. This means more business for Ormat Technologies ($43.69, ORA), which operates throughout the world from Nevada to the Outback and recently signed an agreement for a project in Indonesia. Its topline revenue has grown at an annual average rate of 41%, and its stock price has come down from a near 52-week high of $58.

Inflation is the cruelest tax of all, but smart investors can soften the blow to their portfolios.

Carl Delfeld represented the U.S. on the Asian Development Bank board and heads the global investment advisory firm Chartwell Partners. He is editor of Chartwell Advisor Global ETF Report ( www.forbesnewsletters.com/chartwell).

Hi Papalpower, I can see you are working hard to crush chinese shares like SOLA, WCC, ACH, FTO, etc with the above articles.

hyleo ..... an unwarranted snipe at PP ...... he is merely publishing articles .... whether you or anyone else chooses to agree or disagree with the sentiments is very much a free choice ...... personally, i have different reasons for disliking chinese-controlled stocks, which do not need repeating yet again.

a more interesting comment could be shown in a graph, perhaps using AIM or FTSE 350 as the benchmark, to check how the stocks you highlight above have performed comparatively over say the last 6 months.

hyleo, its not about crushing anything, its about very clear and present/future that are going to have an impact on things Chinese.

Some people try to portray China as zero risk, cannot lose stuff...........that is very much not the case.

Therefore, its good to make available access to articles which give a balancing view of things.

PP best ignored - EK lackey but a great contrarian indicator.

Reserve ratio up again, and interest rate rises coming soon it looks like.


http://www.nytimes.com/2008/03/19/business/worldbusiness/19yuan.html?ex=1363579200&en=13dc1892a3f601ca&ei=5088&partner=rssnyt&emc=rss

China Moves to Stem Inflation and Calm Investors

By DAVID BARBOZA
Published: March 19, 2008

SHANGHAI Stock prices plummeted in China on Tuesday over inflation fears and growing concerns about the ripple effects of an economic slowdown in the United States. Showing its determination to hold down prices, the Chinese central bank then moved to tighten lending.

Shares on the Shanghai Stock Exchange tumbled nearly 4 percent, with the composite index ending at 3,668.90. The index is down nearly 40 percent from its record high last October. The fall in the Shenzhen composite index was even steeper Tuesday off 6.6 percent, to close at 1,082.28.

Shares appeared to be recovering somewhat in early trading on Wednesday, after the United States central bank cut interest rates in a bid to rekindle growth.

In Hong Kong, shares rose on Tuesday by 1.42 percent. Other Asian markets, including Japan, Taiwan, South Korea, India and Indonesia, also rebounded modestly after a sharp sell-off Monday. Some of those markets appeared to be extending those gains on Wednesday.

The Tuesday sell-off in China came after Prime Minister Wen Jiabao said at a televised news conference on Tuesday morning that inflation this year would probably exceed the governments target of 4.8 percent, after a sharp rise last year. Continuing inflation is regarded as a sign that the Chinese economy may be overheating.

Officials in Beijing now say that fighting inflation is the governments top priority. That could mean raising interest rates, a step that often discourages investors from buying stocks.

After the markets closed, Chinas central bank said it would increase the reserve ratio for banks to 15.5 percent. The move, effective March 25, will force the banks to set aside slightly more money with the government, a step expected to tighten lending and slow inflation.

The central bank has repeatedly increased the reserve ratio over the last few years, taking it to 15.5 percent from about 7 percent in 2004.

Tuesdays stock sell-off is part of a wave of troubling economic and political news that appears to be striking this country at a time the government is preparing for the Olympic Games in Beijing and to celebrate the 30th anniversary of the start of Chinas market-friendly economic changes.

While the Chinese economy is still sizzling and investment continues to pour into the country, analysts are beginning to worry that if rising inflation does not cut Chinese growth, then weakening demand in the United States for Chinese-made goods will.

If the U.S. is falling into recession, and we think it is, it will mean downside pressure on exports from China and on economic growth, said Huang Yiping, chief Asia economist at Citigroup. This could be a bigger threat than inflation."

The analysts say that Chinese exports could also slow this year because of higher production costs and a rise in the value of the currency, the yuan, against the dollar in recent months.

Analysts are already lowering their growth forecasts for China, with an eye toward the financial troubles of Wall Street firms.

Stock prices in Shanghai are going through an extraordinary reversal of fortune. After a spate of feverish investing that sent the Shanghai composite index up more than 350 percent in the last few years, the market has gone into a tailspin.

New public offerings both here and in Hong Kong have dried up after two years of spectacular initial stock issues that swelled the ranks of Chinas billionaires.

Wall Street banks, which late last year boasted of their exciting pipelines of stock offerings, have shelved deals or delayed offerings.

Oddly, while the American economy seems headed toward recession, and Chinas economy is booming, the stock markets here have fallen more sharply than those in the United States, even though many investors in China seemed to think that the government would do whatever was required to keep stock prices high before the Olympics.

Great numbers of Chinese are involved in the market, some speculating with their life savings.

David M. Webb, a shareholder activist who is an independent director of Hong Kong Exchanges and Clearing, remarked, There was an urban myth that the stock market would not go down until after the Olympics, and how much has it gone down?

ZSCROOGE ....perhaps your point would have far more validity if you also published the highs of these shares and/or their performance against the AIM .... this is especially so given that markets have fallen perhaps 20% (happy to know the correct figure) in the last 6 months or so.

cynic, it would be even better if they could list for each one when I went long, when I went short, when I purchased, and sold, and brought again and sold again..........

Of course, its a pure piece of fiction, but hey, if the idiots enjoy it and it makes them happy, so be it.......let them have their fantasies....

LOL :)

Rampers never give the game away!

halifax - perhaps you should say BB posters never give the game away. Not seen many people posting when they buy and sell, on the day they do it ?

i am happy to nail my colours to this mast ... have just shorted SOLA at around 256, half with a guaranteed stop ..... their figures will be out before 13:00 today, so it will be interesting to see what the analysts make of SOLA's prognostications for the coming year

http://www.thanhniennews.com/business/?catid=2&newsid=36640


China-based foreign firms contemplating move to Viet Nam: study

Last Updated: Wednesday, March 12, 2008 14:12:03 Vietnam (GMT+07)

Nearly one in five foreign-owned or invested manufacturers in China have firm plans to relocate or expand operations outside China, with low-labor-cost Viet Nam a top alternative, a study of 66 firms in China has found.

The study, jointly conducted by management consulting firm Booz Allen Hamilton and the American Chamber of Commerce in Shanghai (AmCham Shanghai) and released last week, said more than half of the foreign companies surveyed in China believed that the country is losing its competitive edge in manufacturing to other low-cost nations.

According to almost two thirds of respondents in the study, titled China Manufacturing Competitiveness 2007-2008, the top alternative to China is Viet Nam, while India was nominated by the remaining respondents as their first choice for relocation.

Although 88 percent of corporations in the study say they originally chose China for its lower labor costs, they are finding that cheaper labor and better tax incentives are on offer elsewhere.

Asked to compare China to other countries, respondents cited lower labor costs as the greatest difference, indicating that Chinas reputation as a source of cheap manufacturing labor is diminishing.

However, according to the opinions gathered in the study, other countries lag behind China in terms of market potential and infrastructure.

The study also found that while a stronger Chinese currency and rising wages are exerting pressure on manufacturing margins, failure to deploy the best operational practices and exploit China thoroughly as both a growth market and source of labor and products are also limiting profits.

Seven out of 10 respondents cited the rising RMB (yuan) as a major reason for Chinas decline, while wage inflation was cited by 52 percent of those polled, according to the study.

The study said wages for white-collar managers and blue-collar workers have jumped by 9.1 percent and 7.6% respectively.

Staff retention is also a major concern, with 33 percent of respondents citing it as a reason for lost competitiveness.

At the same time that costs are increasing, China is lagging behind global standards in many operational dimensions, most notably in logistics infrastructure, the trade environment, access to technology, management capabilities, and intellectual property protection, AmCham Shanghai said in its report.

The manufacturing philosophy employed by many foreign multinationals in China in recent decades is in need of an overhaul, Booz Allens Deputy President Ronald Haddock said.

Booz Allen and the AmCham Shanghai surveyed 66 foreign-owned or foreign-invested manufacturers in China, representing more than 10 percent of the 600 Manufacturers Business Council members in Shanghai, including some of the largest foreign-owned or foreign-invested manufacturers.

The study was conducted between September and November 2007 on businesses which have their origins in the US and western Europe.

The manufacturers were from consumer, industrial, healthcare, and material industries. (TN)

http://www.wsws.org/articles/2008/mar2008/chin-m17.shtml

Rising costs throw Chinese manufacturing into crisis
By John Chan

17 March 2008

For years, Chinas cheap labour has helped global corporations push down the wages and conditions of workers around the world. Cheap goods churned out by sweatshops based in China also kept inflation low internationally and underpinned the low interest rate policy in the US that fuelled its financial and housing bubbles.

All this is coming to an end. Thousands of manufacturers have shut down or moved out of China because of rising raw materials costs, higher wages and the rise of the yuan against the US dollar. These processes are in turn accelerating inflationary pressures, not just within China, but internationally.

Small and medium firms (with capital under $US3 million) in Chinas light industries, such as shoes and textiles, have been hard hit. The Financial Times (FT) on March 2 reported that one in six Chinese textile companies lost money last year, even though export prices increased 8 percent. According to the China National Textile and Apparel Council, growing wages and a weaker US dollar are squeezing the textile industrys profit margins.

The textile sectors average profit margin is 3.9 percent, but the bottom two-thirds of companies are struggling on an average margin of just 0.74 percent. While textile exports grew 19 percent last year to $US175.6 billion, national textile council chairman Du Yuzhou told the FT the industry was relentless at weeding out the weak, with large corporations absorbing smaller bankrupt firms. Amid a wave of industrial restructuring, many corporations are shifting production to inland provinces or countries such as Vietnam, Indonesia and India, seeking cheaper labour.

The Asia Footwear Association estimates that about 15 percent of shoe makers in Dongguana major export hub in Guangdongs Pearl River Deltahave shut down or relocated in the past year. During that time, more than 1,000 mainly small and medium footwear factories have closed throughout the provinceout of a total of 7,000-8,000. The Federation of Hong Kong Industries predicts that 10 percent of the 60,000-70,000 Hong Kong-owned factories in the delta will close this year. Many factories chose to shut before January 1when limited new labour laws take effect, requiring employers to sign long-term contracts with workers, pay social security insurance premiums and provide higher compensation for layoffs.

A Hong Kong shoe factory owner, Leung Ka-yiu, who was planning to move his operations to Vietnam told Asia Times that since 2006 the Chinese government had been implementing polices that were unfavourable to the export processing. The measures included heavier taxes for foreign investors and reduced tax rebates for exports. The labour law can be said to be the last push for me to leave, he said. If the law is strictly followed, my factorys labour cost will increase by 20 percent, which many shoe factories like mine cannot afford, given our profit margin of about 8 percent. He laid off two-thirds of his workers in December.

Zhu Yongxin, a shoe factory owner in Foshan, Guangdong province, complained that the cost of steel for buttons had trebled from 20,000 yuan a tonne in 2004 to more than 60,000 yuan. Oil for sewing machines cost 75 yuan a barrelup from 60 yuan a year ago. The cost of unskilled labour had risen to around 1,200 yuan ($US168) a month from 800 yuan two years ago. Skilled workers must now be paid 1,500-2,000 yuan. Zhu said he planned to move the factory to inland Hunan province.

Many migrant workers lost their jobs when they returned to work after the Chinese New Year. Lu Yongyuan, from Guizhou province found that his employer, the Taiwanese-owned Dongguan Hongsheng Mould Factory, had closed. Lu told the FT on February 25: The government will auction the assets. Costs were just too high [to keep the business going]. A notice posted on the factory gate told its 300 workers to contact local village authorities to collect one months wage, although the new labour laws require 10 months redundancy pay.

Another factor is the rising yuan. Since the Chinese government delinked the currency from the US dollar in July 2005, it has risen by 16 percent against the dollar, placing enormous pressure on some exporters. Major Western retailers like Wal-Mart have refused to make any significant concessions on procurement prices from China. John Cheh, chief executive of Hong Kong-based Esquel, which makes more than 60 million shirts a year for major brands such as Nike and Gap, told the FT on March 2: Its very difficult to raise prices. We show [clients] the numbers and say: Hey, we are losing money on your orders.

Xu Jiangchang, general manager of a Ningbo-based garment exporter that employs 4,000 workers, told Reuters: Each percentage point rise in yuan [against the dollar] means a half percentage point loss in our foreign exchange earnings. Zhou Dewen, head of the Wenzhou Small and Medium-Size Enterprise Development Promotion Association, pointed out that Wenzhou, which is famous for its small to medium factories, saw half the companies that started in 2007 suspend operations before the end of the year. The average profitability of Wenzhou enterprises stands at only 3 to 5 percent of assets. A 3-percent yuan rise will wipe out profits in many firms here, in particular textile and shoe companies with low profitability, Zhou said.

The Chinese government has said these factory closures are part of President Hu Jintaos philosophy of Scientific Development for promoting technologically-intensive industries and moving up in the value chain. Tougher labour and environmental regulations are said to be efforts to build a harmonious society. Chinese officials have commented that large corporations should wipe out small firms with low added value and backward technology. Beijing is also encouraging factories to move to inland provinces, supposedly helping to narrow the vast economic gap between rural and coastal regions.


Global processes

The Chinese government, however, has no effective control over many factors behind the growing pressure on the manufacturing industry. Consumer demand in the US is slowing, with the subprime crisis and rising prices forcing many workers to cut back their spending. According to the Ministry of Commerce, Chinese exports to the US increased 20.4 percent in the first quarter of 2007, but the growth rate dropped to 15.6 percent and 12.4 percent in the following two quarters.

Nevertheless, Chinas rising production costs will be translated into higher consumer prices in the US and globally. Economic analysts have pointed out that China is likely to retain its position as the worlds largest low-cost manufacturing platform because its huge workforce and extensive infrastructure still enable it to provide competitive advantages over other countries. Vietnams share of the US apparel market jumped from 2.8 percent in 2005 to 6 percent this year, but Chinas share rose from 25 percent to 40 percent in the same period.

Wal-Mart vice chairman Michael Duke told the media on February 25 that his firm directly sourced $9 billion worth of goods from China in 2007. China will continue to be a major portion of direct purchases by Wal-Mart for a long time, he said, adding that although some imports from China may be decreasing, others were increasing. The largest categories of Chinese exports are now machinery and electronics, such as auto parts, computers and electrical home appliances, rather than shoes, textiles and toys.

Rising inflation in China was signalled last year by serious pork shortages. It is now clear that inflation is a far bigger world problem. There has been a wave of financial speculation in global commodities markets, from basic metals to grains. Major energy and mining corporations are demanding huge prices increases from manufacturers. In February, Asian steelmakers were forced to accept a 65 percent increase in iron ore prices, which will be passed onto other industries.

Under these conditions, Chinese workers are demanding higher wages. In an interview with Newsweek on February 14, Auret Van Heerden, head of the Washington-based Fair Labor Association, offered his impressions from a recent visit to China. He commented on the new labour law: At the factory level people are talking about it everywhere. One of the things about the law is it doesnt rely on outside labour enforcement... There have already been strikes about it; there have been employers who have been panicked by the commitment the law would require, so theyve tried to lay off or outsource workers. The workers struck, saying, No, were not going to accept that. There have been a couple of high profile cases of strikes against dismissal involving Hong Kong-listed companies. Take the richest woman in China [Zhang Yin, CEO of Nine Dragon Papers], who owns a huge paper company. She tried to outsource guards and security cleaning services, and didnt want to give contracts. The workers struck. Its been an emblematic case: if one of the richest and most powerful businesswomen in China couldnt sidestep the law, its a good indication of the signal the government wants to send.

As in the past, Beijing will not hesitate to use police-state methods to suppress unrest among workers. The real motive behind this legislation is fear of social instability. The intense exploitation of workers in sweatshops, coal mines and construction sites has created a climate for social explosions, worrying employers around the globe. Willie Fung, chairman of brassiere maker Top Form, told the Australian the biggest worry was not a cyclical US recession, but labour costs, which once jacked up, cannot go down.

While sections of manufacturers are leaving China for countries such as Vietnam, they face similar problems. A wave of unrest among Vietnamese workers demanding higher pay has shaken foreign investors, amid escalating inflation. The annualised rate was more than 15 percent in February. On February 28, 1,500 workers went on strike at a South Korean garment factory in Long An province, demanding $10 more a month. On March 5, 10,000 workers at Tae Kwang Vina, a South Korean shoe contractor for Nike in Dong Nai province, struck for higher wagesalthough they were already paid 20 percent more than the minimum wage.

The Vietnamese official statistics record that 387 strikes occurred last yearwith almost 300 in foreign-owned companies. Hanoi was forced to promise a 12 percent minimum wage increase this year. At the same time, the Vietnamese Stalinist regimes response to inflationincreasing interest rates and tightening money supplyhas led to a severe shortage of the Vietnamese currency, the dong. The global scale of inflation and the crisis in manufacturing industry demonstrates the need for workers in China, Vietnam, Asia and beyond to develop an international movement against the global capitalist system.

http://business.smh.com.au/costly-leap--pressure-on-the-factory-floor/20080314-1zip.html?page=fullpage#contentSwap2

Costly leap - pressure on the factory floor


March 15, 2008

Rising inflation and wage costs are transforming the Asian giant's industries and its role as the world's low-cost factory. John Garnaut reports from Shanghai.

The world's second largest sportswear company, adidas, is confronting a new and unexpected problem. The costs of labour, materials and red tape are spiralling upwards in its great production heartland in southern China.

It used to be that money made the rules and multinationals such as adidas could always extract a better deal by threatening to move offshore. The company runs more than 250 factories here, after all. And each clothing factory employs 3000 people, on average, while every shoe factory has seven times that number.

But the Chinese Government is no longer interested. It has recently abolished export rebates, introduced tougher environmental and labour laws and increased the minimum wage - squeezing production margins even tighter.

"The message coming from local governments and to a lesser extent the central government is very clear," says William Anderson, the head of Social and Environmental Affairs at adidas. "They're saying don't tell us about your problems, relocate."

For thousands of small and multinational manufacturers the story is the same. For them, the world economic order is turning on its head.

The endless, seemingly indomitable factories that stretch from the Hong Kong border north up the Pearl River delta in Guangdong province and through the coastal provinces of China are choking on their own success. They have exhausted what was thought to be a bottomless barrel of cheap labour. They have erected their sheds on the peasant farmland that is cheaply available. They have devoured so much oil, cotton, rubber, coal and steel that commodity prices have remained "stronger for longer" than the world has known. And they are rapidly using up China's political tolerance for filling the earth, sky and waterways with toxic waste.

There are no more obvious corners to cut and few remaining efficiency gains to extract. Low-end manufacturers are shutting down or moving out. A Hong Kong business association claims 3000 factories have shut down in the Pearl River delta this year. The Guangdong local media is full of reports and pictures of newly abandoned factory floors.

But a growing proportion of manufacturers are steeling themselves to push their rising costs through to the final stop on the production chain: the consumers.

About 100 million pairs of shoes and 125 million garments were sourced in China by adidas last year, which says it is packing up a large part of its Chinese production and moving it to the country's lower-wage but logistically challenging inland provinces. The company will not reveal any price-rise plans.

"We have no immediate plans to change the pricing policy of our products," says Anne Putz, the head of adidas corporate public relations at head office in Germany.

But other low-wage manufacturers are making their intentions clear. They are moving, skimping on inputs and fighting as to give consumers some of their pricing pain.

"The consumer, our customers, have pushed for years to get the lowest possible price and they feel because it's made in China it's got to be cheap," says Michael Morosin, who runs an electronics packaging company called PRT Manufacturing in Shenzhen. His main cost is plastic, derived from oil.

"The cost of oil is killing us," he says. "But we can never pass on more than 50 per cent because on the other end of the phone you hear these guys scream."

WESSCO International supplies a large proportion of the world's airline bags, with their disposable toothbrushes and socks, to companies such as Qantas. Last year, its managing director, Petros Sakkis, shifted his efforts from trying to squeeze ever-increasing quantities of cheap plastic goods at ever-diminishing prices out of his Chinese production lines. Instead, he's been roaming Vietnam, Thailand and India for factory space.

"Rising cost pressures are pushing us to be more aggressive in moving our production out of China," Sakkis says. "Where to? That's the big question. You've got to start from scratch because there is no paradise."

Sakkis will not talk about his prices, as each contract is negotiated individually. But Jo Austin, who edits a trade magazine called OnBoard Hospitality, spells it out.

"The rising costs will be passed on to airlines and airlines are passing them on again," she says. "But rather than pay more, airlines are reducing product, particularly at the back of the plane."

Whether consumers pay higher airfares or receive a lower-service flight, they are paying more for less. For decades, consumers have had the better of the world's manufacturers. But the tide is starting to turn. The battle between them will affect the political fortunes of leaders such as China's Premier, Wen Jiabao, who last week said inflation was the biggest concern of the Chinese people, and the Prime Minister, Kevin Rudd, who says the consumer price index is his biggest economic challenge.

This week, China's Bureau of Statistics shocked the economic world with consumer price index growth of 8.7 per cent for the year to February. Most of that was driven by food prices, but upstream inflation pressure is growing just as fast.

China's producer price index jumped 6.6 per cent in the year to February, from a virtual standing start in the middle of last year.

The United States Bureau of Labor Statistics reports import prices from China fell by about 1.5 per cent annually from 2004 through to mid-last year. But the latest annual figures show China import prices rising 2.5 per cent. Chinese statistics show its export prices are up 6.5 per cent in a year in US dollars, the currency in which most China export deals are set.

Australia does not compile country-specific import price data. But a China economist for UBS, Jonathan Anderson, says China export prices are rising into the US, Europe and Japan - so it's a fair bet they are rising in Australia, too.

"It is accelerating," Anderson says. "And the reason we expect it to continue to accelerate is that labour pressure is unabated."

So far, the Reserve Bank Governor, Glenn Stevens, has been spared the added inflationary headache of rising Chinese import prices thanks to the mercurial Australian dollar. The rising dollar means Australia's purchasing power is rising faster than China's US dollar-denominated export prices. But that relief will last only for as long as the Australian dollar out-runs the Chinese yuan.

Macquarie Bank's China economist, Paul Cavey, says it is only a matter of time. "Whichever way you look at it, Chinese export prices are moving up," he says. "At some point, it must begin to have an impact on Australian inflation."

China's cost pressures are spreading deeper and further through the system. More than half of the increase in China's producer price index was caused by coal and steel, and those shocks will be amplified by a second round of cost increases as steel and energy-intensive producers pass their pain down the production chain.

Australian consumers and businesses have enjoyed an unprecedented, sustained rise in buying power because prices for the commodities that Australia exports to China are going through the roof and, at least until now, prices have been falling for Chinese goods that are coming the other way. But booming commodities prices are starting to embed themselves in many of the manufactured goods Australia buys from China.

China's steelmakers have more than offset the huge rises in iron ore and coking coal costs by simply pushing them down the line. Steel-intensive users, in turn, are pushing those costs on to the next line of producers.

An employee at Morimatsu Industry, a Japanese company that manufactures in Shanghai, says steel accounts for half of the costs of the huge steel tanks it makes for chemical and mineral processing. He said he will add the 20 per cent rise in steel prices this year directly onto his product prices - and charge it to customers that include BHP Billiton in Australia.

The tyre maker Goodyear, which also sells to Australian mining companies, says it is lifting productivity to absorb rising rubber, energy and shipping costs. Nevertheless, it is also asking customers to pay.

"But yes, eventually consumers bear the brunt, just like they pay for increases of other products from raw materials or natural resources," says Goodyear's regional communications director, Ron Castro.

It helps resource-intensive producers that they can easily point to record commodities prices in order to explain their cost problems to customers. It also helps they tend to sell to other producers, such as mining and Asian construction companies, which are flush with cash.

Philip Kirchlechner, a marketing director at West Australia's Aurox Resources, says prices for iron ore processing equipment such as crushers and ball mills have jumped about 30 per cent in three years and delivery times have doubled.

"This price and delivery situation will get worse by the end of this year,' he says.

Tom Ren, a Shanghai businessman who runs a chemicals company called FineKing, says his inputs are derived from oil and therefore getting more expensive. He sold the world Yuan300 million ($45 million) in polyurethane gap filler products last year - the stuff that builders use to seal the cracks between windows and walls.

Ren writes his key financial variables on the back of a notebook to show how rapidly his costs are rising. They are not rising as fast as his efficiency gains.

"Our cost keep going up and up and up, but so is our productivity," Ren says. And then he adds a crucial detail: the prices of the products he sells are slated to rise 20 per cent this year.

Makers of heavy machinery and equipment tend to start from a less efficient base than their labour-intensive cousins, meaning they have more room to raise their productivity and preserve margins. More importantly, they have pricing power.

One observer, whose private equity fund controls $US4 billion ($4.29 billion) in the Asian region, including in China and Australia, said rising costs are sorting Chinese exporters into three groups.

"The guy who sell products that are really super-commodities are passing their cost increases on because their customers understand what's happening in the world market," he says. "The low-end manufacturers like hardware, textiles and low-end auto-part suppliers, like cooling fans, are being hammered. But those who can differentiate on product or use a lot of technology are OK. Anybody who has a bit of technology in their product can pass that on."

It turns out that cost pressures are far from defeating China.

Meguri Aoyama, who is the head of China affairs at Keidanren, Japan's top business association, says China's labour-intensive manufacturers will struggle. But prices for resource-intensive products such as cement, paper and steel will keep going up. But the overriding theme of Chinese industry, he says, is that rising costs are pushing the world's most competitive manufacturers to scramble faster up the technology chain.

For Toyota, he says, rapidly improving technology will easily counter rising steel costs. The car maker, which is likely to overtake General Motors as the world's top car maker this year, is helping to turn cities such as Guangzhou from low-wage manufacturing centres into high-wage, high-tech capitals.

"Guangzhou's becoming the Detroit of Asia. In five years the situation has totally changed," says Atsuo Kuroda, who is responsible for China trade and investment at Japan's Ministry of Economy, Trade and Industry.

Other leading brands such as Canon, and Panasonic are steering clear of rising costs by using ever-improving technology to produce increasingly high-tech digital cameras, flat-screen TVs and industrial machinery.

It is a little more than a decade since China cemented its name as "the world's factory" for being the home of simple, low-wage manufacturing. But the country is moving on.

Rising costs are igniting yet another round of creative destruction. They are forcing some firms out of business, others deeper into China or into southern or South-East Asia, while giving others the impetus to advancing up the technology ladder.

The Chinese Government is encouraging the transition. "They're saying, 'We want to move up-market, upscale, we prefer auto to apparel,"' says Anderson at adidas. And so his company is shifting its China manufacturing inland, where it can provide jobs to China's remaining low-wage workers and direct its products towards the country's rapidly growing domestic market.

China is treading a similar path to Japan, Korea and Taiwan before it, albeit on a much larger scale. With these precedents, economists expect consumers might hurt a bit during the transition but will end up back on top.

"Cost pressures are rising so everybody is talking about whether China will push up the prices of its products and therefore inflation everywhere," says Huang Yiping, the chief Asia economist at Citigroup. "But I don't think that will happen. If China succeeds in exporting autos, for example, then China will remain a deflationary force for a long time to come."

The times of an ever-falling "China price" for labour and resource-intensive manufactured goods is probably over. But the era of a new China price for cars, sophisticated electronics and even aircraft is probably around the corner.

Seems PP is a nuisance everywhere.

http://www.advfn.com/cmn/fbb/thread.php3?id=16752016&fav=add

no idea and don't care .... i actually can't be bothered to read most of the stuff he posts, but that is just because i am lazy and/or my senile brain falls apart in the effort.

for all that, you will note that SOLA was a very profitable short (for me) today.