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china exporting inflation

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    Since everything we consume comes from China makes sense to buy everything you are going to need in the next couple of years ASAP if you were the sort who had spare cash that was destined for gold. Whatever you buy will likely outperform gold and silver. If you are a business owner where possible bring costs forward, as you'll easily beat the cost of money. If you are a commodity producer get as far ahead with your input purchases as your equity will allow - once again you'll easily beat the cost of money. The theme from now on is 'manage your cost base', whether it be for living or for producing an income.

    Higher wages, food prices spark fears of China exporting inflation

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    Rowan Callick, China correspondent | February 26, 2008

    OVER the past decade, China's low-priced exports provided a major driver for world business growth based on lower costs.

    Today, however, with China's inflation soaring to 7.1 per cent in January, analysts are starting to predict that this increasingly crucial economy, the hub of many Asian exports, will instead start to export inflation to the world.

    A new research report from economist Ben Simpfendorfer at the Royal Bank of Scotland, which has invested $3.3 billion in a 10 per cent stake in the Bank of China, says: "The Chinese economy has reached a turning point."

    For two decades "the fast growing coastal provinces imported cheap capital, labour and raw materials from the slow growing interior provinces. But times have changed".

    Labour shortages began emerging in 2005 and wage inflation is rising as a result, says Simpfendorfer. Last year, the price of food began rising rapidly, with consumption also surging along with wages growth.

    Inflation is thus heading higher. "Sure, slower domestic and slower global growth may help to temporarily curb a rising consumer price index. However, a structural tightening in the supply of labour and raw material inputs means a repeat of the deflation in the 1990s is very unlikely."

    Countries whose imports from China account for the greatest share of total imports are most vulnerable to the resulting rising import prices. The RBS lists these, using unusually conservative figures: Japan, with China accounting, it says, for just over 20 per cent of its imports; the US and South Korea, just over 15 per cent; then Australia at 14 per cent; followed by New Zealand, Malaysia, Singapore, Indonesia and Thailand. Thus, most of Australia's major trading partners are among those at greatest risk.

    UBS Securities Asia chief economist Jonathan Anderson says that US Bureau of Labour statistics show the price of imports from China, which were falling until the middle of last year, growing by 2.5 per cent since then, still below US inflation but rising rapidly.

    He questions these statistics, saying: "Chinese export prices are rising but have been doing so for some time."

    The Chinese Government is working to rein in such inflation, driven mainly by food prices, but without much success to date.

    Moody's regional economist Sumei Tang says: "Beijing appears to be adjusting its macro-economic policies, in particular, speeding up the pace of appreciation of the yuan and increasing currency flexibility to address the threat of inflation (because) it has failed to contain prices using monetary tightening and other administrative measures."

    She warns that the alternative is "to let the spiral escalate". With wage demands chasing a rising cost of living it has been shown that "once inflation appears, it is very hard to get rid of".

    Besides the soaring cost of food, the other major contributor to wage inflation, increasingly cited by many industrial employers in China, is the new labour contract law, approved by China's parliament last year and introduced on January 1. This, combined with a fall in the numbers of those migrating for work from inland China to the manufacturing centres on the coast, is driving wages up rapidly.

    Hong Kong and Taiwan-owned companies, which have driven Chinese industrial growth for decades, have registered particular concern about the effect of the new labour regulations, which require companies to give open-ended contracts to all those who have worked there for 10 years or have completed two fixed-term contracts.
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