month in review • LoCaL VoICES
companies are cushioning consumers
from increasing input prices – but how long can they hold out?
Price takers A
Chinese
s the cost of raw materials and labor creeps steadily upwards, many Chinese compa- nies are finding they have nowhere to run.
With the government pressuring companies to keep prices stable or capping them outright, mar- gins can only shrink so far before businesses start to topple. Among the companies interviewed by China
Economic Review, some did report price hikes, but none said they raised prices enough to offset the increase in costs. Tis should be a worrying trend: Despite China’s reverence for Lei Feng, the Communist Party’s answer to Robin Hood, no one makes cooking oil as a public service. Man- agement responses suggest many companies will report slimmer profits this spring, and some could even be shuttering their businesses.
Mr. Wang, vice president of Jiangsu Huada Group, a plastics manufacturer with more than 1,000 employees
Te prices of our primary materials have increased about 30%, mainly due to the rising price of oil, and we’ve had to raise salaries by about 20%. We’ve increased our prices about 5-6% in response, about
the same as our competitors. Te increase in costs has been a big shock for us, and our profits have fallen a lot. However, our relationship with our customers hasn’t changed, since we have fixed partnership agreements. Stable oil prices would be the best fix for us, but the government obviously can’t control that – it can only offer oil subsidies or some preferential policies.
Li Tong, director of ShiMin Software, an outsourcing software development compa- ny with 60 employees
As a software company, our major cost is human resources, and that has increased dramatically. For a junior level engineer, for example, the salary has gone up more than 10%. Human resources ac- count for around 50-60% of our total costs, so our gross margin is definitely shrinking. However, we haven’t transferred the increase in cost to consum- ers, because competition is too intense. In the out- sourcing industry, suppliers tend to be small and have similar products, so they have little bargain- ing power with big purchasers.
Du Jiang, business manager at Shanghai China Coal, a division of China Resources Power Holdings with about 30 employees
Te price of coal has gone up about 7% from last year – a fairly mild increase – and we’ve raised prices about 2-3%. Most of our customers are power plants, so we’ve seen basically no change in our business. Electricity is tightly controlled by the government, and there have been no price increas- es. But there is a chance prices will increase slightly in the future. I think the government should use some indirect methods to tighten liquidity, like al- locating resources more fairly, adjusting the inter- est rate, and controlling the foreign exchange rate. Te coal industry is already closely supervised by the government, so there’s no need for additional oversight.
A marketing manager at Jeanswest, the mainland China flagship of Glorious Sun En- terprises
GETTING HIGH: Lifting retail gas prices
14 China Economic Review • May 2011
We’ve heard the term “inflation expectations” for almost one year. I think it’s no longer an expecta- tion, it’s a reality. Te price of food and cooking oil has obviously gone up. Te price of our main raw materials, like cotton and down, goes up every year but the increase has been especially strong in the past two years – the price of cotton went up 50% last year. Because the cost of raw materials and labor has risen, we’ve had to make some changes
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