Tuesday, April 5, 2011

China Raises Rates, Manufacturing Costs Force Factories to Move Out

China raises rates to tackle inflation
The central bank said the official one-year lending and deposit rates would be increased by 25 basis points from Wednesday, raising the deposit rate to 3.25 per cent and the lending rate to 6.31 per cent.

Analysts said the increase came earlier than many anticipated and suggested that price rises for March, to be published next week, were probably higher than expected. Consumer price inflation in China rose 4.9 per cent in February from a year earlier, the same as in January.

But politically sensitive food prices accelerated and producer prices increased 7.2 per cent, their most since October 2008. Even after the latest rise in official rates, the return on bank deposits in China is deeply negative once adjusted for inflation
As to the last line, join the club.

Not cheap or cheerful: south China's new paradigm
Some 30 to 40 percent of migrant workers didn't return to their factory jobs in Guangdong province's Pearl River Delta manufacturing heartland after the annual Lunar New Year holiday in February, said Stanley Lau, deputy chairman of the Hong Kong Federation of Industries. Typically the proportion is 10 to 15 percent.
"I don't know of any factory in China that can absorb both the raw material prices we have, the labor issues we've been looking at and the renminbi," China's strengthening currency, said Hubbs. The currency is also known as the yuan.
He's joining a wave of export manufacturers, big and small, that are moving from China's coastal manufacturing regions to cheaper inland provinces or out of the country altogether, in a clear sign that southern China's days as a low-cost manufacturing powerhouse are numbered.
The crash is precipitated by players heading for the exits.

The bubble is creating its own perfect storm.

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